UK’s Osborne Exempts Members of Parliament, Other “Politically Exposed Persons” From Money Laundering Oversight

You cannot make this up. So much for that rule of law thingie. Hat tip Guido Fakwes via Richard Smith:

This was the argument used to justify giving Members of Parliament and their families a free pass from money laundering. Note that the Daily Mail clearly signals its skepticism in this story from January:

Britain’s banks have been accused of hounding MPs’ children, parents, grandparents and even in-laws in a crackdown aimed at curbing fraud by corrupt African dictators.

They have threatened to shut the bank accounts of MPs and their relatives – on suspicion of being linked to terrorism and international money laundering.

And up to 150,000 people – those with any family link to all national and local politicians, civil servants, Army officers, City workers, financiers and diplomats – could have their money seized.

That is the remarkable claim made by senior Conservative MP Charles Walker.

He led a Commons debate last Thursday to demand action to stop ‘heavy-handed’ British banks using new international anti-money laundering rules to threaten people who happen to be related to someone in public life…

Mr Walker said last night: ‘It is ridiculously heavy-handed for banks to treat British MPs and their families in this aggressive way. They should be targeting crooked despots and dictators, not MPs’ grannies.’

Ahem. I consider myself to lead a sheltered life. Even so, I know two people personally who were charged with securities fraud, and both used relatives to perpetrate it, one a cousin, the other a mother-in-law. To act as if it’s unreasonable to investigate relatives is barmy. As a normal retail customer, I find it remarkably cumbersome to transfer money overseas when I want to pay someone who writes for the site. If I were in the UK and in a similar position (needing to wire money abroad from time to time and made to go through all kinds of hoops to do so), I’d be particularly upset at the double standard. Needless to say, the commentariat at Guido Fawkes is none too happy.

Osborne accepted the amendment to the “Bank of England and Financial Services Bill”.

Update 6:20 AM: Guido Fawkes is mixed as a source, but our Richard Smith vetted this story. In case you have any doubts re veracity, The Mirror now has an article up. Key section:

The Chancellor has caved under pressure from influential Tory Charles Walker, who last week refused to reveal his tax returns

George Osborne has agreed to make MPs exempt from anti-money laundering checks under pressure from moaning Tory backbenchers.

Tory MP Charles Walker claimed MPs and their families were being treated like “African despots”.

MPs appear on automatic watch lists of “Politically Exposed Persons” (PEP), used by banks to prevent money being funnelled into criminal gangs or hidden in offshore tax havens.

It means MPs and their families could be subject to extra checks on their bank accounts.

But the Chancellor said banks could go too far and become “disproportionate.”

Ministers will now move to exclude MPs from the watch lists in the forthcoming Bank of England bill.

Mr Osborne caved under pressure from influential Tory backbencher Charles Walker, who has been pressing for the change for some months.

Mr Walker, who chairs the 1922 Committee of backbench Tory MPs, last week threatened to table a bill banning curtains if he was forced to publish his tax returns.

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      1. RUKidding

        There are so many that it’s hard to keep track. You are forgiven for your error. And anyway, your first statement may also be correct. Who knows.

  1. ambrit

    Coming soon to a gated community near you!
    The basic idea, that some classes of people are “special,” underlies every corrupt governing system that ever was. America is embarked upon a similar ‘experiment;’ the deification of the “Security Services,” in service to various ‘elites.’ The history of the Roman Empire should put the lie to that ideology.

  2. Michael Robinson

    Sorry, but the premise and factual basis of this post is completely wrong, and the headline extraordinarily misleading.

    The amendment in question is not about excluding anyone from “money laundering oversight”.

    The amendment in question is about taking a “a proportional, risk-based and differentiated approach” to categorizing people as “Politically Exposed Persons”, who are subject to much higher and more burdensome “know your customer” requirements.

    “Politically Exposed Persons”, as a concept and enforcement regime, is motivated by an international desire to deter kleptocracy. The institutional barriers preventing, say, the parents or children of a random MP from East Somewhere on Middling Body of Water from diverting public assets are already extremely rigorous, and forcing their banking institutions to conduct the same sort of enhanced scrutiny for them as for the offspring of a Central African or Central Asian dictator, well, that’s just absurd.

