APPENDIX 2: COUNTER-TERRORISM BILL —
GOVERNMENT AMENDMENTS
Supplementary memorandum by HM Treasury
Power: To
give a direction to persons in the financial sector relating to
the risk of money laundering, terrorist financing or nuclear,
radiological, biological or chemical weapon proliferation. The
direction is contained in an order where it is given to a description
of such person or all persons operating in that sector.
Body: Treasury.
Parliamentary scrutiny:
For orders, affirmative resolution where the direction is
to limit or cease to do business with a designated person, otherwise
negative resolution procedure. Orders revoking an order or making
its provisions less onerous are subject to negative resolution
procedure. No parliamentary scrutiny of directions not contained
in an order.
1. The amendment inserts a new Schedule (terrorist
financing and money laundering) which creates a power for the
Treasury to give directions to the financial sector relating to
risks of money laundering, terrorist financing and the development
of nuclear, radiological, biological or chemical weapons being
carried on in another (non-EEA) country.
2. The directions may provide for measures to
be taken relating to a person carrying on business in the country,
the government of such a country or a person resident or incorporated
in such a country (a "designated person").
3. Part 1 of the Schedule provides that the Treasury
may make a direction if one or more of three conditions which
relate to designated persons is met. The conditions are: (a) the
Financial Action Task Force ("FATF") has decided that
measures should be taken against the country because of the risk
of terrorist financing or money laundering; (b) the Treasury reasonably
believe that there is a risk of terrorist financing or money
laundering activities being carried on and that that poses a significant
risk to the national interests of the United Kingdom; or (c) the
Treasury reasonably believe that (i) the development or production
of nuclear, radiological, biological or chemical weapons in a
country, or (ii) the doing in a country of anything that facilitates
the development or production of any such weapons poses a significant
risk to the national interests of the United Kingdom (see paragraph
1 of the Schedule).
4. Paragraph 3 in Part 2 of the Schedule provides
that the direction may be given to a particular person operating
in the financial sector, any description of such persons or all
persons operating in that sector, and different provisions may
be made in relation to different descriptions of persons ('relevant
persons'). These may be credit institutions or financial institutions,
and this Part contains detailed provision about the kinds of institutions
to whom directions may be given. The Part includes an enabling
power to amend the definitions, as outlined further below.
5. Part 3 of the Schedule sets out the requirements
that may be imposed by a direction. These are:
a) customer due diligence - to take enhanced
customer due diligence measures before entering into a transaction
or business relationship with a designated person and during such
a relationship (see paragraph 10);
b) ongoing monitoring - to undertake enhanced
ongoing monitoring of any business relationship with a designated
person (see paragraph 11);
c) systematic reporting - to provide information
and documents relating to transactions and business relationships
with designated persons (see paragraph 12);
d) limiting or ceasing business - not to enter
into, or continue to participate in, transactions or business
relationships with a designated person (see paragraph 13).
6. The purpose of the direction-making power
is to enable the UK to apply measures in respect of non-EEA countries
which are failing to take action to prevent terrorist financing
or money laundering, either in accordance with a recommendation
of the FATF or, where action at international level cannot be
agreed, unilaterally. In addition the power enables the Treasury
to apply financial restrictions to prevent the UK financial system
being used to support nuclear, radiological, biological or chemical
weapon proliferation.
7. Part 4 of the Schedule sets out the procedure
for making directions.
8. Where a direction is given to a description
of persons or all persons in the financial sector, paragraph 14
of the Schedule provides that the direction must be contained
in an order made by the Treasury. The parliamentary scrutiny procedure
depends upon the contents of the order.
9. Where the order contains requirements to limit
or cease business, the order must be laid before Parliament after
being made and if not approved by a resolution of each House of
Parliament before the end of 28 days, ceases to have effect.
10. The requirement for an affirmative procedure
to be used for orders containing directions which limit or cease
business relationships reflects that these requirements affect
the business relationship itself and are likely to have a greater
impact on the persons affected.
11. Paragraph 17 gives the Treasury power to
grant a licence to exempt acts specified in the licence from a
direction limiting or ceasing business.
12. An order containing requirements relating
to due diligence, monitoring or reporting is subject to the negative
resolution procedure. This reflects the difference between these
provisions which impose burdens corresponding to a heightened
risk of doing business with the designated persons, and the provision
subject to the affirmative resolution procedure which limits or
requires the ceasing of business, in response to a more severe
risk.
13. Paragraph 14(5) provides that if, apart from
this sub-paragraph, an order would be treated as a hybrid instrument,
it is to proceed as if it were not such an instrument. An order
may contain directions to a particular description of persons
operating in the financial sector. It may be argued that the order
affects some members of a group more than other members of the
same group, and therefore that the special procedure for hybrid
instruments applies. It is considered that it would be undesirable
for such a procedure to apply to an order under these powers as
it is likely that where such an order is required it will be needed
urgently. A similar provision was included in section 13 of the
Anti-terrorism, Crime and Security Act 2001 in relation to freezing
orders.
