Business of the House
Thursday 13th October 2016
(7 years, 6 months ago)
Commons ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts
Valerie Vaz (Walsall South) (Lab)
Will the Leader of the House give us the forthcoming business?
The Leader of the House of Commons (Mr David Lidington)
The business for next week is as follows:
Monday 17 October—Second Reading of the Savings (Government Contributions) Bill.
Tuesday 18 October—Debate on the BBC on a Government motion.
Wednesday 19 October—Opposition day (9th allotted day). There will be a debate on an SNP motion, subject to be announced.
Thursday 20 October—Debate on a motion on BHS, followed by a general debate on industrial strategy. The subjects for these debates were determined by the Backbench Business Committee.
Friday 21 October—Private Members’ Bills.
The provisional business for the week commencing 24 October will include:
Monday 24 October—Second Reading of the Health Services Medical Supplies (Costs) Bill.
Tuesday 25 October—Opposition day (10th allotted day). There will be a debate on an Opposition motion, subject to be announced.
Wednesday 26 October—Consideration of Lords amendments.
Thursday 27 October—Business to be nominated by the Backbench Business Committee.
Friday 28 October—Private Members’ Bills.
I should also like to inform the House that the business in Westminster Hall for October and early November will be:
Monday 17 October—Debate on e-petitions relating to the UK’s exit from the European Union.
Thursday 20 October—Debate on the Education Committee reports on mental health and well-being of looked-after children and on social work reform, followed by a general debate on National Arthritis Week 2016.
Monday 24 October—Debate on an e-petition relating to the local government pension scheme.
Thursday 27 October—Debate on the Defence Committee reports on defence expenditure and the use of Lariam for military personnel.
Monday 31 October—Debate on an e-petition relating to driven grouse shooting.
Thursday 3 November—General debate on the future of the steel industry.
Valerie Vaz
I thank the Leader of the House for his warm welcome and for the time he took to speak to me about this role. I also thank my predecessor, my hon. Friend the Member for Newport West (Paul Flynn), for all his hard work in the two jobs that he undertook.
It is the first week back, and there is a crisis. This morning I received a text—an upgrade from an email—from a Jeremy, who says, “We want our Marmite back”, so will the Leader of the House do all he can to make sure that there is Marmite on the shelves? I say to Jeremy: “Cut back on the salt, and if you want to protest, do not sit on the floor and shave your beard!”
It is the first week back, and it has been a bad week for the Government. On Tuesday, the Prime Minister’s honeymoon period, most of which was in the Swiss Alps in the recess, came to an end as she faced her first Government defeat in the other place, which voted through new laws to compensate phone-hacking victims. Quite rightly in the age of legal aid cutbacks, victims should have access to justice and protected costs.
May we have a debate to clarify the policy of the Home Secretary’s proposals for firms to provide a list of foreign workers whom they employ? The Prime Minister said at Prime Minister’s Question Time that that was not what was said, so why did more than 100 business leaders write an open letter to the Home Secretary, calling for the idea to be abandoned, saying that foreign workers should be “celebrated not demonised”? The Government may have back-tracked on the policy, just a week after it was outlined, but we need clarification that it is obsolete. If the Leader of the House went back to his alma mater, the University of Cambridge, he would know that the new Vice-Chancellor is, in fact, Canadian, so would he have to be reported to the Home Secretary? It is the anniversary of the battle of Hastings on Friday—it took place 950 years ago—so this reversal could be seen as one in the eye for the Home Secretary.
At the Conservatives’ annual conference, the Chancellor announced a U-turn on six years of Government policy. You will know, Mr Speaker, that at the time of the party conference, the pound fell—and it is still falling. Since last week, we have seen a loss of 6% against the dollar—usually a headline associated with the Labour party. The Chancellor also said that he is cancelling the plan of the right hon. Member for Tatton (Mr Osborne) to balance the nation’s books by 2020. Instead, the Government will invest their way out of the deficit and would now borrow to invest. That sounds remarkably like the Opposition’s policy. May we have statement immediately, before the autumn statement in November, on what is being done at the Treasury on the state of the pound?
So this Government are not the Government of business, not the Government of sound fiscal policy and not the Government of the vulnerable. The new Secretary of State for Work and Pensions now says that people with severe, lifelong conditions will no longer face those humiliating six-monthly reassessments—but only those claiming employment and support allowance; claimants of the personal independence payment will still be subject to those inappropriate assessments. Bizarrely, the former Work and Pensions Secretary, the right hon. Member for Chingford and Woodford Green (Mr Duncan Smith), welcomed this “progressive” reform of the retesting regime, although he introduced the assessments and they were voted for by Conservative Members. May we have a debate in Government time on the state of the assessments and their removal, as called for by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams)?
This is our first week back after the conference recess, and there have been no votes. The first was scheduled for the Opposition day yesterday, but the Government conceded the Opposition’s motion, which basically asked for Parliament to be sovereign. We want our sovereignty back. That was all that was being asked for—making Parliament sovereign in any negotiations that affect the British people.
The referendum posed a simple question: in or out. It did not cover immigration, and it did not cover the single market. All that has to be negotiated and put to the British people through their elected representatives. The great repeal Bill, which will feature in the next Queen’s Speech, will deal only with the incorporation of EU laws in domestic law. May we have a debate in Government time on the framework of the negotiating stance, given that there are only five months—and 170 unanswered questions—before article 50 is invoked?
I know that the Leader of the House is keen to restore Parliament’s reputation. On Tuesday, he will have seen Parliament at her best—as will you, Mr Speaker, when you were in the Chair—and I am sure he will agree with me that it was incredible to see members of all parties present petitions as part of the Women Against State Pension Inequality campaign for fair transitional arrangements, led by my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley). My hon. Friend the Member for Wirral South (Alison McGovern) put the figure at roughly £2 billion. Given the strength of feeling among all our constituents throughout the United Kingdom, may we have a statement to do justice to the WASPI women?
May we also have a debate on the report “The Good Parliament” by Dr Sarah Childs, which recommends making Parliament user-friendly to men, women, families and those with disabilities, and could that debate be consolidated with the debate that is to be held on restoration and renewal?
You will have noted, Mr Speaker, that peace has broken out—in Colombia. I congratulate its President, Juan Manuel Santos, on a hard-won peace, and on his Nobel peace prize. We look forward to his visit on 1 November.
The Prime Minister said yesterday that she was speaking for the British people who voted to leave. Well, that amounts to just 51.9%, because 48.1% voted to remain and 28% did not vote at all. If the Prime Minister is representing only 51.9%, my colleagues—each and every one of them, with their talents and skills—are ready to serve all the British people.
Mr Lidington
I warmly welcome the hon. Member for Walsall South (Valerie Vaz) to her new responsibilities. I am sure that she will bring to the role the wit and good humour, as well as the commitment to the House, that we have grown to expect of her during her time here. Let me also thank and pay tribute to her predecessor, the hon. Member for Newport West (Paul Flynn), for his service. He is the living embodiment of the principle that age is nothing but a number. Throughout his parliamentary career, he has continued to express his views, and to speak on behalf of his constituents and his party, with all the passion and commitment that brought him into politics in the first place.
The hon. Lady made various points about work and pensions matters. The Government will, of course, respond in the way that they normally do to petitions that Members present to the House, and Members in all parts of the House will have an opportunity to put questions to DWP Ministers about their responsibilities as early as next Monday, when DWP questions will take place.
I think that the hon. Lady tempted providence slightly when she talked about honeymoons. I have yet to see the Leader of the Opposition’s honeymoon even begin, let alone end.
I am sure that Members on both sides of the House will have sympathy for the hon. Lady’s call to restore our Marmite. The best advice I can give her, in relation to her email correspondent, is to advise Jeremy that a number of own-brand yeast extracts will be available during the current commercial dispute between the wholesaler and the retailer, and I am confident that in an area such as Islington there will be a wealth of traditional and organic alternatives available to the discerning customer.
I shall now touch on some of the other points that the hon. Lady raised. I shall take back and reflect on the points she made about a debate on the Childs report, “The Good Parliament”, and whether it would be appropriate to link that to the debate that we are going to have on the restoration and renewal report in due course. I know that the Select Committee on Women and Equalities is looking into the implications of “The Good Parliament” report as part of its own work at the moment. The Chancellor of the Duchy of Lancaster, my right hon. Friend the Member for Derbyshire Dales (Sir Patrick McLoughlin) and the Leader of the Opposition gave evidence to that Committee on some of those matters earlier this week.
The hon. Lady raised questions about foreign workers. The position on this is perfectly clear. The Government have made it plain that there is no question of naming individual employees or trying to shame companies, but it is not unreasonable for the Government to go out to consultation—which is what is being planned—on whether firms should be asked to supply evidence about the proportion of their workforce that is made up of workers from outside the UK. For one thing, that might be a way of providing independent evidence about labour shortages and informing the Government’s approach to what we and British industry might do address that issue. This system already operates in the United States of America, after all, so I do not think that a consultation of that sort is unreasonable in the way that she suggests.
The hon. Lady also asked about European matters. The Secretary of State for Exiting the European Union, my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), said yesterday during his speech, and I reiterate today, that we will make Government time available for debates on the European Union on the Floor of the House. At the moment, we are considering exactly when that will happen and what form those debates might take. I was glad that the Opposition accepted the Government amendment yesterday, but before the hon. Lady gives lectures on democracy, she really needs to have a word with some of her shadow Cabinet colleagues. I yield to no one in my open support for the remain cause during the referendum, but if we are democrats, we have to accept the outcome. It remains the case that, as recently as 11 September, the shadow Foreign Secretary, the hon. Member for Islington South and Finsbury (Emily Thornberry), said on “The Murnaghan Programme” that that was not enough. She said:
“I think that we have to have some form of democratic, an injection of democracy in some way…I think we need to go back to the British people in some way”.
That is at odds with the message that came from the Opposition Front Bench yesterday about the Opposition accepting the referendum outcome, whatever view any of us took during the campaign. So I hope that we will see greater consistency from the Opposition in future.
Mrs Cheryl Gillan (Chesham and Amersham) (Con)
May we have an early debate on gravy trains? That would give us the opportunity to look at the latest jobs on offer at HS2, namely the position of chief executive, which will pay between £700,000 and £800,000 a year, and posts for four recent graduates, which offer salaries of up to about £30,000. Those graduates would be required to
“write the story of HS2 from inception to the present day”.
I do not know whether the Leader of the House and the Speaker would agree with me that our constituents would not consider that a good use of taxpayers’ money. What success has the Leader of the House had in persuading HS2 and the Department for Transport that spending money on writing their version of “Thomas the Tank Engine” is not exactly enhancing their reputations?
Mr Lidington
When this report reached Transport Ministers, they immediately issued instructions to cancel the advertisement and approach this matter in a different way. Undoubtedly, there are lessons to be learned from the history of HS2 up till now, but my right hon. Friend will share the view of the Transport Secretary that the approach that she has described was not the best use of taxpayers’ money.
Pete Wishart (Perth and North Perthshire) (SNP)
I thank the Leader of the House for announcing the business for next week. I warmly congratulate the hon. Member for Walsall South (Valerie Vaz) on her appointment. She comes to her position as a well-liked and respected individual, and I certainly look forward to working with her. I wish also to pay a short tribute to the hon. Member for Newport West (Paul Flynn). To go from two jobs to no jobs is pretty callous, so let us get a petition together to get the hon. Gentleman restored to the Front Bench. The hon. Member for Walsall South is the fourth shadow Leader of the House in my short tenure here. I hope that her position is a little more durable than that of some of her illustrious predecessors.
Who would have thought that the first casualty of this hard Brexit would be the nation’s supplies of Marmite? The catastrophic collapse in the pound has led to an unseemly spat between Tesco and Unilever, which seems to suggest that even our supplies of PG Tips might be threatened. As I was sitting around with a morning brew, I thought that perhaps it was time to reconsider and rethink this plan for a full English Brexit. Perhaps we could consider a more palatable continental Brexit instead.
We need an urgent statement about the position of European nationals in this country. A number of my constituents who are EU nationals are getting increasingly anxious and concerned about some of the anti-immigrant, xenophobic rhetoric that has emerged from the Conservative party in the past few weeks. They want to be reassured that their status is secure. All this talk about lists, closed or not, and about having their position in this country relegated to little more than bargaining chips, is setting off all sorts of alarm bells.
We learned next to nothing about the Tory Brexit plans yesterday, other than the fact that it is the hard right of the Conservative party who are now in charge of the agenda. I support the calls to have full debates on this matter. We owe it to our constituents to ensure that they are properly consulted and involved in the process. I am grateful to the Leader of the House for announcing that further details will be forthcoming. Perhaps he could tell us a little bit more about them just now.
It is great to be back after the conference recess. The reason that I cut such a lonely figure on these Benches this morning is that our conference actually starts today, which makes the idea of a conference recess almost totally pointless. Will the Leader of the House have another look at this again? If we are to have a conference recess, can it please include all the main parties of this House or none of them at all?
Mr Lidington
l will certainly take on board the hon. Gentleman’s last point about party conferences, although, as he will know, all parties fix the dates and book the venues of their conferences several years ahead, so this is not something on which I can offer hope of change in the immediate future.
On his serious point about EU nationals living in the United Kingdom, I will respond by saying two things. First, people who have come lawfully from other European countries and who are living here, working here and contributing to our society in many different positive ways should be both welcomed and respected. We should have no truck whatever with xenophobic language let alone with tolerance of some of the appalling instances of abuse or even physical attacks that we have seen. Those should be deplored and condemned by people from all political parties, and by people who were active on both sides of the referendum campaign.
Secondly, my right hon. Friend the Prime Minister has made it clear more than once that her objective is to secure an agreement that enables people who are already in the United Kingdom lawfully to remain after we leave the EU. She would be keen to get agreement on that at an early stage of the exit negotiations. The only thing that we can see that would stop that happening would be if, for some reason, it were not possible to persuade the other 27 countries that British citizens on their territory should not be accorded similar rights. It ought to be in everyone’s interests to settle this definitively and early on, and I hope that we are able to achieve that.
I do not want to dwell too much on Marmite; I am sure that there is as much appetite for that product in Scotland as there is anywhere else in the United Kingdom. I simply note that, on the information that I have been given this morning, the ingredients of Marmite are not imported into the UK but are manufactured and supplied here. It is probably not for the Government to intervene in what seems to be a dispute between two commercial companies.
Dr Julian Lewis (New Forest East) (Con)
The Government have done extremely well in making their announcement about the disapplication of aspects of the European convention on human rights from the battlefield in future conflicts. This has been welcomed by hon. Members on both sides of the House, not least by my hon. and gallant Friend the Member for Plymouth, Moor View (Johnny Mercer) who, with fellow members of the Defence Sub-Committee and other hon. Members, has focused attention on this important issue in a tremendous campaign. When will the Government make further announcements, not about protecting people in future conflicts, but about protecting people who currently face pursuit in the courts over past and present conflicts?
Mr Lidington
Following the statement made by my right hon. Friend the Defence Secretary a few days ago, the Government, led by the Ministry of Defence, are actively looking at the measures that we would need to take to give effect to this policy. Legislative change might be required, in which case we shall have to prepare such legislation and bring it forward as early as we can, when there is an appropriate legislative opportunity.
Ian Mearns (Gateshead) (Lab)
I thank the Leader of the House for the business statement and the news that next week we will be debating British Home Stores and the impact on its former work force. There will also be a general debate on industrial strategy, which is long overdue. I thank the right hon. Gentleman for notice that Thursday 27 October will be a full day for Backbench Business Committee debates; we had understood that it would be a part day.
May I ask Members bringing applications to the Committee for specific dates to give us a number of weeks’ notice? This afternoon, for instance, we have a debate on baby loss, which has been secured with the advance agreement of the Leader of the House, but we were able to do that only because we had advance notice. This week, of course, is baby loss awareness week.
Members may have noticed that the occupation of these particular Benches has been a bit thin in the past few weeks, and this week in particular. It is because my hon. Friends the Members for Easington (Grahame M. Morris) and for Blyth Valley (Mr Campbell) are both undergoing treatment as they battle their illnesses. I wish them, on behalf of the House, a speedy recovery.
Mr Lidington
On behalf of the Government and my right hon. and hon. Friends, I join the hon. Gentleman in wishing a speedy restoration to health to the hon. Members for Easington (Grahame M. Morris) and for Blyth Valley (Mr Campbell).
I am grateful to the hon. Gentleman for what he says. We always try to give as much notice as possible to him and his Committee. I should issue a word of caution about Thursday 27 October, however. The Government’s current intention is that half a day will be allocated to the Backbench Business Committee. As I said in my statement, the business for that week is provisional at this stage; I will be able to speak with much more certainty next week.
Amanda Milling (Cannock Chase) (Con)
Given that I was born and brought up in Burton upon Trent, I feel that I should be talking about Marmite—after all, that is where it is made—but I am going to talk about buses. In July, I supported Arriva’s “catch the bus” week. Only a matter of weeks later, Arriva announced that it was axing services, including the No. 3 bus to Norton Canes, leaving elderly residents who are reliant on that service completely cut off and unable to catch a bus. May we have a debate in Government time about the importance of bus services to the health and wellbeing of elderly residents?
Mr Lidington
My hon. Friend is a fierce champion for the communities in her constituency on bus services, as on other matters, and I hope that she will have the opportunity to make her case directly to Arriva, as the local bus provider, and to the relevant local authority about whether it can provide any kind of subsidy to bus services that are essential socially, but that are not viable in strictly economic terms. The Government want a diverse mix of public transport provision—bus and rail services, and other kinds—and I am sure that if she wants to put her case in detail to my right hon. Friend the Secretary of State for Transport, he and his team will look carefully at the concerns that she expresses.
Derek Twigg (Halton) (Lab)
The Care Quality Commission has said today that it is becoming concerned about the fragility of the adult social care market, with evidence suggesting that it might be approaching a tipping point. May we have an urgent debate about the crisis in social care funding? Only on Tuesday I raised with the Secretary of State for Health the fact that local authorities must be properly funded for social care.
