Economic Secretary speech on illicit finance
The Economic Secretary delivered a speech at Chatham House on work to tackle illicit finance and combat economic crime
Good morning everyone.
In my ministerial career I’ve spoken under the Chatham House Rule on more occasions than I can remember, but this is the first time I’ve been asked to speak in Chatham House itself, so it’s a great honour to be here today.
As any student of international relations will tell you, one of the defining features of British foreign policy is the understanding that our prosperity and security are entirely and inextricably bound together, at home and overseas.
Sometimes it’s very easy to lose sight of that in Whitehall or the Square Mile, but one only needs to look to the shipping lanes of the Strait of Hormuz to see that co-dependence in action right now.
And yet our duty to protect our nation’s prosperity is every bit as critical in the financial realm as the physical realm.
I’m sure this audience is familiar with that argument, so I don’t intend to labour the point with a slew of facts and figures.
But I do want to impress on you the extent to which this is a priority for the Government and a personal priority of mine.
I say this both as City Minister, and through my experience as Member of Parliament for Salisbury in the wake of last year’s poisonings.
I’ve seen both sides of the coin. The openness and attractiveness of the UK as a destination for foreign capital is one of our economy’s great strengths. But we can’t allow those who wish us harm to hide their money in plain sight.
In the case of Salisbury, it was a malicious state-backed actor - but tolerance of any illicit financing from dubious sources poses a range of security challenges.
The same applies to terrorism, drugs and people-trafficking. Some of these challenges are driven by the desire to make money. Others are made possible by money. In either case, the financial element must be front and centre in our response.
But tackling dirty money isn’t just about keeping corporate balance sheets clean – it’s about the wellbeing of real people.
London Capital & Finance is the latest high-profile example that illustrates the misery that economic crime causes. I’ve met some of the victims in my surgeries in Salisbury, and their stories are truly heart-breaking.
So I’m pleased to see the topic of trust on your agenda today. In these polarised times, our financial system and democratic institutions are under greater scrutiny than ever before.
Consumers need to know their money is safe. But more than that, they need to know that the system works in the interests of the hard-working, law-abiding majority, and it’s beholden on government and industry alike to ensure that remains the case.
Last week I was fortunate to visit the headquarters of the National Economic Crime Centre in Vauxhall.
I heard about old-style crooks who still try to sneak large wads of bundled notes in and out of the country.
But I also heard about a new breed of organised criminal – more sophisticated and more inventive than ever before.
Just recently we’ve begun to see foreign criminal gangs co-opting international students at British universities in order to launder money through UK banks.
Our opponents are continually on the move, on the hunt for any chink in our armour they can find.
I’d like to express my appreciation for the men and women at the National Economic Crime Centre, and from across law enforcement and prosecution agencies. Theirs is a relentless and often a thankless task. Each time they put a stop to one scam, another appears somewhere else, like some nightmarish game of whack-a-mole.
We’re fortunate to have such dedicated public servants – including the Police who have been working so hard to keep the Square Mile open during recent protests.
But they can’t do it alone, and the growing scope and scale of the challenge demands a step change in how we respond.
The good news is that the UK already has one of the toughest and most effective approaches to economic crime in the world, having last year achieved the highest ratings of any jurisdiction so far by the Financial Action Task Force (FATF).
I weigh my words very carefully. I know FATF is not without its critics. It’s not perfect, but it’s the best lever we have. And having gone through the process last year, I can tell you it works.
The UK submitted itself for evaluation willingly, but it was by no means a walk in the park.
We had wanted to demonstrate what we believed were the strengths of the UK’s system, but we found ourselves being held to account for our weaker points.
It was tough. It was rigorous. It was uncomfortable. But it was worth it. And while I must confess it was a relief to emerge with a top score, I can assure you there is no sense of complacency whatsoever.
The Task Force did make several recommendations about how the UK can further strengthen our approach to economic crime, most prominently in relation to Suspicious Activities Reports – SARs- and the effectiveness of our anti-money laundering supervision framework.
The Government’s response to these recommendations, along with those made by the Treasury Select Committee, have been brought together in the Economic Crime Plan, which was published in July.
And what I thought I could most usefully do this morning is highlight three key elements that underpin both the Plan and the Government’s approach.
First is a recognition of the need for far greater and easier collaboration between the public and private sectors.
Of course, policy for tackling economic crime must be set by government – and law enforcement and regulators will continue to hold the private sector to account.
But we also need to recognise that the private sector is the first line of our defence.
Businesses have the power to prevent criminals accessing our financial system. It is they who are often best placed to spot something amiss.
