British banks’ role in the dirty money ‘global laundromat’ – Chancellor absent for urgent question

Irish bank workers marching against austerity
Irish bank workers marching against austerity

ON TUESDAY 21 March Labour shadow Chancellor John McDonnell asked an urgent question of the Chancellor, Hammond, who did not attend the session of parliament to make a reply.

The question was ‘To ask the Chancellor of the Exchequer if he will make a statement on allegations of money laundering against British banks.’ McDonnell said: ‘I hope that the Minister recognises the immense gravity of the situation that we are facing, because I believe that his statement reflects complacency on the part of the Government.

‘Let me go through the allegations, which are of the deepest concern. First, it is alleged that, via an operation referred to as the “global laundromat”, banks based in Britain have been used to launder immense sums of money obtained from criminal activity in Russia linked to the FSB spy agency there.

‘This appears to point to an overwhelming failure of basic management on the part of the banks. One of those banks, HSBC, is an institution that has previously faced money laundering charges in the US and across the globe. The direct intervention of this Government helped to block a 2012 US investigation on the purported grounds of its potential risk to financial stability. Money laundering through London and elsewhere threatens the stability of our financial sector and our economy.

‘In the case of another bank, RBS, the Government directly own a 72% stake. A third bank, Barclays, has been under investigation for its role in LIBOR rigging. Will the Minister give us specific details of what steps are being taken to address this scandal? Can we have an assurance that there is the potential to open criminal proceedings to break up what is effectively a criminal network?

‘Will the Government also undertake that they will not – as they have in the past with HSBC – attempt to intervene in criminal or other investigations taking place elsewhere in the world? The major risk to financial stability is not from investigations intended to clear out criminal activity from our banking system; it is from inactivity on the part of the Government and others, and from failing to act to ensure that our major banks are clean and fit for purpose.

‘Secondly, all those banks claim to have strict internal policies to deal with money laundering. The Financial Conduct Authority places great stress on the need for banks to self-police and create appropriate internal procedures to prevent money laundering. It is obvious from today’s revelations, however, that the current arrangements are not working to prevent widespread, organised and sophisticated criminal activity.

‘Will the Government tell the House what steps they will be taking to address this matter with the FCA? Will the Government today commit to opening an inquiry with a view to reporting rapidly on measures to be taken that will strengthen the regulations, including introducing tighter controls on and closer monitoring of the banks themselves?

‘Finally, when the Government own major stakes in the banks involved – RBS in particular, since they are no longer able to sell off that stake – there is an immediate need for them to reassure taxpayers that publicly owned banks are not indirectly involved in criminal activity. What steps will the Government, as a major shareholder in RBS, take to investigate the allegations against it and to reassure taxpayers?

‘Our banks have been found wanting yet again. Urgent action is needed from the Government to protect the standing of our finance sector and to protect our economy. Complacency and inaction are not good enough.’

City Minister Simon Kirby responded: ‘I assure the right hon. Gentleman that the Government are far from complacent. As I outlined earlier, we have been updating the UK’s money laundering regulations, and I hope that the Criminal Finances Bill, which is currently in the other place, will receive Royal Assent in the near future, creating new powers for enforcement agencies.

‘The FCA takes misconduct seriously and fined Deutsche Bank £163 million only last month. As for whether we should be telling the independent FCA or the NCA what to do, it is worth saying that if the information reveals new findings, the FCA will able to investigate accordingly. It would not be appropriate for me to comment on potential legal proceedings.’

Angela Eagle (Wallasey) (Lab) said: ‘The Economic Secretary has shown real complacency about the huge and building scandal that has been revealed by The Guardian today. Given that our banking sector is very large and that the consequences of its being destabilised by such criminal behaviour are very serious for our economy, does he not realise that his complacent, process-driven answers today are simply not good enough?’

Kirby responded: ‘I do not recognise that at all. The FCA and the NCA are well placed to investigate this, if appropriate. We have not only world-leading financial regulation but world-leading financial services.