Mr Lidington
All hon. Members, on whichever side of the House they sit, certainly understand the importance to their constituents of ensuring that NHS services and local authority social care are organised and managed in a way that looks to the constituent—to the client or patient—first of all, and that budgets are organised and commissioning takes place to try to ensure there is as much support for the needs of the individual as possible. I had the chance this morning to look briefly at the Care Quality Commission’s report. What struck me was that it says that 72% of adult social care services, 87% of GP practices and 56% of the core services of NHS hospital trusts have been rated as either good or outstanding. It does point to challenges that need to be addressed and argues that less-well-performing authorities need to learn from the experience of those that are more successful. It seems to me that the commission is doing its job as an independent inspectorate, but what it has actually found is that the quality of care that most people receive in this country is very good.
Oliver Dowden (Hertsmere) (Con)
Constituents in Potters Bar, Borehamwood and Radlett in my constituency rely on Govia Thameslink railways. They are used to endless excuses for its lamentable performance, but the company reached a new low yesterday, when we discovered that it is cancelling trains if it discovers graffiti that it deems offensive. Does the Leader of the House agree that that is completely absurd? Is there some mechanism for the House to convey to the company that its first priority should be getting passengers to work and home on time?
Mr Lidington
My hon. Friend is clearly campaigning very hard on behalf of his constituents. Some years ago, I used to live quite close to his constituency, so I am well aware of the importance of those commuter rail services to the people whom he represents. I suggest that his message to Govia should be to encourage it, yes, to put the need to provide for passengers first, but also to work more closely with its cleaning contractors and the transport police to ensure that trains are cleaned of offensive graffiti in a timely fashion and that the people responsible for the graffiti are identified and brought to justice.
Mr Speaker
I think that the Leader of the House went to school in Elstree, if memory serves me correctly.
Keith Vaz (Leicester East) (Lab)
May I join the Leader of the House in congratulating the shadow Leader of the House on her appointment? It has taken her only six years to get to the Front Bench; I am still in the same place I was 29 years ago. This is also my first opportunity to congratulate the Leader of the House on his appointment. I first met him 40 years ago, and indeed may well have voted for him to be chairman of the Cambridge University Conservative Association all that time ago.
Last week, 140 young Yemenis were killed in Sanaa, when bombs fell on a funeral cortège. Last night, Houthi rebels fired at warships owned by the Americans in the gulf of Aden. The situation in Yemen is deteriorating. We had an important debate on Syria that was well attended in the House and granted by you, Mr Speaker, but we must not allow Yemen to be the forgotten conflict. When can we have a full debate on the situation in Yemen, before it gets even worse?
Mr Lidington
I am grateful to the right hon. Gentleman for his kind words. I think that somewhere in my loft I have the programme card that lists him as a CUCA college secretary at some distant date in the past. He raises a really serious subject. Yemen is too often overlooked as we focus on the appalling situation in Syria. As he will, I think, know by now, he has obtained an Adjournment debate on Yemen on 18 October, which will enable him to raise some of these matters, and we have Foreign and Commonwealth Office questions on 18 October, too, which will enable him and other colleagues to raise these matters with the Secretary of State and Foreign Office Ministers. I completely share the right hon. Gentleman’s view that the Government need to continue to do all that they can to help to support the UN special envoy for Yemen and his valiant efforts to establish a credible peace process, and to devote a decent slice of our humanitarian aid budget to helping people in desperate need in that country.
Sir Edward Leigh (Gainsborough) (Con)
The Leader of the House will soon bring to the House a debate on the full decant of Parliament from the Palace of Westminster. He knows my views—I question the proposal—but that is not important; what is important is that we get a range of options. Will he consider, when he brings forward the debate, having not just one nuclear option—that we all leave for six years—but a range of options? For instance, one option could be that we start the work now, during the summer breaks, and we do so from 20 July to 12 October, either by abolishing the September sitting or, if that is not possible, holding it in Edinburgh, to buttress the Union, or Belfast or Cardiff. May we please have a full range of options? Sometimes in life, a Marmite solution that one loves or hates is not the best solution; sometimes a more nuanced approach is a better way of doing things.
Mr Lidington
As I said earlier, there will be, as recommended by the Joint Committee on the Palace of Westminster, a debate and decision by this House, and separately by the House of Lords, on the proposals in the Committee’s report. I am giving thought to the precise wording of the motion to be tabled. Whatever the form of words used, the motion will be, subject to your ruling, Mr Speaker, capable of amendment. I am sure that hon. Members of all parties will want to look at the motion and see whether they want to change it in any way.
I hope that hon. Members take the time to read the Joint Committee’s report. It is a completely cross-party Committee. It spent a lot of time on the subject and interrogated a lot of witnesses before reaching its recommendations, and the House owes it to colleagues who served on the Committee to look seriously at the arguments and evidence that it has presented.
Mr Ben Bradshaw (Exeter) (Lab)
The Leader of the House just put a very complacent gloss on the Care Quality Commission report. This is our independent health and social care regulator. The report is devastating. It contains an explicit request, which is unprecedented from the commission, for urgent funds for social care now. That follows exactly the same call by the person whom the Government appointed to lead the NHS, Simon Stevens. When will we get an emergency statement from the Secretary of State for Health on what he will do about our collapsing health and social care sector?
Mr Lidington
I take issue with the right hon. Gentleman’s description of my earlier response. I not only had a look at the report this morning, but listened to the chief executive of the commission speaking on BBC radio, and it was he who said that the key lesson was that best practice needed to be copied by those authorities and NHS areas that were not delivering the best quality service at present. My right hon. Friend the Secretary of State for Health will, of course, want to consider very carefully and urgently the views expressed in the Care Quality Commission’s report. I am sure he will want to make clear to the House in the relatively near future his view on its recommendations, and there will be opportunity at Health questions or otherwise to put questions to him.
Mr Andrew Turner (Isle of Wight) (Con)
In East Cowes, as well, no doubt, as elsewhere, the Homes and Communities Agency appears to have forgotten that its brief includes delivering much-needed business premises as well as homes, thus threatening economic development and island homes. Will the Leader of the House consider scheduling a debate on this issue?
Mr Lidington
I cannot promise a debate in Government time, but my hon. Friend has been in the House long enough to know that there may be opportunities by way of Adjournment debates or questions to Ministers that enable him to speak up on behalf of his constituents.
Karin Smyth (Bristol South) (Lab)
Figures show that one in five of my constituents are over-indebted, which is why I am bringing the Money Advice Service to Bristol South tomorrow to meet other local debt advice services and support them. May we have a debate on problem debt to help us to understand the Government’s position and their strategy for addressing this serious issue for working people?
Mr Lidington
We all have constituents who have benefited from debt advice, which is not always best provided by an agency that has “OHMS” stamped all over it. It is sometimes better provided through a voluntary organisation that is able to engage with people in a less rule-bound way than is usually the case with even the best-intentioned Government agencies. I will take back to my hon. Friends with ministerial responsibility the concern that the hon. Lady has expressed and ask the relevant Minister to write to her directly.
Tom Pursglove (Corby) (Con)
The National Citizen Service provides incredible opportunities for young people in Corby and east Northamptonshire, ably led by Nigel Anderson and his team at the University of the First Age. With the very welcome news that David Cameron is to take a greater role in the NCS programme going forward, may we have a debate next week on the terrific opportunities that that provides for young people across our country?
Mr Lidington
That is a cause that David Cameron championed during his time as Prime Minister and I am delighted that he is continuing his association with the cause afterwards. As my hon. Friend will know, earlier this week the Government introduced the National Citizen Service Bill, which will put the NCS on a statutory basis for the first time.
Steven Paterson (Stirling) (SNP)
Yesterday I attended an event organised by the Gun Control Network to mark the 20th anniversary of the implementation of measures for gun control following the Dunblane tragedy. Measures brought in at that time have made an enormous difference and have undoubtedly saved many lives. However, regrettably, people are still dying from gun use and gun ownership, and too often that is caused by licensed firearms. May we have a statement from the Government on their plans to continue to combat gun crime?
Mr Lidington
I know that the Home Office is looking at the legislation governing gun dealers, and that may go some way to address the hon. Gentleman’s concerns. It is right that we remind ourselves that police forces have an important responsibility to ensure that people who hold firearms licences legitimately store guns and ammunition in a secure and safe fashion, and that they are fit and responsible people to have such licences.
Mr Peter Bone (Wellingborough) (Con)
The Government have a policy of closing old Victorian prisons and replacing them with modern ones. Wellingborough prison, which is a reserve prison, is a modern one. May we have a statement next week from the Secretary of State for Justice on how that policy is working and, in particular, on what is happening to Wellingborough prison?
Mr Lidington
My hon. Friend will want to talk with the Prisons Minister about Wellingborough prison, but I am sure that the policy is the right one for our right hon. Friend the Secretary of State to be pursuing. Not only are more modern prisons more cost-effective than maintaining prisons on what has become very valuable inner-city real estate, but they provide conditions for prisoners that are more secure and humane than those in the old-fashioned, Victorian prisons, which in some cases have lasted for far too long.
Paula Sherriff (Dewsbury) (Lab)
Many constituents have contacted me recently regarding visitor visa refusals for close relatives who want to visit their family. Most unsuccessful applicants have travelled to the UK previously on a visitor visa and ensured full compliance. May we have a debate in Government time so that we can look into the issue and find out why we appear suddenly to be having many more refusals, which are largely unexplained, than we did in previous years?
Mr Lidington
Those of us who deal with a significant amount of immigration casework in our constituencies will know that it is quite difficult to generalise about cases when the quality of evidence varies greatly. From my experience, I advise my constituents that it is really important to have the audit trail of evidence to show that there is a previous pattern of sticking to the terms of visas that have previously been granted, and also the best possible documentation to show that a potential visitor has good reasons to return home afterwards, such as family or job reasons.
Sir Desmond Swayne (New Forest West) (Con)
The late Eric Forth used to have a description for early-day motions, but there is insufficient chastity in language to repeat it without offence. Nevertheless, may we have a statement from my right hon. Friend on the wholesale abuse and trivialisation of EDMs, not least by the Scottish National party?
Mr Lidington
My own view is that early-day motions are an overrated currency. I was somewhat surprised to see reports this morning that Scottish National party Members have been spending so much time tabling early-day motions, and on subjects ranging from Christmas trees to the anniversary of the first screening of “Star Trek”. They need to be a little careful, because a number of us are coming to the conclusion that they do not have enough work to do, and I think their constituents would be somewhat shocked to find that out.
Mark Durkan (Foyle) (SDLP)
I welcome the shadow Leader of the House to her post and acknowledge her reference to the peace in Colombia and the forthcoming visit by President Santos. In that context, will the Leader of the House ensure that he and his colleagues, who have in very valid terms ruled out a second referendum here, do not mistranslate that message, given the particular challenges in Colombia, because a second referendum might well be what they need following the national dialogue and other negotiations now in train?
Mr Lidington
As the hon. Gentleman knows, we have, for a long time and under successive British Governments, supported the efforts to try to bring about an end to the appalling conflict in Colombia. We welcome the courageous work President Santos has done to try to reach that agreement, and British Ministers are certainly not going to, in any way, seek to tell the President of Colombia how he should proceed in setting the final seal on an agreement that we all hope will endure.
Philip Davies (Shipley) (Con)
Can we have a statement from the Secretary of State for Justice on the policy of allowing prisoners out to spend time with their families at Christmas? It seems from an answer to a parliamentary question that 973 prisoners were allowed home to spend time with their families last Christmas, including 61 murderers. I would have hoped that it went without saying that the victims of those murderers will never be able to spend Christmas at home with their families again. The Government might reflect on what the families of those victims must think when those murderers are allowed out to enjoy a family Christmas at home, when the victims will never have that experience again. The Government might tell prisoners that if they want to spend time at home with their families at Christmas they should not commit the crimes in the first place that get them sent to prison.
Mr Lidington
I will certainly draw the Justice Secretary’s attention to the point my hon. Friend has made, but I would just add this: all but a very small number of prisoners are going to be released one day, either at the end of the sentence or on life licence. It is not unreasonable, in the context of people who are approaching the end of a sentence, to be looking at ways in which to make it possible for them to adjust to society outside prison and to earn a living, take family responsibility and, hopefully, pursue a better path at that point. Where my hon. Friend is absolutely right is that such a step needs to be looked at in the context of overall sentence planning, and should not be a way in which to soften the necessity for the punitive aspect of a prison sentence, which the public rightly expect judges and the Prison Service to see enforced.
Nic Dakin (Scunthorpe) (Lab)
In response to the crisis in the steel industry, the Government produced some better procurement guidelines. It would appear that those have not yet reached the Ministry of Defence, which is using French steel to build Trident submarines. May we have a statement by the Business Secretary on how those procurement guidelines are affecting the steel industry in a positive way and how he will move the Ministry of Defence’s marks up from E minus to alpha plus?
Mr Lidington
We do source British steel wherever possible, but in this case there was no viable UK bid for the specialised steel required for this particular part of the Successor submarine manufacture. Other stages of construction will include steel that British suppliers can support, and we expect them to take the opportunity to bid. As with every major Government procurement, we are working hard to ensure that, where we can, we source British steel. We expect about 85% of the BAE Systems supply chain for the new submarines to be based in the UK.
Jeremy Lefroy (Stafford) (Con)
May we have a debate in Government time on long-term funding for health and social care and on the way in which we raise that funding? There was an interesting leader in The Times yesterday on that subject, which made some suggestions, but it is vital that we take the opportunity now to look at how things move forward post-2020, given the Government’s welcome support up to that point.
Mr Lidington
It will be important, as we move towards 2020, to see the NHS making best possible use of the extra £10 billion the Government have allocated to it—£2 billion more than the NHS itself had requested—but also for the NHS to deliver on the internal reforms that the chief executive has said he intends and needs to carry out. I am sure my hon. Friend will find an opportunity to raise some of these wider questions about future funding with Health Ministers, either at questions or perhaps through a Westminster Hall debate.
Mr David Nuttall (Bury North) (Con)
May we have a debate on the political and security situation in Kashmir? As my right hon. Friend will be aware, there has been a serious escalation in violence there in recent weeks, which is understandably a matter of great concern to those with a Kashmiri heritage not just in my constituency but right across the country.
Mr Lidington
My hon. Friend may well have the opportunity to raise this matter directly with the Foreign Secretary at Foreign and Commonwealth Office questions on Tuesday. I share his wish to see an end to the violence in Kashmir, which has continued for far too long. That will in the end depend on the readiness of the Governments of both India and Pakistan to hammer out an agreement with which they both feel able to live.
Paul Flynn (Newport West) (Lab)
I offer warm congratulations to my hon. Friend the Member for Walsall South (Valerie Vaz), whose talents have at last been recognised. Her appointment guarantees that the exchanges between the shadow Leader of the House and the Leader of the House will continue to be a very welcome oasis of political restraint, good sense and good humour.
When can we debate the royal prerogative and the supreme duty of the sovereign to act in the interests of the nation when a Government start to act in their own interests rather than those of the nation? Now that there is a certain Brexit crisis ahead—and given that we should judge the value of the referendum on the basis that it was won by deceptions, exaggerations and lies from both parties—how will the Leader of the House handle the situation if, in the service of the nation and in the service of the will of the democratic majority of this House, a decision is taken to withdraw the royal prerogatives delegated by the sovereign? What will he do in such a situation, if the sovereign is acting in the service of the nation?
Mr Lidington
I do not want to say anything that could prejudice court proceedings under way today that touch on precisely the issues the hon. Gentleman raises. However, when I looked at the Hansard report of yesterday’s debate, I found that the issues of prerogative powers and the rights of Parliament were aired at considerable length and I am sure that that will continue as we find other opportunities to debate the European issue in the months to come.
Martin Vickers (Cleethorpes) (Con)
Services to my constituents provided by North East Lincolnshire Council may well suffer in the near future because the council has been forced to make safe and to maintain a listed building, to the tune of £2 million and rising, after the owners abrogated their responsibilities. Will the Government find time for a debate to consider whether legislative changes are required to avoid this happening again?
Mr Lidington
I cannot offer my hon. Friend a debate in Government time. If he would like to put some of the detail in a note to me, I will draw it to the attention of the relevant Minister in the Department for Culture, Media and Sport so that he can have a comprehensive response.
Liz McInnes (Heywood and Middleton) (Lab)
Today is Secondary Breast Cancer Awareness Day. May we have a debate on the support given to people living with secondary breast cancer, given that Breast Cancer Care’s campaign “Secondary, not Second Rate” has found that people living with this incurable disease face poor care, delayed diagnosis and a lack of information and support?
Mr Lidington
A half-hour debate on cancer diagnosis in Westminster Hall on Tuesday may provide the opportunity for an intervention, but the hon. Lady has done the House a service by reminding us of the importance of this issue. I am sure we would all wish to support the work the cancer charities are doing to highlight the importance of secondary breast cancer to ensure that that challenge is not overlooked, and that we would all wish to support both the research on causes and cures, and the work going on to support those who have to live with secondary breast cancer and their families.
Chris Davies (Brecon and Radnorshire) (Con)
Given the Government’s excellent support for keeping fit, healthy and active, may we have a debate on the possible closure of sports centres, such as the one in Knighton in my constituency, which provides fantastic facilities on a cross-border basis, but is sadly under the threat of closure by the local authority?
Mr Lidington
I am sorry to learn about what is happening in my hon. Friend’s constituency. These decisions are sometimes a matter for the local authorities involved. If he will let me have the details, I will ask the Sports Minister to respond to him. He may also like to seek an Adjournment debate, where he can secure a ministerial reply in open session of the House.
Robert Flello (Stoke-on-Trent South) (Lab)
I declare an interest as an affected resident. Many of my constituents, and hundreds if not thousands of people across the country, have had their summer ruined again. They cannot sit in their gardens and cannot even open their windows. Why? Wagons carrying rotten carcases, emitting a horrendous stench, travel up and down our roads and past people’s homes. May we have a debate in Government time on the need for sealed wagons to control the stench that is given off by the rotten corpses of animals and other meat products, or should we bring containers of rotten meat here, because if it is good enough for my constituents to inhale, perhaps it is good enough for this House?
