Speech: Economic Secretary speech on illicit finance

Hm Treasury

October 17
10:34 2019

Good morning everyone.

In my ministerial career Ive spoken under the Chatham House Rule on more occasions than I can remember, but this is the first time Ive been asked to speak in Chatham House itself, so its 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 its 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 nations prosperity is every bit as critical in the financial realm as the physical realm.

Im sure this audience is familiar with that argument, so I dont 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 years poisonings.

Ive seen both sides of the coin. The openness and attractiveness of the UK as a destination for foreign capital is one of our economys great strengths. But we cant 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 isnt just about keeping corporate balance sheets clean its about the wellbeing of real people.

London Capital & Finance is the latest high-profile example that illustrates the misery that economic crime causes. Ive met some of the victims in my surgeries in Salisbury, and their stories are truly heart-breaking.

So Im 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 its 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 weve 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.

Id 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.

Were 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 cant 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. Its not perfect, but its 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 UKs 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 Governments 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 Governments 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, its 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 doesnt 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.

Its 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

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