‘More than 1 million people across the country are employed in financial services in all our constituencies, and the vast majority of them work hard, do a good job and represent customers as well as they can. We have outlined the measures that the Government are undertaking I have addressed everything that the hon. Member for Wallasey (Ms Eagle) mentioned. This Government are doing more than at any time in the past 10 years to tackle this issue.’

Rishi Sunak (Richmond (Yorks)) (Con) said: ‘Given the overlap between money laundering networks and terrorist financing networks, does my hon. Friend agree that this is also an issue of national security and that, furthermore, the only way we can tackle it is with greater information sharing between the private sector, regulatory bodies and enforcement agencies?’

John Mann (Bassetlaw) (Lab) said: ‘To counter the impression that he has been promoted beyond his competence, can the Minister tell us which British banks have been convicted of money laundering over the past five years? What specific, individual thing has he learned from reading those judgments?’

Kirby responded: ‘I can tell the hon. Member for Bassetlaw (John Mann) that the FCA has carried out a number of enforcement actions, both large and small, over a large number of different financial services. It is right and proper that a balance between fairness and responsible behaviour is struck at all times.’

Jake Berry (Rossendale and Darwen) (Con) said: ‘If these allegations are proven, particularly against a bank in which the Government own a majority stake, will my hon. Friend commit to using the full powers of the Criminal Finances Bill to clamp down on this type of money laundering, which, if proven, will be a national disgrace and scandal?

‘It is worth saying that our shareholding in a number of banks is at arm’s length. We are not operationally in control, as is right and proper. The important thing is that we learn lessons from the past and make sure that the past is not repeated.’

Helen Goodman (Bishop Auckland) (Lab) asked: ‘Has the Minister discussed the matter with the former Chancellor, the right hon. Member for Tatton (Mr Osborne), who the US House of Representatives found intervened with the American authorities to prevent HSBC from being prosecuted in 2012? What has the FCA specifically done since the “global laundromat” was discovered in 2013?’

Simon Kirby responded: ‘I have not had that conversation with my right hon. Friend. It is fair to say that the FCA has carried out a number of investigations, and it is right and proper that it does so. The FCA is an independent operational body that we set up as asked, and it would not be appropriate for me to comment.’

Mr Jonathan Djanogly (Huntingdon) (Con) said: ‘It seems to me, and to many others, that there is an unwritten deal here: that Russians and others of dubious or illegal means can essentially come to this country, send their kids to our schools, buy our real estate or our sports clubs and get involved in this country on the basis – this is the other side of the deal – that they do no wrong while they are here.

‘That is not an acceptable way forward, if it ever was. Is it not now time to rethink this issue?’

Sammy Wilson (East Antrim) (DUP) said: ‘To a long list of misdemeanours committed by the banks for which directors have not been held responsible, we now have this allegation of extensive laundering of funds that were either stolen or of criminal origin.

‘One of the explanations that has been given is that directors of banks see compliance as an expense with no return. Can the Minister assure us that the allegations will be properly investigated by criminal investigators and that, if it is found that directors have encouraged slack compliance for the profit of their bank, they will feel the full weight of the law and realise that slack compliance has a cost in their personal lives?’

Minister Kirby responded: ‘The hon. Gentleman is absolutely right that in this country we have not only a world-regarded financial regulation system but a rule of law that is both fair and effective. If there is any wrongdoing or impropriety, it is right and proper that those people face the full weight of the law.’

Philip Hollobone (Kettering) (Con) asked: ‘How many money launderers have been sent to prison in the past five years?’ Kirby responded: ‘I am not aware of the exact answer to that question, but I will write to my hon. Friend with all the information I have. I am convinced that, across the world and in this country, money laundering is taken very seriously.’

Rushanara Ali (Bethnal Green and Bow) (Lab) asked: ‘Why the Chancellor is not here, because, frankly, the Minister’s answers today have been appalling? Some £80 billion could have been laundered, according to this story. Should we not think again about the powers the FCA and other regulators have to prevent these things from happening? Can he please answer some questions?’

Kirby answered: ‘I am very sorry, but I have been doing my very best to answer the questions that have been asked. Sadly, I cannot be held responsible for the quality or the content of the questions.’