    Nobody is being exempted here from the usual money laundering oversight that you or me or any other normal person is subject to.

    And this amendment is about restoring a bit of sanity.

    1. Yves Smith Post author

      The Mirror does not agree with you, per our update and international tax haven/money laundering expert Nicholas Shaxson just retweeted the post, showing that he concurs.

    2. Lambert Strether

      Without prejudice to those with actual expertise, when I hear language like “a proportional, risk-based and differentiated approach” I wonder what the scam is. Of course, “two countries separated by a common language.”

    3. bob

      ““Politically Exposed Persons”, as a concept and enforcement regime, is motivated by an international desire to deter kleptocracy.”

      Shorter- Aristocracy. The queen agrees.

    4. Richard Smith

      The problem is, no-one’s ‘forced’ the banks (HSBC, Lloyds, Barclays, RBS and their respective post-2008 brands) to take their highly inclusive approach to definition of a PEP. They’re just all doing it anyway (presumably on the same legal advice).

      UK Banks are already well aware of the required risk-based approach to AML, but they haven’t shown themselves capable of implementing it. You can read the FATF on the subject back in October, here:

      “What is not in line with the FATF standards is the wholesale cutting loose of entire countries and classes of customer, without taking into account, seriously and comprehensively, their level of money laundering and terrorist financing risk and applicable risk mitigation measures for those countries and for customers within a particular sector.”

      Note in particular that it’s not just MPs who are getting this kind of treatment. Here’s Iraj Hashi, 2015:

      “An economics professor awarded an MBE for his role in helping to rebuild war-torn Kosovo has had his NatWest current account, savings accounts and credit card shut down with no explanation, despite having been with the bank for 40 years.”

      Or you could try picking the bits out of this story of a bemused big-time donor to the Tory party:

      “Wafic Saïd, the billionaire philanthropist and arms deal fixer, is considering legal action against Barclays after the bank forced him to close his personal accounts and those associated with his charities and business ventures.”

      Or there’s a whole slew of non-PEPs whose HSBC accounts were closed, without explanation here, here and here.

      Short form: it’s not really the PEP definition that needs to change, it’s the banks’ implementation of AML, altogether. Unfortunately if MPs are no longer inconvenienced by it, that will be less obvious to the MPs. Even if you think changing the AML law will have some effect on bank behaviour, it’s not just MPs who have a stake in getting it straightened out: inept ‘derisking’ is affecting everybody, politically exposed or not. It’s a pity that the MPs didn’t think about all the other banking customers inconvenienced by this insanity, rather than just themselves and their families. We’re not all in it together, on this occasion.

      Final headscratcher: is Charles Walker, chairman of the 1922 Committee, and clearly influential enough to get this AML amendment adopted, a PEP or not?

      1. Clive

        Confirmed — at my TBTF, the insistence the PEPs are identified and subject to additional monitoring (right down to the individual transaction level; we have to be able to feed into our back-end systems the current list of PEPs as reference data and set different responses e.g. “reject all”, “always report”, “always allow” etc.) when one is detected came from Legal. It was deemed to be subject to Strict Liability ( for those not familiar with UK law).

        And Richard is also right, the ability to actually deliver a risk-based approach to AML (either through too many false-positives or else, conversely, missing obvious red flags) is, erm, rather patchy.

      2. David Brain

        Short form: it’s not really the AML law that needs to change, it’s the banks.

        And, essentially, this is the entire core of everything that’s gone wrong with the grand neoliberal project. (Although I extend this to corporations in general; the banks aren’t the only culprits although they are clearly the most visible exponents of it.)
        If it is cheaper and easier for an organisation to basically do something wrong (whether that’s merely morally wrong or criminally wrong) and then apologise later and pay a derisory fine (which is then offset against tax or, worse, simply charged onward), then surely the problem is somewhere else in the system?

        The notion that an MP think that excluding MPs from the PEP list will magically solve the flaws in the AML system is the solipsism fallacy at its finest.

