HL Deb 03 June 2003 vol 648 cc1160-3

2.53 p.m.

Lord Peyton of Yeovil asked Her Majesty's Government:

Whether they will review the restrictions imposed by the Financial Services Authority under the Money Laundering Regulations 1993, requiring firms to obtain and record sufficient evidence of the identity of their clients, and seek to eliminate those restrictions which obstruct legitimate business without causing any inconvenience to those whose aim is to launder money.

Lord Davies of Oldham

My Lords, the Financial Services Authority has statutory powers under the Financial Services and Markets Act 2000 to issue rules to counter money laundering. The rules are consistent with the Money Laundering Regulations 1993, and require financial institutions to obtain satisfactory evidence of a client's identity and to keep records for five years. The regulations are not prescriptive about how identification should be made, and nor are FSA rules. In supervising compliance, the FSA tries to ensure that they are applied in a flexible manner that does not interfere with legitimate business.

Lord Peyton of Yeovil

My Lords, is the Minister aware that he has followed most admirably the criterion for Answers of adding absolutely nothing to what is already known on the subject? Having said that, does he accept that it is common ground between us that money laundering is a disreputable practice to be discouraged? What ought to be common ground as well is that it is undesirable to gum up legitimate business with silly regulations. Does he accept that an example of that is for banks and others, before they open a simple account with people, to require from the customer, actual or intended, proof in the form of a utility bill that they live at the address to which the bank has just addressed their communication? That verges on the barmy.

Lord Davies of Oldham

My Lords, I had never conceived of it as being a Minister's job to educate the House, but merely to reply to Questions in the way in which they had been phrased. The rules are not prescriptive. One or two financial institutions have asked for evidence along the lines that the noble Lord suggests, but that is not required by any legislation, including the FSA rules. Guidance is being issued that indicates that, so long as proper identification is established, the means by which that is achieved is for the institution itself to decide.

Baroness Gardner of Parkes

My Lords, will the Minister see that some advice on the subject goes to, for example, building societies? My recent experience has told me that if I want to open a new account at a building society of which I have already been a customer for many years, it still insists on new identification. It says that that is the law—that in its view it is obliged to do so. When customers ask whether the building society cannot refer to their other account, it says that it is not allowed to do so under the Data Protection Act. It seems that there is great overkill for people who have established accounts. Something should be done to educate such bodies, and perhaps the FSA should do so.

Lord Davies of Oldham

My Lords, as I indicated, the FSA is not responsible for the way in which building societies interpret their need to establish identity. We should return to the main reason for the requirements and rules. It will be recognised that money laundering is not only a heinous offence but, in this day and age, can be a way to sustain international terrorism. Therefore it is only right that we employ requirements of full rigour with regard to institutions. However, the noble Baroness indicated where building societies might look at the matter again.

Lord Newby

My Lords, does the Minister accept that banks and building societies routinely require the procedures already mentioned because they believe, rightly or wrongly, that they are legal requirements with legal deadlines? No doubt many noble Lords other than myself who have long-standing accounts with banks and other financial institutions have, like me, been required to turn up bearing passports and a utility bill to prove who they are.

Does the noble Lord accept that such box-ticking will frankly be completely useless in dealing with sophisticated money launderers? Does he further accept that it is more important that the FSA issues guidelines about how members of staff of banks and other financial institutions follow due diligence beyond mere box-ticking, to check that people who come through the front door are not potential money launderers?

Lord Davies of Oldham

My Lords, I have considerable sympathy with the sentiments expressed by the noble Lord. The exercise is not meant to a box-ticking one, but to ensure that the identity of the person concerned with opening or transferring moneys between accounts is obtained accurately. I assure him that the Financial Services Authority is all too well aware of the fact that there are areas of some confusion. It, too, is eager to emphasise not box-ticking but efficacy. He is absolutely right to say that the rules are intended to control significant abuse, and we solve that problem not by mindless box-ticking but by an intelligent approach to establishing proper identity.

Lord Monson

My Lords, does the Minister agree that although it may be perfectly sensible to require people investing £10,000 or £20,000 to produce a certified copy of their passport and a utility bill, it is quite ridiculous to require people investing £500 or £1,000 to go to such trouble and expense? Money launderers do not deal in such small sums.

Lord Davies of Oldham

My Lords, the noble Lord may have greater experience of the phenomenon than I have. I am not too sure that we could establish anything in terms of accounts. Surely we have to establish the identity of the person opening the account.

Lord Saatchi

My Lords, is not—

Lord Hughes of Woodside

My Lords, if there were no checks on identity or addresses, I could easily register an account in perhaps the names of noble Lords of substantial means.

A Noble Lord

The rich ones.

Lord Hughes of Woodside

My Lords, I shall not point in any direction. There may be some on my own side, for all I know.

If by chance a cheque in the name of one of those noble Lords was mistakenly put in my mail box, I could happily collect it. I am sure that they would complain bitterly if I were to assume their identity.

Lord Davies of Oldham

My Lords, I hope that I detected a rather large hypothesis in the noble Lord's contribution. He is right that we need rules and regulations to guard against any form of fraud or money laundering. Noble Lords will be aware that there has been increased sensitivity in recent years because of laundering, which provides international terrorists with opportunities to get their hands on increased amounts of money, and because there have been one or two notorious cases involving substantial movements of money into this country. It was very important indeed that the regulations were in place.