Mr Lidington
I am grateful to the hon. Gentleman for raising this matter on behalf of his constituents. I confess that it is not a subject with which I am familiar. It strikes me that it is likely to involve the responsibilities of a number of Departments. My advice to him is to look for opportunities to raise it with the relevant Ministers at questions or to secure an Adjournment debate, so that he can get a direct response from Ministers to the concerns his constituents are expressing.
Sue Hayman (Workington) (Lab)
More than 65,000 people are employed in the British nuclear industry, and I am delighted that more than a fifth of that workforce are women. May we have a debate on the importance of the nuclear sector to our economy, particularly considering the looming energy gap, and on how we can support nuclear through continued investment in skills, infrastructure and the supply chain? It would be particularly pertinent, given the recent announcement on Hinkley Point C.
Mr Lidington
I very much welcome the hon. Lady’s support for the nuclear industry. I share her view that nuclear has an important part to play in this country, as it already has in France, as part of the overall energy mix to ensure that we have supplies of fuel that are as clean as possible and reliable. The nuclear industry provides many opportunities for high-skilled and relatively well-paid employment, often in parts of the country where such jobs are very scarce indeed. Although I cannot promise her an early debate in Government time, I think her comments will have struck a chord with hon. Members in all parts of the House.
Danny Kinahan (South Antrim) (UUP)
On Monday, there was a written statement from the Ministry of Defence on protecting our soldiers overseas from the legal process. The Chairman of the Select Committee on Defence today highlighted how we should be looking after our soldiers who are under that process. In Northern Ireland, we are just about to start a process for some people who are being hauled back, quite possibly for political reasons. May we please have a statement by Ministers from the three Departments together—Defence, Northern Ireland and Justice—to ensure that our servicemen are treated fairly?
Mr Lidington
Clearly, in all parts of the United Kingdom, decisions about individual prosecutions and court cases are rightly the province of independent prosecuting authorities. I am uneasy about the idea that Governments should intervene to either initiate or stop a prosecution that has been decided upon independently in that way, but I completely understand the point the hon. Gentleman makes. Pretty well everyone in the House will acknowledge the bravery over so many years of the servicemen and women who served in Northern Ireland. They were a line of defence for decent, law-abiding people of all communities in Northern Ireland against ruthless terrorism. I will draw his remarks to the attention of the Ministers he mentioned.
Simon Danczuk (Rochdale) (Ind)
Walter Kershaw from my constituency is a world-famous mural artist. His work is exceptionally well received from Portugal to Peru, but that work needs to come back home. May we have a debate on what Arts Council England funding is available for projects such as Walter painting a mural in Rochdale town centre?
Mr Lidington
I cannot promise an immediate debate in Government time. It is quite an important principle that the Arts Council administers its budget at arm’s length from Ministers; we do not want any suggestion that political sympathies might start to influence individual grant decisions made by Arts Council England or arts organisations elsewhere in the UK. But the hon. Gentleman has demonstrated again that he is a champion of the achievements of Rochdale in the artistic world as well as in many other areas of life.
Mrs Madeleine Moon (Bridgend) (Lab)
Tom Weaver and Philip Loveday are two disabled veterans living in Bridgend. They decided to spend £1,500 of their own savings to buy lunch for citizens across the county borough of Bridgend. They wanted to carry out random acts of kindness for people because in living with their disability they had found great help and support in the local community. The local branch of Subway added another 500 meals, so we handed out 1,000 lunches. Given that this week we have discussed Brexit, Aleppo and the fall of the pound, may we have a Government statement on the importance of random acts of kindness in raising the spirits of us all and making this a great country to live in?
Mr Lidington
I welcome the hon. Lady’s comments and add my unreserved congratulations, support and good will to her two constituents. It is the truth that in our constituency work every single one of us in this House comes across cases, such as the one she has described to us this morning, of the most incredible acts of selflessness and public spirit by our fellow citizens. Whenever politics is at risk of making us feel a bit low and depressed, those sorts of acts of kindness and generosity by ordinary, decent British citizens really warm the heart and make us have faith in this country.
Angela Smith (Penistone and Stocksbridge) (Lab)
I am sure the House will join me in wishing Sheffield’s very own Jessica Ennis-Hill all the best as she announces her retirement, and in congratulating Yorkshire—God’s very own county, of course—on securing the world road cycling championships in 2019. Will the Leader of the House commit the Government to continuing to support the county as it works to make the most of this wonderful opportunity?
Mr Lidington
I am happy to endorse the hon. Lady’s congratulations to Yorkshire, and will make sure that the Sports Minister is aware of her concerns about funding—I am sure that the Sports Minister will want to have due regard to the importance of the success of that event. Everyone in the House will want to thank Jessica Ennis-Hill for all that she has done, for her achievements in her chosen sport and for the inspiration she has given to so many aspiring young athletes, and women athletes in particular, in Yorkshire and far beyond in the UK.
Nick Smith (Blaenau Gwent) (Lab)
Houmous and taramasalata are big business in Blaenau Gwent. Zorba Foods makes dips, employs more than 300 people and has a turnover of £50 million a year. However, the cost of its imported ingredients such as chickpeas has increased because the pound has dropped by nearly 20%. May we have a debate on Brexit and its impact on family food bills, because it looks like both breakfast and lunch are getting more expensive as our currency weakens?
Mr Lidington
We seem to be moving from toast and sandwiches through to pitta bread and dips. The truth is that when sterling falls, imports become more expensive but exports become cheaper. When sterling rises, it is the other way around. Companies of all types learn to plan and adjust for those currency risks. Currencies go up and down, fluctuating in value. If the companies in the hon. Gentleman’s constituency are producing good, high-quality products in an efficient way, they should look forward to a successful future.
Jim Shannon (Strangford) (DUP)
The increase in childhood cancers is alarming—it is some 40% in the past 16 years. Even given population growth, the increase is still 30%. That is down to things such as lifestyle, the environment, genetics, air pollution, pesticides and diet. May we have a debate on the increase in children’s cancers, which are critical for each and every one of us in the House?
Mr Lidington
Nobody would dissent from the hon. Gentleman’s view that any increase in incidence of childhood cancer should be deplored and that we should be active in seeking ways in which to prevent the occurrence of cancer, and to ensure early detection and effective treatment. I hope he will have the opportunity at Health questions in future or in an Adjournment debate to continue to highlight that important subject.
Bill Presented
Criminal Finances
Presentation and First Reading (Standing Order No. 57)
Secretary Amber Rudd, supported by the Prime Minister, Mr Chancellor of the Exchequer, the Attorney General, Secretary David Mundell, Secretary James Brokenshire and Mr Ben Wallace, presented a Bill to amend the Proceeds of Crime Act 2002; make provision in connection with terrorist property; create corporate offences for cases where a person associated with a body corporate or partnership facilitates the commission by another person of a tax evasion offence; and for connected purposes.
Bill read the First time; to be read a Second time tomorrow, and to be printed (Bill 75) with explanatory notes (Bill 75-EN).
Criminal Finances Bill
Tuesday 25th October 2016
(7 years, 6 months ago)
Commons ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts
The Minister for Security (Mr Ben Wallace)
I beg to move, That the Bill be now read a Second time.
First, may I, through you, Madam Deputy Speaker, apologise to the House on behalf of my right hon. Friend the Home Secretary, as she is unavoidably detained on departmental business pertaining to national security and has therefore asked me to open this debate?
Both terrorism and serious and organised crime pose a real and present threat to the UK. Those involved in terrorist activities endanger our domestic security and overseas interests. Terrorism may be the greatest threat we face, but serious criminality arguably causes the greatest harm, costing the UK at least £24 billion annually, causing loss of life, and depriving people of their security and prosperity. Right hon. and hon. Members must not doubt the scale of this problem, as it damages our economy and our communities. It also has impacts on real people, whether we are talking about a grandparent being scammed out of their life savings; the trade of weapons that enable the type of marauding firearms attacks we have seen in Paris; the smuggling of illegal drugs that blight our high streets and local neighbourhoods; or the organised trafficking of young women and children.
Those crimes have a corrosive impact on the most vulnerable in society—they ruin the lives of real people—but this is part of a truly global issue. As David Cameron has said, international corruption is
“one of the greatest enemies of progress in our time”
and the
“cancer at the heart of so many of the world’s problems”.
Financial profit is at the heart of almost all forms of serious and organised crime. The UK drugs trade alone is estimated to generate £4 billion of revenue, and Her Majesty’s Revenue and Customs estimates that more than £10 billion was lost to tax evasion and criminal attacks against the tax system in 2014-15 alone.
Gavin Robinson (Belfast East) (DUP)
I agree entirely with that comment from the former Prime Minister and with the thrust of the Bill. One great concern of Christian Aid is that the Bill does not extend to or legislate for the Crown dependencies or overseas territories. Will the Minister respond to that at this early stage?
Mr Wallace
I thank the hon. Gentleman for that point. The Bill does extend some of the offences and powers it contains to cover an extra-territorial extent, which will go a considerable way to getting to the bottom of money laundering, whether that be carried out here or elsewhere around the world. It also goes some way to dealing with people who evade tax overseas. Just because they are not evading our tax but are robbing another country, it does not mean that we would not still like to take action against those individuals. The Bill goes some way on that.
Mr Wallace
I will make some progress and Members will doubtless be able to make their points throughout the debate.
Many of the criminals who profit from such activities live in plain sight, untouched by law enforcement agencies. They reap the benefits by money laundering—moving, hiding and using the proceeds of their crimes to fund their lifestyles and enable further criminality. It is estimated that the annual amount of money laundered globally amounts to $1.6 trillion, while the National Crime Agency assesses that many billions of pounds are laundered into or through the UK as a result of international corruption.
We should be rightly proud of the UK’s status as a global financial centre. This is one of the best places in the world in which to do business, but we must recognise that the size of our financial sector and open economy and the attractiveness of the London property market to overseas investors make this country unusually exposed to the risks of international money laundering. That is why this Government are taking action—to combat money laundering, terrorist finance and corruption—here and overseas. We are sending a clear message that we will not stand for money laundering or the funding of terrorism through the UK.
Dame Margaret Hodge (Barking) (Lab)
I am extremely grateful to the Minister for giving way. I agree with the content of his remarks, but I wish to pursue further the issue that has been raised by the hon. Member for Belfast East (Gavin Robinson). Does the Minister agree that transparency is absolutely key to trying to tackle some of the corruption and money laundering that take place? If he does agree, why is he not using this Bill to ensure that the overseas territories and Crown dependencies, which come under our jurisdiction, publish publicly available registers of beneficial ownership?
Mr Wallace
Yes, I absolutely agree that transparency is one of the steps along the path of tackling both corruption and money laundering. That is why, at the anti-corruption summit in May, the Prime Minister basically reaffirmed that commitment. Even before that, we had worked with the overseas territories and Crown dependencies to ensure that, hopefully by the end of this year or into next year, there will be transparency, registers, of which a considerable number will be public, and automatic information exchange between our tax authorities and those of our dependencies. In that way, we will be able to have access to information about people hiding tax from us, and our law enforcement agencies will then be able to set about tackling the matter.
This Bill is part of that process. A key element of that approach will be ensuring that we work with the private sector to make the UK a more hostile place for those seeking to move, hide or use the proceeds of crime.
Liz Saville Roberts (Dwyfor Meirionnydd) (PC)
Prosecuting corporations for failing to prevent economic crimes was expected to be a core part of this legislation as it appeared during the consultation phase. It seems that, despite Government indications that they would include provisions to hold to account corporations that let their staff facilitate tax evasion and other economic crimes, those provisions are not part of the Bill. Will the Minister explain why he has chosen not to include such eminently sensible precautions?
Mr Wallace
Yes, but I will come to that part of the Bill later on. It is certainly our intention to prosecute those corporations, or the corporate body, that allow their companies to facilitate tax evasion. Under the current system, an individual can be prosecuted for evading tax, and someone within a company can be prosecuted if they facilitate that evasion. At the moment, it is very, very hard to prosecute the corporate body. We are intending to make that change in our Bill. If the hon. Lady reads the Bill, she will see how we will do that. We will go after not only the corporate body here in the UK, but overseas companies. Being an overseas company will not be an excuse, and we will go after them in the same extra-territorial way that we do with the Bribery Act 2010.
Keith Vaz (Leicester East) (Lab)
I congratulate the Minister on his appointment to the Home Office.
In evidence to Parliament earlier this year, the private sector made it very clear that it is trying to co-operate with the Government. There were 381,000 suspicious activity reports made under the ELMER system, only 20,000 of which could be looked into. What support is he giving the National Crime Agency to allow it to have a better system to deal with those reports?
Mr Wallace
I am grateful to the right hon. Gentleman for his intervention and for his kind comments about my appointment.
First, we will remove those barriers to information sharing. Often some of the regulators or the bodies that we deal with say that they would like to pass on more to us, but feel that they are not protected from sharing wider information. We will remove those barriers so that the National Crime Agency can see the full chain of a financial instruction. We will also empower the NCA with a stronger disclosure order so that it can force people—it can go and apply for an order—to release documentation or to comply with questions about a particular transaction. Such an order currently exists in the Proceeds of Crime Act 2002, but it only covers fraud. We will now do the same for money laundering. We will also extend the time limit for a suspicious activity report. At the moment, there is a one-off extension of up to 31 days, but we would like to see that extended to six months, which means that the NCA will have much longer for its investigations.
Keith Vaz
I thank the Minister for his very full answer, but the real problem is that the system is old. The ELMER system needs to be replaced and renewed. Will he give the National Crime Agency the additional resources to pay for the new system to do all the things that he is suggesting? Without a new system, 20,000 simply does not go into 381,000.
Mr Wallace
The right hon. Gentleman is absolutely right that 381,000 referrals is a hefty amount to get through. First, we need to ensure that there is time to get through them. Secondly, what we do not want is what has happened in the past, which is that the private sector makes a suspicious activity report by default. If we can remove those excuses about why it cannot get to the bottom of a transaction before it passes it on, that will ensure that it passes on proper suspicious activities, rather than the ones that it can satisfy itself are not such a problem. In that way, we can cut out some of the referrals that are unnecessarily done.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
I thank the Minister for giving way. He is being exceptionally generous.
Does that example not actually illustrate exactly what prosecutors are up against here and the complexity of these cases? Compulsion for transparency will be necessary, as it will put prosecutors on the front foot. Will he look at this matter again—it has already been raised by a number of Members—as the Bill progresses?
Mr Wallace
Yes, I can assure the right hon. Gentleman that that will happen throughout the passage of the Bill and even after. This is part of a longer process. We will make sure that, where we cannot get hold of the information that we need, we will prosecute people who are deliberately trying to evade tax, and also prosecute people who are trying to launder money. That is part of the process. Many of these powers, including the unexplained wealth orders, give us the benefit of the doubt and put it on to us to say, “Actually, we think you’re linked to serious organised crime, or we can show you are. Explain to us where your money is from.” At the very least, that will get over some of those hurdles about not being able to get to the bottom of the information in that process. That is one of the steps that we will take and that I hope the right hon. Gentleman will support as the Bill goes through.
Charlie Elphicke (Dover) (Con)
I welcome my hon. Friend to his place as Security Minister. His appointment is much deserved.
May I ask him about seizure and forfeiture powers? Previous legislation in this area has not been entirely successful in ensuring that the assets of criminals are seized. Can the Minister explain to the House why the provisions in this Bill will make a difference? We want to ensure that we grab the money off the criminals so that they cannot carry on with their illegal enterprises.
Mr Wallace
My hon. Friend is right that, in the past, it has been a challenge. Crafty hoods have been very good at taking their money out of cash and putting it into a range of moveable valuables, such as fast cars, paintings, jewels, or even betting slips, which I know the Scottish Government are quite keen for us to consider. We need to broaden it out and ensure that when they are crafty, we are crafty as well.
This Government have already done more than any other to tackle money laundering and terrorist financing. More assets have been recovered from criminals than ever before, with a record £255 million recovered in 2015-16, and hundreds of millions of pounds more frozen and put beyond the reach of criminals. We set up the Panama papers taskforce to ensure an effective, joined-up approach to those revelations. The London anti-corruption summit in May built capacity with overseas partners.
It is important to note that we are already doing this. In November 2015, the UK returned £28 million to Macau, which were the proceeds of corruption laundered in the UK. That is a concrete example of our giving back money to those countries that have been robbed by crooks who have used Britain to launder the money or to make the money in its jurisdiction. I want to see more of that and to see it go further.
There was a need for legislation and a need to build on the process of the anti-corruption summit and to find out where we were still vulnerable. In October 2015, the Government published the “National risk assessment for money laundering and terrorist financing”, identifying a number of areas where these regimes could be strengthened. Our response to that assessment was the action plan for anti-money laundering and counter-terrorist finance, which was published in April 2016. It represents one of the most significant changes to our anti-money laundering and terrorist finance regime in more than a decade.
The Bill will give effect to key elements of that action plan. It will significantly enhance the capability of UK law enforcement to tackle money laundering and to recover the proceeds of crime. It will strengthen the relationship between public and private sectors and combat the financing of terrorism.
Part 1 contains a number of measures that will amend the Proceeds of Crime Act 2002, including the creation of unexplained wealth orders. There are criminals who declare themselves almost penniless, yet control millions of pounds. Law enforcement agencies may suspect that assets are the proceeds of international corruption, but they are unable to freeze or recover them, often because they cannot rely on full co-operation with other jurisdictions to obtain evidence. A court will be able to make an unexplained wealth order to require an individual or organisation suspected of association with serious criminality to explain the origin of assets, where they appear to be disproportionate to their known income. If that person does not respond, this may enable the property to be recovered under existing civil recovery powers.
Part 1 chapter 1 will extend the use of disclosure orders, which allow a law enforcement officer to require someone who has relevant information to answer questions as part of an investigation. Those orders are already in use for civil recovery and confiscation investigations. They will now be available for money laundering cases.
Chapter 2 will enhance the process by which private sector companies report suspected money laundering—the suspicious activity reports, or SARs, regime. Where a company in the regulated sector, such as a bank, accountancy or legal firm, suspects that it may commit a money laundering offence, it is obliged to submit a SAR to the National Crime Agency, seeking consent to proceed. At present, there are occasions where these SARs are incomplete and where further information is needed to inform the NCA’s decision. The Bill will give law enforcement agencies more time to investigate those suspicious transactions that require consent and the NCA extra powers to request further information from companies to help to pursue those investigations and conduct wider analysis.