  3. TomDority

    I thought the only proper and approved money laundering was performed using a fee structure. The fee structure is known as penalties imposed upon money launderers and paid via the public purse. The laundered are also known as international banks.

  4. Michael Robinson

    Sorry, again, but the Mirror does agree with me, and not with you.

    Quote: “MPs appear on automatic watch lists of “Politically Exposed Persons” (PEP)…Ministers will now move to exclude MPs from the watch lists in the forthcoming Bank of England bill.”

    That’s it.

    And not only is this completely unobjectionable on it’s own merits, it is entirely consistent with the recommendations of the international body (FATF) which created the “Politically Exposed Persons” regulatory regime in the first place.

    Again, Section IV here:

    A rather more authoritative source than the Mirror.

    1. P

      This is total rubbish. Here is the definition from your link:

      Domestic PEPs (Politically-Exposed Person): individuals who are or have been entrusted domestically with prominent public functions, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials.

      Eh, it looks to me that a British MP is indeed a “domestic PEP” as defined by FATF. Don’t just link to a large document and handwave. It is quite clear that in that document MPs would indeed fall under the domestic PEP title. As would many civil servants in fact.

      If they don’t like the heat then don’t work in these positions.

    2. diptherio

      As the in-house experts have pointed out, there are many people who are classified as PEPs, not just MPs, and those others, as well as their family members, are subject to the same treatment as that which the Tories are on about. So their solution is to exempt themselves but make everyone else deal. That’s the problem.

    3. Tim

      I am no fan of the UK Parliament but the Financial Action Task Force is an unelected unaccountable organization just like the BiS and FSB are. I would much rather trust the judgement of the UK Parliament than the Financial Action Task Force.

  5. bob

    At least they’re honest about their Aristocracy.

    We still can’t bring ourselves to say the word. Instead, disrupt!


  6. Michael Robinson

    The UK has 650 MPs.

    Only a tiny fraction of these could be said to have been “entrusted domestically with prominent public functions” by any reasonable measure, and those few who have can expect to remain on the PEP watchlists.

    1. Clive

      No, that isn’t right. You have created an agency problem in what your logic leads to. If you’re a bank you have to manage systems and operations to provide the services which form your product.

      You *do not* have an infinite number of people sitting there pouring over individual customers and sifting through what they are doing with the product you’ve sold them (their account, in simple terms).

      You have a core banking system and (most likely) a load of tack-ons that have grown like topsy over time. When you are trying to solve a problem like keeping a track of the PEPs, monitoring what they are doing, taking appropriate action when they are using one of your products to do something they shouldn’t be and deciding if just by having them “on your books” you are exceeding your risk tolerance level then the solution must be industrialise-able. It has to be automated. It has to involve the minimum of ad-hoc human decision making so it has to be rule-based. It has to be consistent — and this is no small achievement given that you may well have the core system and the myriad of tack-ons all held together with sticky tape and string (I think you guys in the US use the phrase “bailing wire and duct tape”) — across all subcomponents. You can’t, for example, have a checking account product that inspects all transactions attempted by a PEP (even if they were unsuccessful) but a credit card product where only transactions which are successfully authorised get flagged.

      So, you simply get a list of PEPs (these are generated by a third party, usually, they simply have a crude set of criteria for what defines a PEP and this would be a catch-all such as “all MPs”, “all ambassadors”, “all civil servants above a certain grade”, “all FTSE100 CEOs” etc. etc.) and you feed that into your core system and the tack-on sub systems. You hope it all works as designed and the PEPs get subjected to the monitoring you intend. At least you can test it and you can certainly check the rules which, programmatically, are being applied to the checking processes. And worse-case, if it has to come before a court of law, you can get an independent expert witness to testify that you did your best and took all reasonable steps to execute effective monitoring. For a company, such as a bank, the ability to have a solid legal defence is non-negotiable.