While at the National Economic Crime Centre last week, I also visited the UK Financial Intelligence Unit to see the current process for reporting suspicious activity.
In one case of mortgage fraud, officers had painstakingly analysed some 50 different Suspicious Activity Reports in order to identify a single individual at the centre of a complex network.
It was encouraging to see serious economic crime being tackled in this way. However, it was also clear that FATF were right in saying we need to replace the IT we currently use to handle Suspicious Activity Reports, and we have a programme in place to do that.
More broadly, with the banking sector alone forking out £5 billion a year to tackle economic crime, it’s right that government and business pull in the same direction to make that money count.
Ever-growing volumes of data, for example, can play a huge role to help us prevent and investigate economic crime, and I know that this afternoon you will be discussing the role of big data and AI.
But to use these new tools, we need to do much more to break down the barriers that prevent us from working together effectively.
FATF rightly recognised the effectiveness of the Joint Money Laundering Intelligence Taskforce in their assessment.
Since its inception, it has supported more than 600 investigations, contributing to 150 arrests and the seizure or restraints of more than £34 million. Proof that better and faster intelligence can give law enforcement agencies the upper hand.
As for anti-money laundering, we are working to ensure a strong and collaborative supervision regime.
I meet regularly with the Financial Conduct Authority and HMRC, as well as the professional body supervisors.
I want us to up our game across the whole supervision regime, but I am particularly focused on ensuring higher, more consistent, supervision of so-called professional enablers: the very small minority of lawyers, accountants, estate agents and others who fall short of the honesty and integrity that the public expect and, in doing so, let their colleagues down.
I am encouraged by the progress being made by in this area by OPBAS and the regulators, while recognising that there is still a long way to go.
Closely allied to this is my second point, which is the need to keep pace with the way technology is transforming the financial services industry.
FinTech is making our economy more open and connected. A dizzying range of services are now available that allow anyone to send money anywhere in the world at the touch of a button. Our job is to make sure that the right people feel the benefit.
We need to take a proportionate approach that doesn’t unnecessarily burden some of our most exciting and enterprising tech firms, while ensuring that consumers are protected, and all parts of the sector play their part to keep our economy safe.
Crypto assets are a case in point.
It’s high time that crypto asset exchanges and custodian wallet providers are brought into the scope of our anti-money laundering legislation and counter-terrorist finance supervision regime.
We have also consulted on going further, bringing all relevant firms and activities into scope to meet the latest FATF standards. This will support the development of a world leading regime that will ensure the integrity of this growing sector.
Third and finally, we must recognise that the UK cannot act in isolation.
I’m pleased that in my 21 months at the Treasury, the UK has been working with a range of countries: United States, China, Cyprus, Latvia, Botswana, New Zealand, Germany, Kosovo and Cayman to name just a few.
In each case, we want to share our experience – but we also want to learn from our partners.
As one of the world’s leading global centres, and as a magnet for overseas capital, I also believe the UK has a special responsibility to the developing world.
Bribery and corruption stymie our efforts to tackle poverty and hinders long-term sustainable growth.
The UK Prosperity Fund has already made available more than £44 million to help tackle corruption in support of the UN Sustainable Development Goals.
We are also working with FATF and its global network, together with the World Bank, the United Nations Office for Drugs and Crime and other multi-national organisations to provide a holistic package of support to developing countries.
To date this has focused on improving understanding and compliance with international standards on money laundering, capacity building within law enforcement and designing out the opportunities for corrupt behaviour.
As I see it, this is an area of natural leadership for our country.
Not only are we a leading global financial centre but we are one of the few countries to meet the UN target on development spending.
And, let’s not forget, sustainable development is the foundation for global security, so it’s in our self-interest to ensure the integrity of the system upon which our own prosperity depends.
And this leads me to my concluding remarks.
As I hope I have conveyed, a rigorous mutual evaluation by the Financial Action Task Force is the beginning, not the end, of a journey.
We start from a position of strength, and with the Economic Crime Plan, we have a clear way forward.
And if I have one concluding message for you this morning it is that Brexit must not - and will not - knock us off course.
There will be no weakening of our resolve. If anything, Brexit must be the spur to go further.
Our competitiveness, our economic strength as a nation, is predicated on being a safe place to do business.
And if we do wish to forge new economic partnerships around the world, and if we are to conquer the markets of the future, then we need to ensure this remains the case.
This goal requires a team effort, shared across the private and public sector, with civil society, and between the UK and our international partners.
I believe the UK’s Economic Crime Plan gives us the basis to do just that.
And I look forward to working with you – our colleagues and partners – to make it a reality.