The Bill will provide a gateway for the sharing of information between regulated companies—subject to appropriate oversight—to help to build a broader intelligence picture of suspected money laundering. This has been piloted through a programme known as the joint money laundering intelligence taskforce. In the 12 months from February 2015, the taskforce led directly to 11 arrests, the restraint of more than £500,000 and the identification of 1,700 bank accounts linked to suspected criminal activity. We want to build on the success of that work, by providing the clearest possible legal certainty that companies can share information for the purposes of preventing and detecting serious crime.
Part 1 chapter 3 will improve the ability of law enforcement agencies to recover the proceeds of crime. Existing legislation contains civil powers to confiscate cash, but criminals hold proceeds in other forms, as I said earlier, and we must adapt. The types of asset covered by the power are listed in the Bill, so that Parliament can properly scrutinise its potential use. We continue to consult operational partners on their requirements, and I expect that we will introduce a Government amendment to extend the list to include gambling slips and tokens, which are often used by organised criminals to launder their ill-gotten cash. I hope that such an amendment will attract cross-party support.
The rest of part 1 will extend existing POCA powers to a number of other organisations, including the Serious Fraud Office, Her Majesty’s Revenue and Customs and the Financial Conduct Authority. It will make a range of minor and technical amendments to POCA.
The first duty of any Government is to keep their citizens safe. The terrorist threat is real and is growing. If we are to combat that threat, we must cut off the funding streams that enable terrorist-related activity. The 2015 national risk assessment identified two key weaknesses in this area: the raising and moving of terrorist funds through vulnerabilities in the financial sector, including money service businesses and cash couriering; and the abuse of the charitable sector for terrorist purposes. To combat these issues, part 2 will make complementary changes to powers for terrorist finance cases, by mirroring many of the provisions in the Bill, such as those on SARs, disclosure orders and seizure and confiscation powers, so that they are also available for investigations into offences under the Terrorism Act 2000.
Part 3 will deliver on the Conservative manifesto commitment to make
“it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion”.
At present, if an individual evades tax and that is criminally facilitated by those working for a company, the individual taxpayer will have committed a crime and those individuals facilitating it could also be prosecuted, but it is very difficult and often impossible to hold the corporate entity to account. That needs to change. That is why we are creating two new offences of corporate failure to prevent the criminal facilitation of tax evasion—one in relation to UK taxes; another in relation to taxes owed to other countries.
Tax evasion is wrong. It is a crime. It cannot be right that a business operating in the UK can escape criminal liability simply because a tax loss is suffered by another country rather than the UK. The new offence in relation to foreign taxes will be of particular benefit in tackling corporate facilitation of corruption in developing countries. HMRC has conducted two public consultations on these offences, including engagement with the private sector—banks, accountants and legal practices—and everyone is clear of the need to take responsibility for ensuring the highest possible standards of compliance in this area.
As I have said, tax evasion and corruption in the developing world are key contributors to global poverty. Those crimes are frequently facilitated by companies in other jurisdictions. We cannot abdicate our responsibility and leave solving this problem to other countries. The UK’s financial sector should lead on the disruption of tax evasion, money laundering and corruption. This measure will help to do just that.
The Government are committed to reducing the regulatory burden on business, which can make it harder for companies to focus on real risks. The measures in the Bill were developed in close partnership with law enforcement agencies and the regulated sector, including major financial institutions, as well as other key representatives.
Robert Jenrick (Newark) (Con)
Although I support the Bill, does the Minister agree that there is no point in legislating if the agencies tasked with enforcing the legislation simply do not have the resources to do so? For example, since the creation of the Office of Financial Sanctions Implementation, as far as I am aware from talking to lawyers who work on white-collar crime practices, there has been no enforcement whatever. All of us who want to support the Bill would like to hear reassurance that there will be the resources to match the good intent.
Mr Wallace
I am grateful to my hon. Friend for his intervention. In the past few months, I have visited regional organised crime units up and down the country, including in his region, and the NCA, and they all say that their barrier to getting further with some of these problems is not the resource issue; they all say that their barrier has been the ability to find the cash, see the cash and seize it. Those three things are incredibly important. We can put all the resources in the world into our law enforcement agencies, but if they do not have the powers to take back some of the stolen assets, it will not make a difference.
The thing that struck me coming into this job only a few months ago, although I thought I knew a bit about terrorism from my previous life, and what has absolutely shocked me is the weight and strength of organised crime across the United Kingdom. To see its depth, how it affects my community in the north-west and how close it comes to us all really takes my breath away. I am absolutely determined not only that the guys and girls at the top, the Mr Bigs, get sent to jail for as long as possible, but that those people who consider themselves a little removed from it—the facilitators, the white-collar smoothies who launder the money into property and so on—also face their time in court, because they are the people who contribute to the message that there is a permissive society and that it is okay to be associated with crime. They are the people who help the nasties to put a gloss on themselves.
That is what I am determined to do with the Bill. All Members should rest assured that I will use the Bill to try to build momentum in non-legislative areas—in the non-regulated sector. I want to ask the regulators of estate agents and accountants what they are doing to play their part. If we can change the powers here, if their members get into trouble, what are they going to do to hold their members to account? Legislation is only one part of this. I hope that everyone supports the Bill and that the message goes out that there is more to do and that we will make sure that those people who facilitate and think that they live on the edge of the crime know that we are coming after them.
Charlie Elphicke
I thank my hon. Friend for giving way again; he is being incredibly generous. As he says, this is a question not just of laws but of the culture of the organisations. The NCA’s predecessor organisations all seemed to be more culturally bureaucratic. The NCA seems to be more intelligence-led. It seems to have more officials at the top who were intelligence operators in past times. From everything that I have seen, the NCA is far more vigorous at chasing down the intelligence, which is what it really needs to do.
Mr Wallace
There are several parts to this. The NCA has absolutely got the bit between its teeth, and I see a professional organisation up and down the country determined to tackle the threat that we face. I compliment police forces throughout the country that have put away the old-fashioned territorial boundaries that organised crime often exploited and have been determined to work together. When we visit Police Scotland and regional organised crime units in the north-west and all the other regions, we see police forces all sitting around the same table, working together for their own ends, led by intelligence, deciding on their priorities, sharing capabilities and knuckling down and getting on with it, rather than just focusing on their small areas. The NCA and regional organised crime units have provided the impetus on this, and the results will speak for themselves. I can assure the House that each of the Bill’s provisions will be subject to a set of stringent safeguards and robust oversight, so that they can be used only where it is necessary and proportionate to do so.
We considered carefully the responses to the public consultation on options for legislative proposals to implement the action plan. We published the Government response alongside the Bill earlier this month. I am grateful to everyone who responded to that consultation. There will inevitably be some additional pieces of statutory guidance to underpin the measures in the Bill. We will seek, wherever possible, to make that available to Parliament during the passage of the Bill, to ensure the widest possible consultation on how it will work in practice.
The Bill is only one part of a wider package of measures, as I have said, aimed at strengthening the Government’s response to money laundering and increasing the amount of criminal assets confiscated by the state. Our wider programme includes improving the effectiveness of the supervisory regime for the regulated sector; reforming the SARs regime, including investment in systems and processes; and further increasing our international reach, working with other Governments, overseas territories, Crown dependencies and international organisations to crack down on money laundering, tax evasion and corruption. We must ensure that the Bill and those other projects have the greatest possible impact on money laundering and terrorist finance in this country and abroad.
I welcome the hon. Member for Hackney North and Stoke Newington (Ms Abbott) to her post as shadow Home Secretary, and I am pleased that she has been able to meet me since her appointment to discuss this Bill. I would be delighted to continue to meet her and her team during the passage of the Bill to make sure that we get it right. Hopefully, we can work to ensure that the whole House agrees to support the Bill to send a message to the crooks, criminals and facilitators that we will not tolerate this any more. I hope that the hon. Lady, her colleagues and Members from the Scottish National party agree that it is in the public interest that the Bill be enacted at the earliest opportunity, hopefully with clear cross-party support.
I also congratulate the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) on her recent election as Chair of the Select Committee on Home Affairs. I am afraid that she is not in the Chamber, but she has a wealth of experience in home affairs, and I look forward to discussing these issues with her and the Select Committee.
The Government are committed to protecting the security and prosperity of our citizens, and the integrity of our world-leading financial system. We must ensure that we can pursue vigorously those who abuse that for illicit means. That is what the Bill will do, and I commend it to the House.
Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)
If someone walks around the most expensive neighbourhoods of London—Knightsbridge and South Kensington—they will see house after house dark every night. Some have no lights on because the owners are out, but many more have no lights on because they have been bought as an investment and lie empty most of the time. Some of the most expensive properties in the capital are unoccupied because they have been bought solely for the purpose of laundering dirty money.
In 2016, money laundering is not just happening in accountancy offices or the back rooms of banks. It is happening in plain sight of ordinary Londoners, because we see some of the most expensive domestic properties in the world change hands but remain mysteriously and persistently empty. We welcome the Bill, which has been introduced with the express purpose of providing new powers and safeguards to improve the Government’s capacity to tackle money laundering and terrorist financing and, above all, to recover the proceeds of crime. I want to make it clear that, in principle, the Opposition support the aims of the Bill.
We do so because it is vital to do as much as we can to bear down on illegal activity, including targeting the enablers of illegal activity: lawyers, accountants and estate agents. We support the Bill partly because public opinion, encouraged by the work of the Public Accounts Committee under distinguished past and present leadership, rightly demands that politicians do more to stop tax evasion. We also do so because some of the poorest countries in the world have had their Treasuries denuded by money laundering. If the UK, which is often described as one of the money-laundering centres of the world, could act effectively against money laundering, not just our own tax authorities but the populations of countries in the global south, from which some of this money has been looted, would benefit.
We will wish, however, to ascertain that the provisions of the Bill will actually work and impact in reality on the harms that the Minister set out. We will weigh carefully the civil liberties implications of those provisions. Furthermore, we seek assurances that the Government agencies tasked with implementing the legislation will have all the resources and support that they need.
Keith Vaz
The issue of resources was raised by the hon. Member for Newark (Robert Jenrick). Despite the effective way in which the Minister made his case, he did not answer my question. When will the NCA get a new computer system? When will ELMER be renewed so that the agency can look through SARs? The system is designed for 20,000 complaints, but it is currently dealing 385,000. The agency needs a new computer system to do what the Minister and my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott) want the Bill to achieve.
Ms Abbott
I am grateful to my right hon. Friend for that important intervention. If the Minister does not give a clear reply to that question on the Floor of the House, I can assure him that we will pursue the issue in Committee.
The Minister said that money is not the main obstacle to pursuing money launderers and criminal actors, but it does not help when agencies such as the NCA experience cuts. The Home Affairs Committee produced an important report in June on the proceeds of crime, and I am indebted to the then Chair and the Committee as a whole for their investigatory work. The Committee pointed out that money laundering takes many complicated forms, ranging from complex financial vehicles and activity in tax havens around the world to property investments in London and high-value jewellery. I share the Select Committee’s astonishment that of over 1 million property transactions last year only 335 were deemed suspicious. I agree with the Select Committee’s conclusion that supervision of the property market has been “totally inadequate” and has
“laid out a welcome mat for launderers”.
The Select Committee report also made the important point that it is all too easy for people who want to launder money to buy property in London, let it out in the capital’s high-value lettings market, then take in clean money in perpetuity.
Overall, the NCA believes that up to £100 billion of criminal funds could be passing through the UK each year in the form of property, luxury cars, art and jewellery. Transparency International estimates that there are hundreds of properties in the UK that are strongly suspected to have been acquired with the proceeds of corruption. Land Registry figures show that UK real estate worth more than £170 billion is held by more than 30,000 tax haven companies. I do not argue that there can never be a legitimate reason for holding UK real estate in a tax haven company, but I believe that, all too often, what we see could well be illicit activity.
Charlie Elphicke
As a former tax lawyer, may I point out to the hon. Lady that companies in tax havens own UK property because it was possible to do a stamp duty avoidance scheme called “enveloping” during most of the period in which the Labour Government were in office? Action taken by this Government has put a stop to a lot of that abuse.
Ms Abbott
I made a point of saying that there can be legitimates reasons for holding UK property in tax haven companies. I remind the hon. Gentleman that it was not every single detail of the activity of the last Labour Government that I supported.
Most owners of those companies hide behind anonymous trusts or nominee directors and shareholders. For instance, in a single 50-storey apartment complex in London, The Tower at St George Wharf in Vauxhall, a stone’s-throw from the House, a quarter of the flats are held through offshore companies. This Bill aims to close a loophole which means that authorities cannot seize property from overseas criminals unless the individuals are first convicted in their country of origin. The orders will apply to property and other assets worth more than £100,000. If the owner fails to demonstrate that a home or piece of jewellery was acquired using legal sources of income, agencies will be able to seize it.
The Opposition support the new law in principle, but stress that for it to be effective agencies must be given the financial and political support to take powerful and wealthy individuals to court. Furthermore, there is some concern, which we will explore in Committee, that the measures may be too widely drawn. Throughout, the sole safeguard for seizure orders is the reasonable suspicion of a police officer on their own authority. This may be too low a bar as a safeguard against the incompetent use or abuse of state powers.
Keith Vaz
I thank my hon. Friend for her kind comments about the Select Committee’s report published in July. In evidence to the Committee, Sir Bernard Hogan-Howe suggested that the criminal law should be amended to ensure that those who had not paid their compensation order should be the subject of a second criminal offence. Does my hon. Friend agree that it is wrong for those who are subject to a compensation order to go to prison, finish their sentence and come out without it being paid? We need to look very carefully at this aspect.
Sir Edward Garnier (Harborough) (Con)
I take the point that my neighbour, the right hon. Member for Leicester East (Keith Vaz), makes, but often when a criminal is sentenced, along with a compensation order or a proceeds of crime order, he is sentenced to an additional term of imprisonment in the event that he does not pay back the money. Sometimes those extended sentences can be very long—indeed, as long as or even longer than the original sentence.
Ms Abbott
Far be it from me to bandy words with the many lawyers in the Chamber. I repeat that as the Bill goes through Committee we will seek to examine the question of people flouting compensation orders. Overall, in relation to bearing down on money laundering, we welcome the relevant provisions, including the unexplained wealth orders, the reform to the suspicious activity reports regime, information sharing and the new disclosure orders.
The Bill also deals with tax evasion. In recent years there has been a great deal of public interest and a raft of Government measures on tax avoidance. Arguably, less attention has been paid to tax evasion. There is some blurring between the two terms, but broadly, tax evasion occurs when an individual or corporate entity acts in breach of the law, and tax avoidance occurs when an individual or corporate entity complies with the letter but not the spirit of the law. In recent years Her Majesty’s Revenue and Customs has produced estimates of the tax gap—that is, the difference between the tax that is collected and that which is theoretically due. Clearly, any such estimate must be speculative, but I draw the attention of the House to the fact that HMRC’s most recent estimate of the gap is £36 billion, which is the equivalent of 6.5% of total tax liabilities. Of that £36 billion that is lost, £5.2 billion is lost to evasion and only £2.2 billion is lost to avoidance.
We welcome the measures to bear down on tax evasion, and we welcome the provision that makes it a criminal offence for corporations to fail to stop their associated persons facilitating tax evasion. We particularly welcome the fact that this will have extra-territorial jurisdiction. However, we regret that in the tax evasion measures in part 3 there is no reference to the British overseas territories and Crown dependencies. That is a startling oversight. There are 14 British overseas territories. Just one of them, the British Virgin Islands, is mentioned no fewer than 113,000 times in the Panama papers. BVI, with a population of just 29,000—fewer than my own constituents in Hackney—is home to 452,000 international businesses. Maybe the 29,000 population is particularly skilled at accountancy and banking, but maybe some of those business entities are shells for tax evasion.
There are three Crown dependencies, Jersey, Guernsey and the Isle of Man, and it is frequently argued that the British overseas territories and the Crown dependencies are the largest tax evasion network in the world, so the failure to mention them in a Bill which purports to deal with issues surrounding tax evasion is a major omission. We will be seeking amendments as the Bill goes through Committee. It is frequently asserted that it is not possible to legislate for the British overseas territories and the Crown dependencies, but the Ministry of Justice seems to think differently. This is an issue that we will explore.
The Minister referred to the beneficial ownership register that we are encouraging the overseas territories and the Crown dependencies to introduce, but he must be aware that at least some of the overseas territories are boasting that they are in practice evading the Government’s efforts to get them to set up beneficial ownership registers, and many of them are saying that these registers will not be publicly available. The Opposition insist that if this Government are serious about dealing with tax evasion, they must ensure that the overseas territories and Crown dependencies not only set up beneficial ownership registers, but make them publicly available.
We note that there is little distinction in the Bill between corporate or partnership bodies which facilitate tax evasion, and those that do it routinely and as a central part of their business model. We believe that we should look into a new provision specifically criminalising entities and individuals for whom tax evasion is at the heart of their business model, and punishing them more harshly.
I shall not conclude my remarks on tax evasion without mentioning the Labour party’s tax transparency enforcement programme. We want a public inquiry to examine the loss of tax revenue, and increased powers for HMRC, including a specialised tax enforcement unit. We want to force foreign firms to list their owners and beneficiaries, and we want the introduction of a general anti-avoidance principle and the extension of current rules to cover offshore abuses.
The Bill deals with the important issue of terrorist finance. Those of us who have watched with horror terrorist atrocities all over the world, and here in London, know that terrorism is an existential threat to us and our society. We share the Government’s aims in reducing the terrorist threat, not just to us in the UK but to our allies and interests overseas, and agree that one way of doing this is to deprive terrorists of the financial resources required for terrorism-related activity. Globalisation means that we must constantly update our legal instruments. We note the changes that the Bill will make to the law enforcement and intelligence agencies in relation to investigations of offences under the Terrorism Act 2000, but we will examine these proposals because we are anxious that they do not have too harsh a bearing on genuine charities.