      But what you’re suggesting is crazy. You’d have to have someone (who ? with what skillset ? based on what criteria ?) supposed to check the pre-supplied lists of PEPs and determine which “tiny fraction” of the (in this case, MPs) that “could be said to have been” (how was it “said” and to whom was it “said” ?) to be some sort of “Super-PEP” MP that is then allowed to stay on the list. Then another someone in the bank has to manually hack around with the PEP list to remove the “ordinary” MPs and just leave the “Super-PEP” MPs on the list. Oh, and this has to be 100% error free. And how often are they supposed to review the list ? Daily ? Weekly ? Monthly ? Where are you deriving your requirement from ?

      Please, don’t post dumb, ill-thought-out comments here. Our aim is to make people leave smarter than when they arrived. Simplistic, hand-waving, blah-di-blah guff risks adding to the tide of stupidity we’re drowning in already.

      1. Michael Robinson

        Yes, well, too bad, so sad, for the poor beleaguered back office IT and operations staff.

        And the legal department, too, most likely. The actual text of the actual amendment as follows:

        (1) The FCA must, prior to relevant regulations coming into force, issue
        guidance to regulated entities on the definition of one or more categories
        of “politically exposed persons” (“PEPs”).

        (2) Guidance under subsection (1) must include, but need not be limited to—
        (a) a requirement to take a proportional, risk-based and
        differentiated approach to conducting transactions or business
        relationships with each category of PEP that may be defined;

        (b) specified categories of persons to be—
        (i) included and
        (ii) excluded from any definitions of PEPs.

        (3) The Secretary of State may, by regulation, make provision about—
        (a) the guidance issued, amended and/or reissued under subsection (1);
        (b) arrangements for complaints about the treatment of individuals
        by regulated entities to be received, assessed and adjudicated by
        the FCA
        , where—
        (i) a person was treated as though he or she was a PEP (and he was not),
        (ii) a person who is a PEP was treated unreasonably in
        disregard of guidance under subsection (1), particularly
        in regard to specific elements required under subsection (2)(a), or
        (iii) a person was refused a business relationship solely on
        the basis of that he or she is a PEP,
        (c) circumstances in which—
        (i) compensation payments are to be required from, or
        (ii) financial penalties are to be imposed on regulated
        where complaints under paragraph (b) are upheld.

        1. Clive

          You’ve just disproved your own point. The FCA stipulates that PEPs are classified into “each category of PEP that may be defined; (…)”

          The FCA (and the information providers the banks use to source the information they need to comply with the regulation) specifies categories of people for inclusion into the PEP dragnet. MPs are a category. You cannot arbitrarily decide on a sub-set to that category without defining the rule you are to apply in order to segregate “ordinary MP’s” from your “tiny fraction” which are somehow more political exposed than other common-or-garden MPs.

          I can’t believe you’re trying to argue that an MP which, let’s not forget stands for “Member of Parliament” (which is the UK’s national elected political body) somehow isn’t politically exposed. What next, priests who are not ecclesiastically exposed ? Auto mechanics who are not torque wrench exposed ? Pull the other one, it’s got bells on it.

            1. Clive

              You are, if I understand your argument (which you’ve not spelt out but I’ll do you the favour of making the point I think you’re trying to make), suggesting that the scope of a PEP is limited to currently serving cabinet ministers. Leaving aside as you obviously do the bizarre notion the MPs are (in your alternative universe) apparently able to be simultaneously both politicians but not politically exposed, you’re quite happy to also define MPs who are fall into such groups as select committee members, the shadow cabinet and the privy council, as have no political exposure ? Given that one of the main priorities for members of these groups is to court and exploit their political connections and influence, I imagine they would if they were aware of your proposal be sorely disappointed at their lack of success in that regard.

              Far more likely, though, is that it is a nonsense to suggest that you can slice and dice the categorisation of MPs into those who are politically exposed and those who aren’t by the application of an inconsistent, indefensible and incoherent set of criteria. Given that PEPs can get legal redress if they are subject to unwarranted or unreasonable treatment, or if one MP is treated one way but another MP who is a legitimate comparator is treated differently, it is not an option to just trot out some arbitrary and capricious subdivision of a particular group of people. If one non-cabinet member MP is politically exposed, and being politicians how could they not be in some way, you have to assume that all MPs have the potential to be politically exposed. The test is not a beyond-a-reasonable-doubt or even a balance-of-probabilities level of confidence that an MP is poltically exposed; the decision to classify a member of a particular group as being politically exposed is a precautionary measure.