14. The Treasury must take appropriate steps
to publicise directions contained in orders and to publicise their
revocation or variation (see paragraph 16(2)). Any order revoking
an order or varying it so as to make its provisions less onerous
is subject to negative resolution procedure (see paragraph 16(3)).
15. Where a direction is given to a particular
person (as opposed to a description of persons or the whole financial
sector), the Treasury is not required to make an order, but must
give notice of the direction to that person. A direction is likely
to be given to a particular person where the Treasury is concerned
that the person is particularly exposed to the risk in point or
does not have adequate controls in place to deal with that risk,
but the nature of the risk does not require that the measures
apply more generally.
16. Any direction ceases to have effect one year
after being made. Any person affected by a direction may apply
to the High Court or, in Scotland, the Court of Session to have
it set aside. Part 5 of the Bill (financial restrictions proceedings),
which makes provision in relation to Court proceedings, will apply
in respect of such an application.
Power: To
make an order amending definitions in the Schedule relating to
persons operating in the financial sector.
Body: Treasury.
Parliamentary scrutiny:
Negative resolution procedure.
17. As mentioned above, Part 2 defines persons
operating in the financial sector (and who therefore may be subject
to a direction). It includes a power for the Treasury, by order
subject to negative resolution procedure, to amend the paragraphs
defining who is a person operating in the financial sector for
the purpose of the Schedule. The provisions in Part 2 are closely
based on the Third Money Laundering Directive and the Money Laundering
Regulations 2007 (SI 2007/2157). It is likely that the various
directives to which reference is made (including the banking consolidation
directive, the life assurance directive and the markets in financial
instruments directive) will be amended on a regular basis. In
addition, provisions in statutory instruments are utilised for
the purposes of the definition (in particular the Financial Services
and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2000/544)
and the Financial Services and Markets Act 2000 (Exemption) Order
2001(SI 2001/1201). These instruments are also likely to be amended.
It is therefore considered desirable to enable the Treasury to
update the definitions to reflect changes made to these provisions,
and thereby ensure that the definitions used for the purposes
of the powers in these amendments remain consistent with those
used more generally for anti-money laundering regulatory purposes.
In view of the technical nature of the way in which it is intended
to exercise this power, it is considered that the negative resolution
procedure is appropriate.
Power: To make
an order varying the relevant appeal body.
Body: Treasury.
Parliamentary scrutiny:
Negative resolution procedure.
18. Part 5 of the Schedule contains enforcement
provisions relating to information gathering. Paragraph 19 enables
an enforcement officer acting on behalf of an enforcement authority
by notice to a relevant person to require the person to provide
specified information or documents. The enforcement authorities
listed in paragraph 18 are the Financial Services Authority, HM
Revenue and Customs, the Office of Fair Trading, and the Department
of Enterprise, Trade and Investment in Northern Ireland.
19. Part 6 of the Schedule gives an enforcement
authority power to impose civil penalties on persons who fail
to comply with requirements imposed by a direction under the Schedule
or with the conditions of a licence granted under paragraph 17.
This Part includes provisions about appeals to the First-tier
Tribunal or the Upper Tribunal (within the meaning of the Tribunals,
Courts and Enforcement Act 2007).
20. Paragraph 28(6) gives the Treasury power
to make an order, subject to negative resolution procedure, to
provide that instead of appeals to the First-tier or Upper Tribunal,
appeals in respect of decisions of the enforcement authorities
are to be made, in the case of HMRC decisions, to the VAT and
duties tribunal; in the case of FSA decisions, to the Financial
Services and Markets Tribunal and in the case of OFT decisions,
to the Consumer Credit Tribunal. Paragraph 28(7) enables any such
order to provide that any enactment applies (with or without modifications)
in relation to the appeals.
21. This order-making power is included because
the Ministry of Justice is in the process of transferring the
functions of those tribunals to the First-tier and Upper Tribunals;
however this process will not be complete by the time the Bill
comes into force.
Power: To
make an Order in Council extending the definition of UK Persons.
Body: Her Majesty
in Council.
Parliamentary scrutiny:
None.
22. Part 7 makes failure to comply with a requirement
imposed by a direction, and certain actions relating to licences,
criminal offences. The effect of paragraphs 4 and 32 is that a
UK person may commit an offence by conduct partly or wholly abroad.
23. Paragraph 43 defines "United Kingdom
person" as a United Kingdom national or body incorporated
or constituted under the law of any part of the United Kingdom.
The provision includes power for Her Majesty, by Order in Council,
to extend the definition of "United Kingdom person"
so as to apply to bodies incorporated or constituted under the
law of any of the Channel Islands, the Isle of Man or any British
overseas territory.
24. The Treasury is required by paragraph 38
to prepare and lay an annual report before Parliament explaining
the exercise of their powers under the Schedule in the previous
year, unless no direction was in force at any time during the
year.
HM Treasury
November 2008
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