Labour Members support the Bill in principle. We will scrutinise its detail with care. We insist that it is vital that agencies such as the National Crime Agency get the money they need for implementation, because otherwise the Bill will be a dead letter. For too long, London has been accused of being a hub for money laundering, with all its terrible effects not only on the take of our Treasury but on the lives and countries of many of the poorest people in the world. We hope that this Bill is the beginning of a process that brings the curtain down on the era when London could be described as a money-laundering hub, instead ensuring that London and the UK set an example internationally about what can be done to bear down on money laundering and tax evasion.
Sir Edward Garnier (Harborough) (Con)
I begin by declaring an interest. I have been instructed in the past, and I am currently instructed, by the Serious Fraud Office in a number of matters that touch on this Bill and some of its predecessor legislation.
I apologise to my right hon. and hon. Friends on the Front Bench, and to the shadow Home Secretary, the hon. Member for Hackney North and Stoke Newington (Ms Abbott), for the fact that I might not be able to be here for the wind-ups. I hope that my right hon. Friend the Minister for Policing and the Fire Service will forgive me. All being well, however, the debate may run short—if I do not talk too much—in which case I shall be here.
Like the shadow Home Secretary, I broadly support the principle behind the Bill, which I assume is entirely uncontroversial. We all want the criminals whom we hope will be touched by it to be caught and to be prevented from committing such financial crimes. The days when people went into banks with sawn-off shotguns are long over. Criminals are now much more sophisticated: they go round the back with a set of wires, metaphorically, and extract money out of banks and other financial institutions through computer crime, rather than by using violence. We need to keep up with them. As my hon. Friend the Minister for Security said, we have to be craftier than the crafty hoods.
In our enthusiasm to pass the Bill, however, there are one or two matters about which we need to be a little cautious, although I am sure that, during its passage, the Government will think about how to get the detail right. It could be said that many of the points I am going to set out would be better made on Report than on Second Reading, but I might as well make them while I am on my feet.
Unexplained wealth orders, as a matter of principle, are in line with provisions in the Proceeds of Crime Act 2002 and similar measures, in that they reverse the burden of proof by making the respondent to the order explain himself, rather than requiring the prosecution or the state to make the case against him. That principle is now accepted in our criminal law, and that will continue as long as there are sufficient protections for the respondent. Under the Bill, the High Court may, on an application made by one of the prosecution authorities or enforcement agencies, make an unexplained wealth order in respect of any property if it is satisfied that each of the requirements for making the order is fulfilled. The order will be made in the High Court and the application will be made to the High Court in relation to a respondent who has a criminal connection, but also to politically exposed persons. We need to be careful that politically exposed persons, who will, as I understand it, be foreigners, are sufficiently protected from the making of an application that could trash their reputation and that, even when that is not acceded to by the High Court judge, none the less still leaves him or her exposed to the allegations made against them. I suppose that, to a lesser extent, the same could be said of a respondent with some form of criminal connection.
It seems to me that the way around that is to do what has been done with deferred prosecution agreements in the Crime and Courts Act 2013. Paragraphs 7 and 8 of schedule 17 to that Act provide a way of dealing with those issues so that reputations cannot be damaged until the necessary time when a particular state of affairs has been proved. In deferred prosecution agreements, the parties—the Serious Fraud Office in this case—apply to the court for a declaration that entering into a deferred prosecution agreement with the respondent is likely to be in the interests of justice and that
“the proposed terms of the DPA are fair, reasonable and proportionate.”
That hearing takes place in private. Once the court is satisfied, and the parties are agreed, that the terms of the order are correct, the judge makes an order that is made public, and also makes public the judgment that he made in the private hearing some days or weeks earlier.
That is a perfectly sensible way of maintaining the interests of doing justice in public, while holding in private the initial hearing in the event of an order not being made, or of it being altered in a way that makes the respondent look a lot less guilty than he might otherwise have looked. That allows a hearing to be heard without damaging an innocent man’s reputation. That is simply a matter of mechanics, and if the Government can spare the time between now and when the Bill leaves the House of Commons, we could achieve the end that we all want, without causing collateral or unintended damage.
I am also a little concerned—perhaps this can be dealt with at a later stage—that clause 1 deals with income as though that were all that needs to be considered. Proposed new section 362B(3) of the Proceeds of Crime Act 2002 states:
“The High Court must be satisfied that there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property.”
Proposed new subsection (6)(d) notes that
“‘known’ sources of the respondent’s income are the sources of income (whether arising from employment, assets or otherwise) that are reasonably ascertainable from available information at the time of the making of the application for the order.”
If “income” simply means money received, I understand that; but if it means income as opposed to capital, we need to make clear that by income we mean not just the interest from capital or a salary, but all that the respondent owns, so that we can capture the distinction between income and capital. A respondent could be capital-rich, but income-poor. We need to avoid a situation where he can get away from the order by saying that his income does not amount to much when we all know, or can anticipate, that his capital is larger. I am sure that plenty of the houses that the shadow Home Secretary spoke about are bought with cash—essentially, they are bought for great lumps of capital—rather than from borrowing.
I am concerned about the Bill’s use of the words “purports to comply”. I appreciate that that expression is to be found in earlier, similar Acts but, to me, purporting to do something means either doing or attempting to do one’s best, or doing something speciously—appearing, falsely, to do something. Albeit that we accept that that expression is used in earlier legislation, we need to be clear that to pretend to do something should not be a defence or an answer to an accusation of failure to comply with an unexplained wealth order.
I turn to the question of enforcement, which has been brought up on several occasions. Let us assume that an unexplained wealth order is made, and let us assume that there is a hearing, initially perhaps ex parte—singlehanded—by the authority. The matter then either comes back for a hearing between both parties, or moves on in some other way. It is all very well making these orders, but that will do no good if we do not have the necessary police officers or investigators to ensure that they are enforced.
I have noticed that in the past with confiscation orders. Very often, the courts make an order, and either the order is never put into action or very little of the amount required from the offender is ever recovered. We need to make sure that this legislation is not simply written in air; it must have real teeth to deter those who think they can get away with this sort of misbehaviour, and to enable the Treasury to recover the ill-gotten gains. I dare say that the same could be said in relation to suspicious activity reports.
Finally on unexplained wealth orders, is there to be any form of appeal system? It strikes me that under proposed new section 362H, an application for an unexplained wealth order may be made without notice, and I have dealt with points about that. Will the procedure be susceptible to any sort of appeal, and if not, why not?
I turn to the “failure to prevent” provisions, which my hon. Friend the Minister mentioned in his opening speech. I heartily approve of this new system for dealing with corporate misconduct. We saw it first in our jurisdiction under section 7 of the Bribery Act 2010. Although there have been only a few cases involving section 7, it strikes me as being a sensible way of dealing with the difficulty that we face, under English law at least, in pinning criminal liability on corporations. In the United States, a corporate body can be held to be criminally liable because it employed the criminal. It is vicariously liable for employing the criminal and his activities are pinned on the company. In this country—certainly in this jurisdiction—we rely on the Victorian principle of the directing mind. Nowadays, in huge international companies that have hundreds of thousands of employees posted right across the world, albeit that the headquarters of the company may be in this jurisdiction, it is extremely difficult to demonstrate that the directing mind of the company knew what the criminal employee was up to. Section 7 of the Bribery Act gets around that.
Richard Arkless (Dumfries and Galloway) (SNP)
Although I accept the directing mind principle, does the right hon. and learned Gentleman agree that when employees engage in less than ethical practices—such practices have caused a lot of the problems that we have seen in the UK over the past six or seven years—unless the liability goes to the top of an organisation, the organisation will never develop the protocols and processes required to make sure that those employees are responsible for their actions? Does he accept that point?
Sir Edward Garnier
What the hon. Gentleman says is perfectly true, but I am not sure whether that constitutes accepting what he says. The point I am trying to get across is that companies can avoid liability in the absence of the “failure to prevent” system under section 7 of the Bribery Act. Individuals can be prosecuted and imprisoned, but the company gets away free. The advantage of section 7 is that it brings the company within the ambit of responsibility.
Yes, the compliance system in banks and financial institutions is nowadays much more sophisticated and vigorously engineered, so that everybody from top to bottom should know what they are supposed to do and not do, and so that such a culture goes right the way through the company. It seems to me that there is no excuse for failing to behave properly, since we should all now know what to do. The compliance world is certainly keen to ensure that employees in banks and so forth know what they are supposed to do.
I want the Government not to limit the “failure to prevent” provisions to section 7 of the Bribery Act and those clauses in this Bill that deal with tax evasion, but to expand the regime to all offences that can sensibly be brought under it, as set out in part 2 of schedule 17 to the Crime and Courts Act 2013. The schedule covers 40 or 50 economic or financial crimes that corporations should be required to prevent. That would put a blanket across a range of criminal financial offences that are not dealt with at the moment, such as fraud, theft, false accounting, the suppression of documents, dishonestly retaining a wrongful credit, the exportation of prohibited or restricted goods and so on. There is a list for the Government to look at. I hope that thought will be given not just to expanding the regime to the evasion of taxation both in this country and abroad, but to some of, if not all, the offences listed in the schedule.
Finally, I want to make a small point, which I suppose comes back to resources. In an online article in “The Brief” from The Times this morning, a senior lawyer at a City firm of solicitors complained that tax officials were failing to use existing tools against tax avoidance schemes while seeking to expand their powers. He said:
“The huge range of swingeing powers HMRC has been given in recent years may have helped its image…but to date they have been little used as an enforcement tool, and some may question whether public time and resources could have been better spent.”
He also said:
“Before granting HMRC yet further powers…parliament should consider very carefully whether such powers are actually needed and ask HMRC to explain why some of the powers it has been granted in recent years have been under-utilised.”
I do not know whether that is pinpoint accurate, but it seems to me that we can do both: we can make better use of the powers provided to HMRC and ensure that it uses them; and we can also widen the ambit of our ability to catch those involved in financial crime and our ability to prevent it by introducing the “failure to prevent” provisions in this Bill in, I hope, an expanded form.
Richard Arkless (Dumfries and Galloway) (SNP)
Before I go through my speech, I think I can sum up our position on the Bill very succinctly. The crux is that we support in principle the aims of the Bill. To be truthful, there is not much within the four corners of the Bill that we would dispute. Our problem is not with what is in the Bill but with what is not in the Bill, as I will make clear in my speech.
When I studied the financial system at university in the 1990s, the focus of financial crime and of the Government with regard to it was on anti-money laundering regulations and proceeds of crime legislation, which were specifically geared towards getting at the proceeds of drug traffickers and, quite frankly, bank robbers. For the most part, that has worked. Long gone are the days when criminals could easily legitimise buckets of cash from ill-gotten gains. Thankfully, long gone are the days when the only concern involved in robbing a bank was being caught red-handed. The perception of criminals was that if they could evade capture and did not flash the cash, they could eventually spend the money. In many cases, criminals could be incarcerated for crimes and still look forward to spending loot they had stashed when they were eventually released. Money now needs to be accounted for; banks must consider the sources of funds and be satisfied that they are indeed legitimate. Police now have powers to recoup proceeds of crime even if they have been spent by the criminals, and pass them back to the victims.
In my view, we simply could not believe in the rule of law unless we supported such an evolution in rules and regulation. Fairness and the rule of law should be at the heart of everything we do as a society. It is not fair to anyone to live in a world where criminals are free to generate cash and spend it without fear of repercussion. There simply must be a level playing field for the vast majority of society who play by the rules. The past changes did not merely disincentivise criminals; they drove a police coach and horses right through their plans. There are many famous bank robbers and drug traffickers. We know them; we have watched all the films. I suggest that they simply would not have committed those crimes had we had tougher money laundering regulations then.
The challenges today are very different. We live in an era of evolving financial crime and now face a very different threat from that which we faced a generation ago, when I was at university. It is the threat of grand corruption, particularly in relation to politically exposed people, facilitated for the most part—perhaps unwittingly —by the City of London.
Earlier this year The Guardian revealed through the Panama papers how a powerful member of Gaddafi’s inner circle had built a multimillion-pound portfolio of boutique hotels in Scotland and luxury homes in Mayfair, Marylebone and Hampstead in London. He was head of Libya’s infrastructure fund for a decade and has been accused by Government prosecutors in Tripoli of plundering money meant for schools, hospitals and archaeology. Scottish police have confirmed that they are investigating. Libya has made a request for an asset freeze, but that has not yet been implemented.
These challenges are such that new and tougher legislation is required to give law enforcement the tools to really do something about this problem. We in the Scottish National party support that principle. Although I do not wish to undermine your Office’s consideration of the Bill, Madam Deputy Speaker, I respectfully suggest that the Bill applies to Scotland. There are specific clauses on how the provisions will apply to Scotland.
As far as devolved competencies go, the SNP Scottish Government have demonstrated their commitment to tackling criminal finances and tax avoidance, and boast a successful track record in doing so. In Scotland we have introduced robust anti-avoidance rules on devolved taxes, described by commentators as among the toughest in the world. The SNP Government’s approach to devolved taxes demonstrates that we are deadly serious about tackling tax avoidance in Scotland. For example, the Revenue Scotland and Tax Powers Act 2014 established the Scottish general anti-avoidance rule, which will allow Revenue Scotland to take counter-action against artificial tax avoidance schemes, making it more difficult for people to circumvent the requirement to pay tax.
That said, although we support the broad principle at stake here, we note with interest the clear terms of the most recent Tory manifesto:
“We will continue to lead the world on tax and transparency…We are also making it a crime if companies fail to put in place measures to stop economic crime”
and
“We will…crack down on tax evasion and aggressive tax avoidance”.
Admirable principles, and ones we support, but we have real doubts that the Bill goes far enough to achieve those goals, as I and my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) will make clear as we move through the debate.
Many mechanisms and vehicles are provided for in the Bill. One of the most important, and perhaps the easiest for the public to understand, is the unexplained wealth order. The Bill will enable a court—in Scotland, the Court of Session, upon application by Scottish Ministers—to make an unexplained wealth order. The order will require an individual or organisation to explain the origin of assets if there are reasonable grounds for suspecting that that individual or organisation may be involved in criminality or intend to use that wealth for criminal purposes, and the value of the assets exceeds £100,000.
The order will be available to the court where assets appear disproportionate to known legitimate income—for example, as recently reported, when a taxi driver owns a £1 million fish tank. Failure to provide a response to the order and explain the legitimate source of funds would give rise to a presumption that the property was recoverable, making any subsequent civil recovery action much easier.
As a lawyer, the notion of reversing the burden of proof is not one that sits comfortably with me, but, as in other areas, I consider it to be proportional to the issue at stake. Sound legal principles, such as the presumption of innocence and the burden of proof being on the Crown, should not inadvertently protect criminals, which I suspect may have happened thus far.
Unexplained wealth orders will also help to expose the owners of property. Land Registry figures show UK real estate worth more than £170 billion is held by more than 30,000 tax haven companies. The key to this provision is that a criminal conviction will no longer be necessary before law enforcement can pierce the criminals’ veil that camouflages their wealth. Getting away with the crime itself will no longer protect a criminal’s wealth. The Bill will allow for this power to be applied to foreign politicians and officials, or those associated with them, known as politically exposed persons, helping to tackle the issue of proceeds of grand corruption overseas being laundered in the UK.
I have a couple of specific questions for the Minister relating to unexplained wealth orders. There is a provision relating to interim freezing orders. If an unexplained wealth order is made, one could presume that the respondent would be keen to hotfoot it out of the country with a stash of cash. Freezing orders are available if the court is satisfied that they are necessary. Will the Government consider strengthening this position to ensure that the hotfoot temptation is not available to these criminals? I could imagine the rush to flee—I think we all could. Perhaps an automatic freezing order on the granting of the application for the unexplained wealth order can be considered. Will the £100,000 threshold create a new “out” for grand corruption? Will politically exposed people collaborate with many people to do numerous transactions under £100,000? That should also be considered and we should ensure that the provisions catch those types of activities.
Current legislation does not make it easy to seize criminals’ assets in the form of bank accounts and other value assets, such as precious metals and jewels, or indeed casino chips and high value betting slips. There is evidence, however, that these moveable items are being used increasingly, both domestically and across international borders. The Bill will create new civil powers similar to existing cash seizure and forfeiture schemes in current legislation, which would close that gap. The powers will be exercisable where there is reasonable suspicion that the property is the proceeds of crime or will be used in unlawful conduct.
The SNP’s 2016 manifesto stated:
“We will argue for changes in the law at Westminster to enable the police to seize items of monetary value from criminals, such as high value betting slips and casino chips.”
I was pleased to hear the Minister state that the changes will be included in a forthcoming amendment. I was struggling to conceive how criminals could be caught by the face value vouchers provisions currently in the Bill, so I was grateful for that statement and I thank the Minister for making it.
On corporate failure to prevent tax evasion, the Bill attempts to legislate on what we understand as corporate economic crime. As we heard from the Minister, the Bill will create two new offences. We support the measures as far as they go, but we see this as a huge missed opportunity. For example, nothing in the Bill would criminalise the banks themselves for their employees rigging the LIBOR market. I suspect that when the public begin to understand which corporate crimes are dealt with in the Bill and which ones are not, they may see this as a slight cop-out and a continuation of the status quo that has got us into so much difficulty. It is uncontroversial to hold companies to account for the tax evasion of their employees. It is tax evasion, for goodness’ sake. The public would expect it to be criminally sanctionable as is. What the public want are stronger measures to hold companies, in particular banks, liable for the crimes of their resident rogue bankers. It seems strange that the Government have ducked this issue.
Speaking as someone who has worked for a well-known retail bank—something that I do not advertise as much these days as I used to—I can testify with absolute certainty that until the banks themselves are in the frame they will never, as I claimed in my intervention, develop the risk management and other protocols necessary to make sure that their agents or employees do not commit these crimes. Only when liability goes to the top will we ever begin to solve these issues.
Will the Government consider reacting to what the public understand as corporate crime, and make banks liable for practices that have caused so much economic heartache to so many ordinary people since 2008? Why should the innocent ordinary punter pay for the mistakes of rogue bankers? If we make these bosses liable, we will see a tightening up almost instantly.
Sir Edward Garnier
As a first step, would the hon. Gentleman encourage the Government to look at the schedule to the 2013 Act, where the economic and financial crimes are set out, to see whether we could get “failure to prevent” provisions added to this Bill on a wider basis? Perhaps the hon. Gentleman and I could then get together to try to persuade the Government to introduce the American vicarious liability system of corporate criminal liability.