              This is why the PEP criteria was applied universally to all MPs.

              While comments and discussion is definitely encouraged here, it is expected that well-constructed, coherent and logical arguments accompany them when an article’s validity is challenged or its basis is dismissed. Randomly throwing out links and expecting readers to conjure up your reasoning for you is tedious and a waste of readers’ valuable time.

            2. Yves Smith Post author

              Clive has dealt with you with far more patience than you deserve. You’ve been arguing in bad faith, which is a violation of our written policies, which you appear not to have bothered to read. Clive is correct to call your out for merely providing a link in lieu of a bona fide response.

              Commenting here is a privilege, not a right. The reason this site is widely regarded as having the best comments section of any finance and economics site is we try to intervene as little as possible while insisting on high standards of argumentation and evidence.

              You are already treading on thin ice. I’ve cut you more slack than I normally would because you are a newbie, but now you are warned. Shape up or you won’t be allowed to comment. And I’m quite serious about that. It takes only a push of a button for me to expunge your entire history here.

              1. Michael Robinson

                I am disappointed that you have not honoured your offer (which I have earlier accepted) to push a button to expunge my entire history here.

                If you could be so kind, I would appreciate your slight effort to make good your offer.

                Many thanks.

                1. Yves Smith Post author

                  Do you have a reading comprehension problem, or do you actually choose to straw man as consistently as you do?

                  This was not an offer. You have no say in this matter.

                  But I will take this as a reader assisted suicide note.

  7. efschumacher

    As a normal retail customer, I find it remarkably cumbersome to transfer money overseas when I want to pay someone who writes for the site. If I were in the UK and in a similar position (needing to wire money abroad from time to time and made to go through all kinds of hoops to do so), I’d be particularly upset at the double standard.

    You really ought to get with Transferwise. They give you the mid-market rate and charge less than 1% commission, and after you sign-up you can make transfers online. They transfer quite small retail amounts (minimum 1 GBP), and big ones too. I have been using it for over a year now between USD-GBP. Wife even made a transfer to Sri Lankan rupees, so they are extending to minor currencies as well.


  8. Chauncey Gardiner

    Falls into the same category as exempting members of the U.S. Congress from insider trading laws. The issues discussed in this article remind me of a recent statement by an opposition British MP and posted here that half those on the other side of the aisle were “crooks”. When called upon to retract his statement, he simply restated his observation by saying, “Half are not crooks.”

    Between the matter discussed here, “campaign finance”, the revolving doors, etc., It’s difficult as an ordinary citizen not to become overly cynical and to be constructive.

    1. RUKidding

      You beat me to it. Just what I thought when I read this.

      This is the UK equivalent one of our many “American Exceptionalism” rules for the wealthy and well connected.

      The only difference is that Senators cannot be dubbed “Lords,” although I’m sure they wish could be!

  9. RBHoughton

    I have to say there are over three centuries of legal exemptions in favour of British MPs (i.e. since 1688). All the roll-backs of democracy – habeus corpus, preventive detention, liability for crime – have not applied to MPs. The usual phraseology in the preamble to the Bill is “The privileges of the Members will be preserved ….”

    There is a second aspect to this horrible debate. The MPs were to be asked to form a Money Commission to consider returning issuance of money to democratic control however they declined to put the question. Without one of their number raising the matter, it could not be debated. It should be clear to impartial observers that they don’t represent the electorate.

  10. FedupPleb

    What we’re seeing is the end of universal rule of law, and an explicit return to a class based “rule of law” which was common in the pre-industrial period. Members of the ascendancy are given explicit status, privilege and exemption in law (though not nessesarily obligation). In this case, 150,000 people in the UK are free to do as they please financially and largely will do so. In time, they will develop an entire philosophy of why this is not only justified, but why it would be manifestly unjust for them to be treated under the law like everyone else.

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