Whether money laundering rules relating to Politically Exposed Persons (PEPs) were being applied in a “heavy-handed” way by banks was an issue of debate in the House of Commons on 20 January. National rules to give effect to the provisions of the Fourth Money Laundering Directive will need to be implemented by 26 June 2017. The Directive widens the definition of PEP to include domestic individuals holding prominent positions in their home country and clarifies that enhanced due diligence is always appropriate when transactions involve PEPs.
Representing the Treasury in the debate, Harriet Baldwin MP underlined how the “UK supports a risk-based approach across the EU to identify and deal with PEPs, especially domestic ones”. She did however recognise that some banks “particularly international ones, have already chosen to implement these changes.”
Charles Walker MP, who opened the debate, stated that the purpose of the money laundering regulations is to “target despots and dictators, not law-abiding citizens.” Indeed, MPs argued that the “aggressive application” of money laundering rules to domestic politicians was having a detrimental effect on them, their families and arguably other entities they were involved in, such as charities.
The Minister acknowledged the issue, confirming that the Government is looking into how banks can be encouraged to implement these measures domestically in the most risk-based manner possible. She referred to the recent Cutting Red Tape initiative to ensure regulatory measures were applied in a proportionate manner.
However, despite this call for review the trend appears to be for improved regulation - and sooner! The European Commission recently called for earlier implementation of the Fourth Money Laundering Directive suggesting national governments should have completed the process by the end of this year. (See our related blog, Anti-money laundering - speeding up the pace of change)
Whilst the UK has not committed to any such early implementation – we are waiting for the publication of the draft implementing regulations – this issue remains a political and law enforcement priority. A report last year – the first UK national risk assessment of money laundering and terrorist financing - confirmed that money laundering itself, and the criminality which drives the need to launder money, present a significant risk to the UK. The National Crime Agency’s report suggested that “billions of pounds of suspected proceeds of corruption are laundered through the UK each year.” The UK’s response is well developed, “but more needs to be done to ensure it is commensurate with our status as a well regulated global financial centre”.
An Anti-Money Laundering Action Plan will be produced further to the NCA report. Given this action was identified in the Anti-Corruption plan 2014, we await to see whether this will be unveiled at the Anti-Corruption Summit due to be held in May 2016, led by the Prime Minister.