Richard Arkless
I have a great deal of sympathy with both of the right hon. and learned Gentleman’s points. I suggest, however, that the first one is rather a half-house measure that does not go far enough. It will not pin criminal liability on the banks. On the second point about vicarious liability, it is interesting to note that the United States is often considered as the free market monster of the entire world, yet the US feels comfortable with criminalising banks for the actions of their rogue employees. I suggest that we should do the same in the UK.
Mr Wallace
It is a joy as a non-lawyer to be skewered between two barristers in this place, but may I point out to the hon. Gentleman that one reason why the Bill imposes an unlimited fine for a conviction of corporate facilitating of tax evasion is that we believe it will change behaviour. It is one thing to fine a company for a capped fee, but we need to change the attitude not only of the bosses but of the shareholders—and massive fines make a difference. If that is coupled with our provision to increase the powers of the Financial Conduct Authority, we hope that both will help to change behaviour.
Richard Arkless
I agree with the Minister, but my point is that under the Bill, corporate economic crime extends only to tax evasion and not beyond it. Within the four corners of the Bill, there is relatively little to disagree with, but it does not go beyond tax evasion, which I think is a huge omission.
SNP Members can support other parts of the Bill without much hesitation—for example, the expansion of the suspicious activity reports regime, information sharing disclosure orders and combating terrorism. We support all those measures in principle. Notwithstanding our in principle support, we do not think it goes far enough, as I have said.
I shall shortly go through some of the issues that we think are missing from the Bill. Before I do so, however, I wish to make a small point about the time we have had to consider this Bill and its contents. We do not agree that the Scottish Government were given adequate time to scrutinise them. The Bill has been instructed and drafted with high speed, admirable though that may be, but with limited consultation. Only in the last fortnight were we shown draft clauses that related to unexplained wealth orders and mobile items of value—and even then, they were tagged “in confidence”. That said, we welcome the move to extend to Scotland the powers for wealth orders and disclosure orders, as requested by the Scottish Government.
For these reasons, the Scottish Government have not had the chance—and neither have I—to consider the Bill in sufficient detail, to consult Scottish stakeholders properly or to provide the Minister and the Government with some detailed advice. The Scottish Government will do so in due course. In addition, we are already aware of concerns among some Scottish stakeholders, particularly the civil recovery unit, that their advice has not been fully listened to and acted upon by the Home Office, and that the current approach adopted in the draft seizure and forfeiture powers provisions may not be the most effective available. I would encourage the Minister to continue his dialogue with the Scottish Government. He demonstrated yesterday evening that that is ongoing, for which I thank him.
So what is missing? It remains the case for us that the most notable aspect of the Bill is what is not in it. The headline objective of the Tory manifesto in this context was to deal with tax evasion, but, as has already been pointed out, the Bill makes absolutely no mention of the United Kingdom overseas territories and Crown dependencies. Given the aforementioned statement of intent in the Tory manifesto and the problems highlighted by the Panama papers—and the public reaction to the Panama papers—that omission seems very odd and very peculiar indeed.
Joanna Cherry (Edinburgh South West) (SNP)
The OECD estimates that tax havens may be costing developing countries a sum up to three times the size of the global aid budget. Does my hon. Friend agree with me, and with the charity Christian Aid, that the most effective way in which the Government could tackle corruption and counter the financing of terrorism would be to set a deadline by which the overseas territories and Crown dependencies would have to adopt the same level of transparency as the rest of the UK, and does he agree that the Bill constitutes a missed opportunity for them to do so?
Richard Arkless
Unsurprisingly, I agree wholeheartedly with my hon. and learned Friend. I should like the Minister to consider whether there is any way in which we could compel the overseas territories and Crown dependencies to publish registers of beneficial ownership, which would provide much needed transparency in what is turning out to be a bottleneck in the fight against tax evasion.
Joanna Cherry
Does my hon. Friend agree that there is a precedent? The Government have repeatedly legislated in respect of overseas territories—for example, on issues relating to corruption, abolishing the death penalty, pirate radio, and the decriminalisation of homosexuality.
Richard Arkless
Again unsurprisingly, I agree with my hon. and learned Friend. Where there is a political will, there will be a way. If the Government were inclined to legislate in relation to the overseas territories and Crown dependencies, I have no doubt that that could be done, but the omission indicates to me that there was not the necessary political will.
We do not believe that the Bill will tackle tax avoidance appropriately. Avoidance has increased under the Conservative Government. Last year the UK tax gap was a staggering £36 billion, and, despite the positive rhetoric emanating from the Tory Front Bench, it has increased by £2 billion on last year. More needs to be done in the Bill to achieve everyone’s stated aims.
Why does the Bill not address the tax code? The UK has one of the most complex tax codes in the world, which has clearly led to opportunities both to create new loopholes and to exploit existing ones. We therefore call on the Treasury to convene a commission, and to report back within two years following a comprehensive consultation on the simplification of the tax code. By opening the door to a simplified tax system, the Government could boost tax yield, encourage compliance, and avoid exploitative loopholes such as the Mayfair loophole and employee benefit trusts.
Changes are one thing, but they could become meaningless if we do not allocate the resources that are necessary to ensure that the Bill and subsequent measures have real effects. We think that the Government’s decision to close 137 HMRC offices will be completely counterproductive in relation to the laudable aims of the Bill. Those resources are needed to boost compliance, not to mention the human cost that has been incurred by families, employees, communities and local businesses.
Let me make one final point to the Minister, which will be expanded later by my hon. Friend the Member for Kirkcaldy and Cowdenbeath, and which we discussed yesterday evening. My request is for the wholly reserved issue of Scottish limited partnerships to be dealt with in the Bill, which it is not at present.
It is the view of the Scottish Government that a legislative consent motion will be required to give effect to the provisions covering seizure and forfeiture powers and unexplained wealth orders, and some of the minor and technical changes in the Proceeds of Crime Act 2002. The motion will also include the specific provisions on civil recovery and criminal confiscation that the Scottish Government require to be included in the Bill.
We will not trigger a Division this evening, but we want to reiterate very firmly that the Bill does not go nearly far enough in dealing with what I think is a real and tangible outcry from the public, given what has happened over the last five, six or seven years. If we are serious about creating and maintaining confidence in the banking system—which has completely evaporated—we need to tackle this issue head on, and do more than we are doing in the Bill.
James Berry (Kingston and Surbiton) (Con)
I rise to support the Bill—not to complain about what is not in it, but to praise the Government and agree with them on what they have put in this bold Bill.
I should declare I am a barrister and have represented a number of police forces across the country. That experience has taught me two things. The first is a genuine admiration for the men and women of our fantastic police service for their dedication to the task of keeping us safe. Thanks to their excellent work, led by Chief Superintendent Glenn Tunstall, Kingston is now the safest borough in London. However, as I learned at our recent police awards, even in London’s safest borough, there are humbling examples of everyday heroism and compassion by our police officers. We do not hear enough about them, but we are truly grateful.
I pledged at the election to do what I could to give the police the tools they need to do their job. That leads me on to the second thing my experience with the police has taught me: there are a number of powers in this Bill that the police have been, and still are, hamstrung without —where they are powerless to act in the face of wrongdoing.
Before talking about those powers, I want to make a broader point. I am proud to serve as a London MP, representing those who live and work in the best city in the world. London is the world’s financial services capital and I know the Government are working as hard as they can to ensure that that remains the case after Britain’s exit from the EU. But over the last few years there have been reports that London is becoming the capital of something rather more insidious—money laundering.
Following the global financial crisis, property in London has become one of the safest investments in the world. Rich criminals and money launderers are attracted to it in the same way as people who make their money legitimately. Put shortly, Londoners want this stain removed from their city. The Bill will help to do that.
It is not just London: the National Crime Agency assesses that billions of pounds in proceeds of international corruption are laundered into or through the UK every year. Her Majesty’s Revenue and Customs estimates that £4.4 billion was lost to the Exchequer last year alone due to tax evasion in the UK. Globally, laundered money is estimated to amount to 2.7% of GDP, or $1.6 trillion. To put that in perspective, there are only nine countries in the world with GDPs greater than that.
As the leading nation in the world for soft power, and as a nation that is trying to lead the global debate on anti-corruption, we need to ensure that our house is in order. The Bill is part of the Government’s wider efforts to ensure that that is the case. I want to touch on a few aspects of the Bill.
The first is unexplained wealth orders. We have seen many cases in the press where individuals suspected of grave criminal offences are living lavish lifestyles well beyond what any legitimate income they could evidence could possibly support. It is insulting to the many hard-working people in the UK who play by the rules and go to work day in, day out to earn an honest living to support themselves and their families to see this happening. It creates a feeling of impunity in the upper echelons of criminality.
Unexplained wealth orders will require those suspected of being involved in, or associated with serious criminality to explain the origin of assets of over £100,000 that appear disproportionate to their known income. A failure to provide a response, or a satisfactory response, could lead to a presumption that the property in question is recoverable in civil proceedings.
Unexplained wealth orders will have to be made by a High Court judge on application by a relevant law enforcement officer. Even with those protections, as might be expected of a lawyer, I ask the Minister to give a little more assurance about the nature of the protections in place, given that the measure does reverse the burden of proof that normally rests on the Crown. I am sure that he will be able to provide that reassurance, and I entirely agree with the hon. Member for Dumfries and Galloway (Richard Arkless) that that appears to be proportionate in this case, given the severity of the situation that law enforcement officers face.
Secondly, on enhanced forfeiture powers, I have spent many mornings in magistrates courts up and down the country making applications under the Proceeds of Crime Act 2002. I have some familiarity with this area. The current powers under the POCA apply to cash. The police may seize it when they have reasonable grounds to suspect that it is the proceeds of crime. They may then apply to the magistrates court to forfeit that cash. A classic example is a shoebox found in a house containing some drugs and rolls of cash. However, the provisions apply to cash alone. The more sophisticated criminals do not have rolls of cash and a little bit of cannabis or cocaine in a shoebox. They have their money in bank accounts and in high-value items of personal property, which are much harder to trace and much easier to move around, domestically and internationally. Such items include precious metals and jewels—and indeed betting slips. I am grateful to the hon. Member for Dumfries and Galloway for drawing those to the Government’s attention. His information appears to be being acted on. The seizure and forfeiture provisions in the Bill extend the cash seizure powers in POCA to bank accounts and high value-items. That will mean that the law and the police’s powers are keeping up with the ways in which crimes are being committed. That is a welcome move.
I now turn to part 3 and the new offence of corporate failure to prevent tax evasion. This is another manifesto commitment that the Government are delivering on today. It is already the case that a taxpayer who fraudulently evades a responsibility to pay tax commits a criminal offence. A person such as a banker, accountant or tax adviser who knowingly assists a taxpayer to fraudulently evade a responsibility to pay tax is committing a criminal offence, but the company employing that banker, accountant, tax adviser or other professional who criminally facilitates tax evasion does not commit any offence. The company is outside the reach of the law. The Bill aims to bring those companies within the reach of the law, not to duplicate the criminal liability of their employee or agent but to criminalise a failure by the company to prevent those acting on its behalf from facilitating tax evasion. It will criminalise the company for allowing an atmosphere to be created in which that tax evasion is possible.
That might seem draconian, but it is absolutely necessary. Companies will have a defence, much as they do under health and safety legislation, if they can show that they had reasonable prevention procedures in place. The new offence will be the stick that will drive up companies’ efforts to ensure that their internal procedures do the utmost to prevent their employees from facilitating tax evasion. It will drive up standards in the whole sector, and that is long overdue.
Richard Arkless
I am listening with great interest to what the hon. Gentleman is saying. Does he agree that there is a real case to be made for extending the provisions on corporate economic crime beyond the tax evasion issues covered by the remit of the Bill?
James Berry
That is certainly something that could be looked at and consulted on, but the Bill is achieving a manifesto commitment to do exactly what it says on the tin. That is what the Government are trying to deliver today.
James Berry
No.
I hope that this provision will have the same effect that health and safety legislation has had, with companies taking the lead in rooting out bad practice to avoid being liable themselves for incidents caused by their employees. Some businesses might dismiss this as red tape, but if it is red tape, it is important red tape that is focused on the aim that it is trying to achieve. It is important to ensure the integrity of our world-leading financial services sector in London, and these measures have been welcomed by many in the industry, including the chief executive of the British Bankers Association, even though I do not necessarily support the utterances he made earlier this week.
I have touched on just a few of the provisions in the Bill. It also contains many tidying-up provisions that are extensions of existing laws and that are based on feedback given to the Government by the police and law enforcement agencies on the deficiencies in their current powers. That approach is to be warmly welcomed, because when it comes to the fast-moving world of criminality that our police are trying to prevent and detect, we in this House must be fleet of foot. I believe that the Government are achieving that today. I am sure that hon. Members on both sides of the House will welcome the aims of the Bill unreservedly, and I hope that by the time it has been through its Committee stage, all its clauses will have been accepted.
Dame Margaret Hodge (Barking) (Lab)
This speech represents two firsts: I am the first non-lawyer to speak from the Back Benches; and I think I am the first to acknowledge the role played both by our former Prime Minister and by the right hon. Member for Brentwood and Ongar (Sir Eric Pickles), who was the anti-corruption tsar, in providing leadership on anti-corruption. They should both be acknowledged today as their work led to what we are considering. I agree with everyone who has spoken today that the Bill is extremely important. Whether from the National Crime Agency or HMRC, the estimates of the billions of pounds that are laundered through the UK or lost to public services because HMRC is unable to collect them make this an important measure. I fear, however, that the rhetoric that many have been given to this afternoon does not reflect the reality, so I hope that the Minister will able to respond to the points that I raise.
Others have mentioned the omission of tax havens, and the failure to take action on the overseas territories and Crown dependencies, which act as key jurisdictions in support of tax evasion, tax avoidance and corruption, is a grave error. I hope that the Minister will reflect on that during the Bill’s proceedings and see whether we can introduce some amendments. The Government’s failure to mention such territories makes them complicit in facilitating the very corruption that they say they want to tackle through the Bill.
Mr Jim Cunningham (Coventry South) (Lab)
I agree with my right hon. Friend and previous speakers that, were something done about the overseas territories and Crown dependencies, that would give the Government more credibility. They have committed to report annually on tax avoidance in some of these overseas tax havens—for want of a better term. Does she agree that, if they are going to negotiate with other Governments to get them on board, they should do something about the overseas territories?
Dame Margaret Hodge
Indeed. I would also add that the Brexit provisions might also lead to increased activity through the overseas territories and tax havens, so there are several dangers.
A number of Members have mentioned the evidence that backs up the importance of the Bill, but I want to point out two or three facts that have not yet been raised. The World Bank reviewed 213 corruption cases from a 30-year period between 1980 and 2010. Shell entities were involved in 70% of them, and UK Crown dependencies and overseas territories were second after the US on the list of those who provided shell entities. That is clear evidence of the importance of the role played by the Crown dependencies and overseas territories. Do we always have to wait for another leak to understand that? We will keep on getting them—the Mossack Fonseca leaks and the Panama papers will be just one in a stream. If we look at the information we garnered from the leaks, over 200,000 corporate entities were exposed, more than half of which were registered in the British Virgin Islands. I ask the Minister to consider that.
I also came across the African Progress Panel, which found that citizens of the Democratic Republic of the Congo were deprived of some £1.35 billion—twice their health and education budgets combined—due to the sale of mining contracts to five anonymous BVI companies. Those assets were sold at about one sixth of their commercial value, enabling the secretive offshore companies to sell them on and secure profits of more than 500% of the original moneys they paid. Again, desperately needed resources were lost to the poorest countries in the world.
If we are really to tackle the corruption, evasion and avoidance that occur in jurisdictions over which we have ultimate control, we must have the transparency that a number of Members have asked for this afternoon.
Mr Wallace
I have listened carefully to what the right hon. Lady said. Will she not concede that since the lead-up to the London anti-corruption summit in May, the Crown dependencies and overseas territories have agreed to establish a central register of beneficial ownership and a data-sharing system with the UK enforcement agencies that will give us access to those data almost in real time, and that that goes a long way to meeting some of her concerns? I recognise that the Scottish National party would like this to be public as well as shared with our law enforcement agencies, but it still goes some way on this issue. On the other side, the unexplained wealth orders for politically exposed persons will allow us to grab the money should they put it in this country and live in the nice houses that they sometimes seem to live in.
Dame Margaret Hodge
In my view, and indeed the British Government’s view, publicising those registers of ownership is crucial. We decided to do that for ourselves, so why are we not using our powers to enforce it on the Crown dependencies and overseas territories? There are multiple reasons why we have decided to do it for ourselves, and I shall mention two of them. First, for many of the poorer countries, getting their agencies up to speed so that they can pursue people and know what questions to ask is tough, and public registers make it much easier for those people to be interrogated. Civil society should interrogate them, and the registers make it much more likely that the type of activity that I mentioned in the DRC is revealed.
Secondly, we are talking about a very reactive response; if a register can be interrogated only by the international agencies that are allowed to have access, people will have to know that there is something they are after before being able to discover whether or not there is information about beneficial ownership that is relevant to a criminal activity or to aggressive tax avoidance and so on. Such an approach presupposes a degree of intensive resources and knowledge that will not necessarily be in place. Although one of course welcomes the creation of these registers, having them made public is central to making them work.
The Minister should listen not to my words on this, but to those of the former Prime Minister, who was absolutely clear, year on year, when talking about these issues, that the openness and transparency of these registers was what mattered. In 2013, he said to the Crown dependencies and overseas territories that they had to rip aside the “cloak of secrecy” by creating a public register of beneficial ownership. In April 2014, he wrote to the overseas territories, saying that
“beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion.”
He also expressed his hope that overseas territories would follow suit to
“consult on a public registry and look closely at what we are doing in the UK.”
On a trip to the Caribbean in September 2015, he said:
“Some of the British Crown Dependencies and Overseas Territories are making progress in this direction. And others, frankly, are not moving anywhere near fast enough. I say to them all today, including those in this region”—
the Caribbean—
“if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”
When we established our own public register here in the UK, David Cameron said that
“there are also many wider benefits to making this information available to everyone. It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”
I simply say to the Minister that I really do agree, in this instance, with the former Prime Minister and I hope the current Government will listen carefully to his wise words.
Joanna Cherry
The right hon. Lady is, as one would expect, making a very powerful speech. Does she agree that the Government can be comforted by the thought that extending this transparency to the tax havens would be a very popular move with the public, as YouGov polling shows that more than two thirds of people think that the Government should take such action? Research published by Oxfam shows that there are high levels of support for extending this transparency across the political spectrum.
Dame Margaret Hodge
I, too, have seen that survey. Any action that the Minister takes will be warmly welcomed by the public across the whole of the United Kingdom—by people of all ages and all genders. This is a really important bit of work, and I hope that the Minister will take it seriously.
I am concerned about the action taken so far. I am concerned that in December 2015 when we had the Overseas Territories Joint Ministerial Council, the Government failed to persuade those territories to implement public registers. I am concerned that, in March 2015, the Cayman Islands and the British Virgin Islands refused to meet Ministers from the Foreign Office and the Treasury. I am concerned that they failed to meet the Financial Secretary’s request that they adopt registers by November 2015. I am concerned that—as I understand it—they have ignored letters from UK Ministers. I am deeply concerned that tax is not even on the agenda for the forthcoming meeting of the Overseas Territories Joint Ministerial Council. I hope that the Minister can address that point. We do have the powers, and, as was mentioned in a previous intervention, we have used them before. The Government must act.
If the Minister could at least tell us that he will set a timeline, at the end of which, if matters cannot be resolved in a collective and collaborative way with the overseas territories and the Crown dependencies, the Government will use their power. That would go a long way to settling some of our concerns today. I hope that he can at least consider that as a possibility for taking the matter forward.
May I briefly comment on some of the other provisions in what is a warmly welcomed bit of legislation? On the unexplained wealth orders, it is particularly welcome that they will be applicable no matter where in the world the offence takes place. May I ask the Minister two questions? If the money comes from an overseas territory —a developing country, for example—will there be a notification to that country of the setting of an unexplained wealth order? Again, our enforcement agencies will be more capable than some others in pursuing laundered money.
Mr Wallace
I can get an exact answer to the right hon. Lady’s question. Just around that, though, we have started to sign memorandums of understanding with a number of countries—we signed one in August with Nigeria—to help them recover their assets, without barriers between here and there, and to assist them, both in their country and here, with tackling crime. Once they find their assets, we will get them back to them as soon as we can.
Dame Margaret Hodge
I am grateful to the Minister for providing that information. Will he explain why the orders do not apply to politically exposed people inside the European economic area? Will he look again at that issue, because there may occasionally be a relevant instance where that is important?
Mr Wallace
That is quite straightforward. We are unable under EU law to discriminate against different members of the EEA in relation to the UK citizen. What we do for the UK citizen we also have to do for other members of the EU.
Dame Margaret Hodge
I wish to raise two other issues. One arises from a debate held in the House on March 2012, initiated by the hon. Member for Esher and Walton (Mr Raab), on what is known as the Magnitsky-style amendment. The argument there arose from the horrific and brutal killing of Sergei Magnitsky—a Russian lawyer who was tortured and murdered because he uncovered a huge $230 million tax fraud in Russia. Allegedly, $30 million of that found its way laundered into the UK, according to evidence given to the Home Affairs Committee.
The hon. Gentleman proposed something similar to an amendment enacted in America—he and I would support such an amendment during the proceedings on the Bill—that would have ensured that foreign individuals involved in corruption and human rights abuses had their assets frozen, be denied right of entry to this country and be publicly named and shamed. Again, although that is slightly different to other provisions in the Bill, I think that there is strong cross-party support for introducing a Magnitsky-style amendment into UK legislation.
I hope that the Minister will look favourably on such an amendment. I have looked at the details, and a particularly disturbing aspect is how many UK banks were involved in laundering the alleged $30 million into the UK, according to evidence given to the Home Affairs Committee. They include Barclays, HSBC, NatWest, Bank of Scotland, RBS, Citibank, Bank of America, Lloyds TSB and the Bank of Tokyo. I hope that, from that horrific tragedy, we can introduce an important change in our legislation.
Finally, I want to talk about the corporate failure to prevent tax evasion, which other hon. Members have spoken about. I welcome the Bill as the first attempt to place responsibility for tax evasion not just on individuals but on corporations. However, this is a very small first step towards making those who are responsible for devising, advising and facilitating evasion and avoidance accountable for their actions.
Before we go over the top on saying what a great change the Bill represents, we should realise that it will apply only where a criminal offence has been successfully prosecuted against an individual or where an individual adviser has committed an offence when working for a corporation. It does not cover negligence by the corporation. It will not make the corporation responsible for the crimes of its staff. It does not cover aggressive tax avoidance. Unlike my Front-Bench colleague, I think that that is where the important bit of action must be taken if we are to ensure that we get the resources into coffers according to people’s wealth and their profits and incomes.
The Bill simply asks that reasonable procedures are in place, which is a risk-based and proportionate exercise, so it does not represent a fail-safe procedure. As I think through some of the instances we heard about during my time chairing the Public Accounts Committee, where we felt that corporations were misbehaving, I do not think that it would cover PricewaterhouseCoopers and all the stuff that it was doing in Luxembourg, where it was clearly selling schemes in an industrial way that had no other purpose than to avoid tax. We had a discussion earlier today about Heathrow. I do not think that it would cover Heathrow, which has managed to avoid paying a heck of a lot of tax on massive billion-pound profits that it has made. I do not think that it would cover Google. I do not think that it would cover—this is really important—the fact that when we interviewed advisers about the tax advice they give to corporations and individuals, they said that they would give advice so long as there was a 50% chance that it was not challenged by HMRC. The reverse of that is that there is a 50% chance that it will be challenged by HMRC, but given the size of the task and HMRC’s limited resources, it takes a long time to catch up with such schemes and does not have the resources that some of the big accountancy firms, advisers, banks and lawyers et al. have. That will be caught not by the first welcome but small measures that are being taken.
From all the work that we did in the PAC, the only thing that I can think would be caught is probably HSBC’s actions. The non-executive director, Rona Fairhead, gave evidence to us, sought to blame the whistleblower in that instance for being a thief—I thought that that was pretty awful—and blamed the front-line staff for doing what was obviously expected of them by the organisation for which they worked. She, as a non-executive director earning £500,000 a year at HSBC, felt that she did not have any responsibility to ensure corporate governance. The measure might catch that sort of instance, but it is very limited, and as we examine the Bill, I would welcome opportunities to extend that important first step in ensuring corporate liability as well as individual liability and accountability for actions that have been taken. I warmly welcome the Bill and I hope that the Minister can take the further steps that I have suggested.
Nusrat Ghani (Wealden) (Con)
It is a pleasure to follow the right hon. Member for Barking (Dame Margaret Hodge). I would also like to put on record the fact that I must be the second non-lawyer to speak in the debate.
I support the Bill, especially its provisions on countering terrorist financing. In November last year, shortly after the horrific terrorist attacks in Paris, I wrote to the then Prime Minister, the former right hon. Member for Witney, to raise my concerns about overseas funding received by religious or educational establishments in this country that radicalise and promote extremist values—basic criminality—whether they network through individuals, mosques, schools or community groups. I argued that if an organisation is unwilling to agree to a set of tolerant principles that society considers acceptable, it is not unreasonable to prevent it from receiving dubious funding from overseas. I am not so naive as to overlook the accusation that that approach could itself be seen as intolerant, but we have accepted that there are rules to which the funders of political parties and unions must adhere, so why not the funders of other important institutions? Extremism is a symptom of criminal ideology, and we must cut off any finance that helps to spread an ideology that promotes criminality, extremism and violence.
The Bill builds on the Government’s action plan for anti-money laundering and counter-terrorist finance by putting into law one of its main principles: more information sharing between the private and public sectors. It goes without saying that we cannot disrupt terrorist financing unless we know about it, and I welcome the fact that that is fully recognised in the Bill through concrete measures to deal with the problem. Measures to introduce a disclosure order regime under terrorism legislation offer new opportunities to uncover illicit financing of terrorist or extremist behaviour and the promotion of criminality. We have seen the benefits of the work of accredited financial investigators in proceeds of crime investigations, and it is right that those benefits should be extended to counter-terrorism investigations with the extension of powers to AFIs in the Bill.
We need to go further with provisions that are not appropriate for inclusion in this Bill but would, in my view, strengthen its provisions. Perhaps I may be so bold as to make a suggestion. The vast majority of churches are registered as charities, which means that their finances are transparent. I would suggest that a formal register of mosques in the United Kingdom would make it far easier to investigate their financial affairs and their recruitment of imams, especially if those people come from overseas. That would help us to understand the strand of Islam that they wish to promote, and it would flush out sources of financing that promote the intolerant ideas that put us at risk of harm from criminals who use those ideas to justify their actions.
The Islam that came to this country with the communities that settled here after the second world war is not the Islam that is being exported by Daesh today. With many of our communities and mosques feeling that they are under siege from that foreign death cult, it is our duty to protect those communities and show that we stand by them in countering extremism. As a member of the Home Affairs Committee, I have seen all the evidence that I need to justify our hard-headed response to the threat of terrorism and criminal extremism. I hope that the Government will consider such a step when the appropriate vehicle arises.
As of June this year, some 165 people were in custody for terrorism-related offences, and domestic extremism and separatism, but there are still individuals and organisations based overseas that have a mission to spread insidious intolerance and violence, which requires funding that travels across borders. As terrorist groups organise and reorganise, they need access to well-funded diverse networks, and they are becoming increasingly complex and sophisticated. Technology and the proliferation of financial instruments challenge the authorities’ ability to accurately trace and counter the flow of funds, but one thing remains the same: the objectives of terrorists. They seek to divide our communities, spread fear and hate, and undermine the good work of community leaders who do everything they can, often in the face of unhelpful opposition, to make sure that their communities are safe.
By enhancing our ability to counter the financing of terrorism, we are taking another step in preventing the spread of organised crime and terrorism. The Bill offers the Government’s support to leaders and communities, makes us all safer, undermines the financial management of terror groups and co-ordinates legal measures to combat them. I therefore warmly welcome it.
Chris Evans (Islwyn) (Lab/Co-op)
I congratulate the hon. Member for Wealden (Nusrat Ghani) on a rather succinct speech. There are many things that divide us in this House, but the subjects that she was talking about bring us together.
It is a pleasure to follow my right hon. Friend the Member for Barking (Dame Margaret Hodge), formerly a formidable Chair of the Public Accounts Committee, of which I am now a member. I know that her studs have been felt by many a civil servant and many in the private sector. A lot of people are pleased that she is no longer the Chair of that Committee, but I am not one of them.
For too long, law enforcement agencies have had to fight organised crime and terrorism with one arm effectively tied behind their back. It is simply not possible to counter organised crime and terrorism as effectively as is necessary without the power to investigate properly, and to confiscate criminal property and the proceeds of crime. Like many other speakers in the debate, I broadly support in principle most of the Bill’s measures. It is right that those who have gained assets in suspicious circumstances should be asked to explain where those assets came from. Where it is found that they have been involved in crime, and that those assets are the proceeds of crime, law enforcement should be able to confiscate and seize assets beyond cash. That is the only way to ensure that justice is done and for the proceeds of crime to be returned to the system and used for the public good.
Information sharing between banks is key to the investigation of financial crimes, so I am pleased that the Bill includes measures to improve that. Perhaps the Minister will tell us whether the banks have made any response. When I have talked about the sharing of data, they have been reticent, citing reasons of competition. I hope that concern has been overcome and that the Bill will provide good law.
Following the shocking revelations earlier this year in the so-called Panama papers, I am pleased that the Government are fulfilling their commitment to be tough on the middlemen involved in tax evasion and other financial crimes. Corporations and their employees who are involved in facilitating tax evasion and other financial crimes in the UK and internationally must be held to account. I welcome the fact that investigations into terrorist financing are covered by the Bill. If we are to clamp down on violent extremism, it is vital that such groups do not have access to the resources that they need to commission their acts of evil.
I believe, however, that some elements of the Bill are vulnerable to being undermined. Although its measures would apply in the United Kingdom, it does not appear that they would extend to British overseas territories and Crown dominions. This problem must be addressed, otherwise there is a risk that the Bill and law enforcement agencies’ ability to investigate crime will be weakened. In particular, British overseas territories such as the Cayman Islands and the British Virgin Islands have lamentable policies on transparency. I know that the former Prime Minister was desperate to change the situation and pay tribute to his work in that respect. Those islands literally harbour money, as they are the registered home of some of the largest and most valuable super-yachts in the world. Anybody can walk across any harbour in Spain or Italy, or see at sea, the Russian oligarchs’ huge super-yachts that are registered to the Cayman Islands. One has to ask why a Russian oligarch finds the Cayman Islands such an attractive place to register his rather large boat.
Chris Evans
It could be the weather, although I wonder whether the reason is something a little more sinister.
These islands have not agreed a timetable for introducing public, or at least central, registers of beneficial ownership of trusts and other companies, which are often used to launder money and hide assets. If the Government indeed intend to use the Bill to tackle money laundering and corruption, to recover the proceeds of crime, and to counter terrorist finance, their aim might be undermined as, by moving money between secret trusts and offshore companies, some of the most serious and organised criminals, including those who commission acts of terrorism, could still operate.
While the need to tackle organised crime and terrorism is important from a domestic standpoint, it is also important that we play our part in tackling international corruption. A review by the World Bank found that in more than 70% of 213 serious corruption cases, secret company ownerships were relied on to facilitate the corruption. The UK, alongside our overseas territories and Crown dominions, provided the second largest number of those companies. That situation demands urgent action.
It is sometimes hard for us to understand the serious effects of corruption, as corruption is largely under control in mainland Britain and Northern Ireland and is swiftly dealt with whenever it emerges. In developing countries, however, the misuse of public funds has a devastating impact. The Africa Progress Panel found that $1.35 billion had been stolen from the citizens of the Democratic Republic of the Congo due to the sale of mining contracts for just one sixth of their commercial value. Those contracts were sold to five anonymous companies based in the British Virgin Islands. To give some perspective on the scale of that loss to the people of the Democratic Republic of the Congo, $1.35 billion equals twice the country’s health and education budgets combined. That devastating loss is another sad chapter in the country’s long and tragic history of corruption, murder, death and executions, with many women, girls and children having become victims of a tyrant.
It might be unwise, for constitutional reasons, for the UK Government to use the Bill to force British overseas territories and Crown dominions to introduce more transparency, but it is clear that they must take action. Earlier this year, the former Prime Minister laid out a welcome commitment to transparency and urged all British overseas territories and Crown dominions to make changes. We can all agree that that was an important step forward, but the momentum has been falling away and more action must be taken. Real people are losing out every single day as a result of international corruption, organised crime and, yes, terrorism. If the Government are serious about countering that, and meeting our duty not only to ourselves but to others around the world, they must now stop dragging their feet on this very important issue.
As I said, I welcome the principle behind the Bill, but I fear that it will not do the job that is intended. I look to the Government and the Opposition to table amendments that would improve it. The Government are not covering all the bases, especially with regard to British overseas territories and Crown dominions, and I fear that that could lead to some of the Bill’s measures being circumvented. The Government must match their words with actions and commit to putting far more pressure on British overseas territories to embrace transparency. Only once transparency has been achieved will the Bill be able to meet its aims of ensuring that UK-based and international criminals and terrorists are stripped of their resources, and that our citizens are safe, wherever they live.
Kirsty Blackman (Aberdeen North) (SNP)
I had not been in a debate with the hon. Member for Islwyn (Chris Evans) until this morning, and now we have the pleasure of two in one day.
It is very strange to stand here and talk about the Criminal Finances Bill, because I think that a lot of the things under discussion are totally alien and completely baffling to many of my constituents. Many of them will be thinking, “Why aren’t we doing this stuff already? Why has it taken so long for Governments to get around to addressing the issues?” That is particularly true of unexplained wealth orders, which, for the avoidance of doubt, I support. It is a good idea to introduce them, but I am sure that many people are wondering why that has not happened before.
Most of my constituents will only ever pay tax through pay-as-you-earn. None of the taxes under discussion, such as corporation tax and inheritance tax, apply to them, so they will not know quite how complex the UK tax code is, or that a van is needed to transport it, as is regularly mentioned in this Chamber. I am aware that repetition is allowed—in fact, it is positively encouraged—in this place.
The fact that the tax code is so complex means that it is very easy for people to find and exploit loopholes in it. I appreciate the Bill’s measures to close at least some of them, but there are some glaring omissions. As my hon. Friend the Member for Dumfries and Galloway (Richard Arkless) has said—I am sure that my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) will mention this, too, because I may have read his speech—Scottish limited partnerships are still missing from the measures. We have brought up the issue and it has been widely reported by The Herald. I think that people in Scotland who have read those articles will be clear that the UK Government need to fix that and that they can do so relatively easily because of the high percentage of SLPs that are being used for financing crime.
The right hon. and learned Member for Harborough (Sir Edward Garnier) mentioned the Victorian principles behind some aspects of finance and tax law. That is a big problem. A lot of the laws have evolved over a number of years and there has never been a wholesale review. The approach has been not “Let’s take it all apart and start again,” but “Let’s tinker by adding a little bit and taking away a little bit.”
When some of the tax powers were devolved, Scotland was, in some ways, in a much better position, because we could start with a much cleaner slate. Our general anti-avoidance rule was said by Isobel d’Inverno, convenor of the tax law sub-committee of the Law Society of Scotland, to be
“much fiercer than the UK one.”
It has also been widely commented that the Scottish Government are in a positon to have a much stronger law and stronger rule, and that that has been beneficial for us to administer the devolved taxes.
As my hon. Friend the Member for Dumfries and Galloway has said, we are calling for a moratorium on the closure of HMRC offices. If it is a massive priority for the UK to ensure that tax loopholes are closed and that criminals do not exploit the tax system, particularly through tax evasion, it is bizarre that offices are being closed, rather than more staff being taken on and more resources being spent on ensuring that such exploitation does not happen. I would appreciate it if the UK Government would reconsider, again, the loss of those important offices and dedicated staff. That is key.
What the Government are doing and the way in which the current system is set up do not encourage people to have confidence in the economic system. It is much like the House of Commons, which is set up in a very traditional way with Standing Orders that were written hundreds of years ago. They do not encourage transparency or confidence in the system, because they allow some people to have too much power. The tax law and the tax codes have much the same problem. Some of them are far too old, and they have been tinkered with rather than changed wholesale. They encourage and allow some people who are in receipt of millions of pounds to continue to have millions of pounds without paying appropriate tax on it, whereas the people at the bottom cannot do so. One of the problems with the system is that nobody has confidence in it. Criminals have worked out how to get around it, and they continue to do so. The people at the bottom of the pile, who are not involved in those tax affairs and who do not see the criminal proceeds, do not have confidence in the system either.
The Government have a real job of work to do if they are to ensure that Bills such as this restore confidence in our tax and regulatory systems. My hon. Friend the Member for Dumfries and Galloway talked about the free market economy in America and some of the moves that that country has made. If we were to introduce similar financial regulation for banking and property ownership, not only in and around London but for those who own vast swathes of land in the Scottish highlands, we would inspire confidence among the general public.
The right hon. Member for Barking (Dame Margaret Hodge) and my hon. and learned Friend the Member for Edinburgh South West (Joanna Cherry) mentioned the recent YouGov poll, and they talked about public confidence in these measures and public concern about tax evasion, particularly in the Crown dependencies. Because such tax evasion has been widely reported in the news, the public are really concerned about it. Their concern is increased by the fact that the Government have not used the Bill to introduce a public beneficial ownership register, and they have not given Parliament a timetable for introducing such a register. The quicker the Government can publish such a timetable, the better for the confidence of the general public in the tax system. As my hon. Friend the Member for Dumfries and Galloway has said, we are generally supportive of some of the measures in the Bill, but it does not go far enough to inspire public confidence in the measures that the Government are taking.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
Many people in the Chamber consider much of the Bill to be praiseworthy. It struck me that all the critical speeches this afternoon—spanning all parties represented by the Members who have spoken—have been about what is not in the Bill, rather than what is in it. I wondered who would put the Bill in the context of the challenge that we face, and I think the Minister did that best in his opening remarks. He said of the extent of the criminality that he discovered on becoming a Minister that
“it…takes my breath away.”
The extent to which the Bill will deal with such criminality does not quite take the breath away.
I would like to comment on three areas that have been mentioned, the first of which is the permissive culture of banks. The best critique of that culture has come not from me or from anybody who is currently in the Chamber, but from the right hon. and learned Member for Rushcliffe (Mr Clarke) on 24 May this year. When talking about this forthcoming Bill, he commented:
“we in this country are very bad at dealing with white-collar crime, and there is growing awareness of that. If someone wishes to rob a bank, they go to the LIBOR market; they do not put on a balaclava and pick up a shotgun—that is much less profitable.”
He very succinctly drew out the problem of how the culture in banks has created a context in which it is easier to commit grand crimes in them than it is for the old-fashioned external robber to do so. He went on:
“London is still the money-laundering capital of the world. For an African despot or a serious international criminal, London is the best place to put their money, because they can trust the bankers to look after it and not to steal it from them.”
He concluded:
“I hope we will also impose a duty on those at the head of the institutions involved to ensure that they take positive steps to stop those working for them encouraging such activities.”—[Official Report, 24 May 2016; Vol. 611, c. 450.]
I doubt whether anybody in this debate would disagree with the right hon. and learned Gentleman’s words in May, but I do not think that his optimism about the Bill is reflected by the reality of what we now face.
On banking, I suggest that the Minister look at two things. The right hon. Member for Barking, who is no longer in her place, gave the example of what happened in HSBC, where someone was willing to speak up but was then pilloried by senior management. One thing I would suggest to the Minister that needs doing is to strengthen protection for whistleblowing in the banking and financial sector. If we could find a mechanism to encourage people to speak up about criminality or bad practice, that in itself would be a useful measure. Many people have commented that the crisis in the banking sector in 2008 was not predominantly because of the details of regulation, but predominantly because of the culture at the top level. It was caused by group-think on the boards of banks, and by the over-confidence of individual chief executives who were immune to considering anything other than a dash for cash. The other thing I would suggest to the Minister is that it would be useful for a requirement for proper cultural analysis to be built into the banking sector.
The second area on which I want to comment has already been hinted at by my hon. Friends the Members for Dumfries and Galloway and for Aberdeen North (Kirsty Blackman), but no one else has talked about it in this debate thus far. It is the topic of Scottish limited partnerships. This may be new to some hon. Members, so I hope they will allow me to give a few examples. Scottish limited partnerships are not a new phenomenon. They are not a devolved matter; they are a matter for this House. Although they were created by Asquith in the Budget of 1907—even I do not remember it—from 2008 they began to be used much more extensively for criminal behaviour. Since 2008, the use of SLPs has risen by approximately 40% year on year.
Scottish limited partnerships have been at the heart of some of the major corruption scandals in the world. For example, they have been named in major corruption scandals involving the former Soviet Union, particularly Ukraine, where they are still openly marketed as off-the-peg zero-tax offshore companies. Elsewhere, one Scottish limited partnership is at the moment at the heart of a $1 billion digital bootlegging case in the United States. The International Monetary Fund has warned that the risk posed by SLPs to the fight against money laundering and organised crime is something to which attention needs to be given. Other Scottish limited partnerships are involved in pornographic and even in paedophilia websites. Indeed, the span of criminal activity through these financial vehicles seems to know absolutely no bounds.
Closer to home, The Herald newspaper, which has done extraordinary work in this area, revealed barely six days ago that the tax haven bank owned by Lord Ashcroft is being used, without his permission, as a base to set up dozens of firms utilising SLP loopholes linked to a known fraudster. Indeed, two Belize companies have been falsely using the address of the HQ of Lord Ashcroft’s bank for at least six years. Those secret Belizean businesses, Sherbrook Assets and Whitmoore Solutions, have formed at least 70 other Scottish entities, most of them registered, I am sorry to say, to a convicted fraudster who lives in Fife in Scotland, Anzelika Young. The Bill should be ensuring that every SLP, along with any similar financial vehicle elsewhere in the UK, is exposed to rigorous due diligence at the very least.
During proceedings on the recent Finance Bill, I attempted to add a very simple new clause calling on the Government to investigate SLPs. They chose to vote that new clause down. When, subsequently, yet more criminal activity came to light, on 26 September I wrote to the Chancellor—I have a copy of the letter with me—seeking a meeting about this major international criminal activity. As of last week, when I was yet again chasing this up, the only response I have had—this is after a month, showing the Government’s lack of concern about international criminal activity—is that they are still considering how to respond to my request for a meeting. It is quite inappropriate for a Member of this House seeking a meeting about a major criminal activity to have to wait a month for any response.
Mr Wallace
I reassure the hon. Gentleman, given our meeting yesterday, that I have listened to what he said. I will meet my ministerial colleagues to discuss the problem he raised with me and see what we can do about it.
Roger Mullin
I am particularly grateful to the Minister for that clarity. Indeed, in coming to the Dispatch Box at that moment he confirmed what I was about to say in my closing line on the issue of SLPs. Given how he has discussed this matter with those of us on the Opposition Benches who are interested in it, and his understandable and quite appropriate concern about the matters raised, I was going to suggest that the Prime Minister could appoint him the formal tutor for all Treasury Ministers, in addition to his role as Minister for Security; I am sure they would learn a great deal from the appropriate way he deals with matters. I commend that new appointment to the House. I speak in jest, but surely there is an issue here, as some of the Treasury Ministers who have been turning a blind eye for months need to learn that these are matters of great concern and importance, and deserve to be treated as such.
The third area I will briefly mention—and it will be very brief, as many Members have already commented on it—is what has been happening post Panama papers on Crown dependencies and the like. The clear view expressed in this debate is that the Bill does not yet go far enough, particularly on the much needed transparency and openness on beneficial ownership. If the Minister would be willing to think about how we might, in a collegiate way across the House, begin to address that issue and some of the others raised today, he will win himself many friends indeed.
Keith Vaz (Leicester East) (Lab)
It is a pleasure to follow the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) and listen very carefully to the important points he has had to make. I am glad he has had his meeting with the Minister and that promises have been made which I am sure he will ensure will be fulfilled.
It is a pleasure to speak in this debate, because one of the most important reports the Home Affairs Committee produced this year was that on the proceeds of crime. I am sorry to have missed the speech by the hon. Member for Wealden (Nusrat Ghani), who is a member of the Committee, but I am sure she spoke brilliantly about the conclusions of that report. I am grateful to the shadow Home Secretary for mentioning it and for the points she made concerning the practicalities and the issues it revealed.
The Minister did not mention the report, but I am sure he has read it. I am sure he has taken on board some of the points the Committee made. When seeking to legislate, it is important to first see where the problems are and where gaps exist, to listen to all those with experience—when we conducted the inquiry we did not just go to the usual suspects; many members of the private sector also gave evidence—and try to come to a conclusion that will provide the basis for sound legislation.
The Minister, who is newly appointed to his position in the Home Office, will have a pretty easy ride in respect of today’s proceedings, because I understand that there will be no vote. There is general support throughout the House for the measures the Government are proposing. They are the right measures and they are sound measures. They are designed to deal with the issues of criminality and terrorism. On those two issues, he will always find a House united. However, I hope he does not take that support as carte blanche to get the proposed legislation through in its entirety. I hope Members will table amendments in Committee based on the important points they have made today. I hope the hon. Members for Dumfries and Galloway (Richard Arkless) and for Aberdeen North (Kirsty Blackman), my hon. Friend the Member for Islwyn (Chris Evans) and others will table amendments relating to the important measures they have put forward. In advance of her speech, I want to congratulate my hon. Friend the Member for Ealing Central and Acton (Dr Huq), who will be making her maiden Opposition Front-Bench speech on this important subject. More importantly, she will not be dividing the House, for which I think we are all very grateful.
The Bill identifies three priorities, which I will compare in turn to the findings of the Select Committee report published earlier this year. Robert Barrington, the director of Transparency International, says that every year over £100 billion might be laundered through the United Kingdom. That is equivalent to the GDP of Ukraine. A lot of that money goes through London, but as we are reminded by our colleagues from north of the border, other great financial centres, such as Edinburgh, are also used. Colleagues from Northern Ireland—we were having our own little debate as the main debate was going on—pointed out the particular difficulties they face, as Dublin is sometimes used by money launderers as an entry point to the EU. All those great financial centres are being used in this way, which is why it is right that action is taken, and taken immediately.
The Committee was shocked to find that poor supervision and enforcement in the London property investment market are making a safe haven for laundering and the proceeds of crime, a point made by the shadow Home Secretary. As we found out from the regulators themselves, it is far too easy for this to happen in a financial centre like London, which we believe—Edinburgh is, of course, respected—to be the greatest financial centre in the world. It is therefore essential to look at the markets here, how regulation operates, and try to deal with it in a constructive and positive way.
The hon. Member for Newark (Robert Jenrick) is not in his place, but he raised what I thought was a very important point about the necessity for resources. The Committee found that the private sector was using suspicious activity reports as a box-ticking exercise, sending in their information because it was their duty to do so. I was heartened by what the Minister said about the Government’s wish to cut through red tape so that information is sent on as quickly as possible.
Only 335 of the 1.2 million property transactions were deemed to be suspicious in 2015. The estate agents and their regulators were saying themselves that it was not possible to deal with all the complaints because there were so many of them.
We—Committees of this House, Members of Parliament —have made the point over a number of years that the assets and finances available to our law enforcement agencies cannot compare with the level of criminality in existence. Let us look at the budgets of the three main organisations dealing with this issue: the National Crime Agency has a budget of £450 million; the Financial Conduct Authority has a budget of £500 million; and the Serious Fraud Office has a budget of £45 million. However, the amount of criminal assets recovered has been very poor—only £155 million was recovered in 2014-15.
In defence of those three agencies, whose assets total about £1 billion a year, they say that it is not just about the recovery of assets—they are involved in other areas and they are part of other operations, which mean that the contribution that they make is not fully assessed. However, if we just compare like for like, we will see quite a difference between what the budgets are and what is recovered.
I pay tribute to Lynne Owens, who has done a tremendous job as head of the NCA. The creation of the National Crime Agency was one of the legacies of the previous Home Secretary, now the Prime Minister. In fact, I am on record as saying that we had something of a revolution in policing in the six years when the Prime Minister was the Home Secretary. The whole of the Home Office was shaken up and new organisations and institutions came into existence. She stayed Home Secretary longer than any other Home Secretary since the last century. We cannot expect Home Secretaries to stay for ever—as with Chairs of Home Affairs Select Committees, there is always an end to the fun of doing these jobs. The fact remains that there are aspects that have not fully settled down, and one of them is the ability to give organisations the resources they need in order to finish the job.
Lynne Owens is doing a terrific job, as is her organisation, but I am extremely worried about the computer system that exists to do the very things that the Government want to do. I assume that the Policing Minister will be winding up this debate. When he does, he will, I hope, have the answer to the question I posed to the Minister for Security—the question has been posed over months and years—about when the ELMER system is going to be renewed. It is all very well saying that we want more information coming in but, if we look at the figures, we know that they just do not add up. This is an old and creaking system, designed to manage only 20,000 suspicious activity reports. On the basis of the last available figures, there were 381,882 suspicious activity reports, so how is a system designed to deal with 20,000 supposed to deal with 381,882?
The Minister seemed to be saying that people are ticking boxes and sending in information and they do not need to send in that information, but I do not think that we should expect the private sector to be involved in becoming officers of the law. It is similar to what we have seen over the last five years with landlords becoming immigration officers, as have people working for airlines when they check passports and tickets. Despite what immigration Ministers have said over a number of years, we do not have 100% immigration checks on exit. The airlines check, but no immigration officer checks a passport or a ticket on departure from our airports, which is very sad. That is a different story. My issue is that we cannot get staff in the private sector to act as enforcement officers; they are not trained to do so. That is why we need a new computer system.
When we asked the then Home Secretary—the present Prime Minister—about that, she had no answer to the question of who was going to pay the bill. Would the money come from the budget of the National Crime Agency? Would it come from the Home Office budget? That, I think, is crucial to ensuring that this legislation is properly resourced. Are we going to give the NCA and the Serious Fraud Office the equipment that will enable them to deal with these issues productively? I hope that the Minister will tell us when the new ELMER system will be established, because that is a fundamental issue when it comes to suspicious activity reports.
Another aspect of the Bill is the granting of powers allowing banks to close accounts. I believe that the threshold is too low, and that the Minister must look at that, although it is really a Treasury issue. A number of my constituents have come to me—I know that this applies to other Members as well—and expressed concern after being told that their banks have closed their accounts. They are never given an explanation. Unfortunately, that has happened to too many members of the south Asian diaspora community, and, indeed, the African community. The Somali community was so concerned that representations were made to Treasury Ministers that, just because they happened to be Somali, their bank accounts had been closed. On Friday, I met someone from the Yemeni community who had been told that his bank account had been shut down in 28 days. He had been given no explanation, because banks are private organisations.
Obviously we do not want people to be told “By the way, we are closing your bank account because you are a terrorist” if inquiries are ongoing, but certain explanations need to be given. We need to be sure that the powers that we are granting are appropriate to the agencies to which we are granting them.
Charlie Elphicke
May I take up the issue of money laundering and the NCA? When I was a lawyer, one would do an ID check and then the information would be put in the bottom drawer, never to be seen again. If one were at all concerned, one would just do a “tipping off” and dump it on the authorities as a box-ticking exercise. There is no qualitative method of processing such information. Does the right hon. Gentleman agree that there should be such a method?
Keith Vaz
I think that, when it comes to the hon. Gentleman, it is probably a case of “once a lawyer, always a lawyer”. He is absolutely right. Training should be given to those who are involved in these activities, and in each organisation there should be a compliance officer who has received the necessary training. I do not know what kind of law the hon. Gentleman practised, but we would not expect every single lawyer to be trained to deal with issues such as SARs. We would expect a compliance officer in a big firm of solicitors to be able to do that, because there would not be the time to train everyone. However, I do not believe that that would cut the figure of 381,000 to 20,000. Faced with a third of a million SARs, even the best-trained lawyer—and I would put the hon. Gentleman among, probably, the best that one could find—would not be able to lower that figure. So as well as giving the private sector more responsibility to check, we need to ensure that the equipment is fit for purpose.
Let me commend the suggestion made to the inquiry by the outgoing Metropolitan Police Commissioner, Sir Bernard Hogan-Howe. I pay tribute to the excellent work that he did as commissioner. The hon. Member for Louth and Horncastle (Victoria Atkins) will remember that, when she was a member of the Home Affairs Committee—before she was poached by the Policing Minister to become his Parliamentary Private Sector; we used to train them well in the Select Committee— Sir Bernard came up with a suggestion that was very important in relation to those who were involved in criminal activity. I raised this point with the shadow Home Secretary, and I am grateful to her for saying that she would consider it. I hope that the Policing Minister will also consider it, because when it comes from someone as distinguished as the Metropolitan Police Commissioner it is worth looking at again.
Those Mr Bigs or Mrs Bigs who serve their sentence and come out of prison and still have not paid their compensation order are at an advantage. I agree with my constituency neighbour, the right hon. and learned Member for Harborough (Sir Edward Garnier), that we probably should not keep them in prison indefinitely, but there needs to be some sanction for them to pay up.
One of the issues that arose was that compensation orders were given for assets that probably did not exist. They sound like fabulous figures in court—“This criminal involved in mass criminal activity has millions and millions of pounds”—but actually they do not have those kinds of assets. We need to be realistic about what we are going to recover when we issue the compensation orders. However, there needs to be a penalty. We need to ensure that something is done so these people have to pay up before they come out of jail, otherwise they will simply use a sentence as an opportunity to be detained at Her Majesty’s pleasure and come out and have access to that money.
Finally, Mr Deputy Speaker—or should I say very finally? [Interruption.] I did not realise we were short of time; I thought this debate was ending at 7 o’clock.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. There is not a shortage of time, but when the right hon. Gentleman says “Finally” I actually believe him.
Keith Vaz
Mr Deputy Speaker, after all these years how can you believe a Member when they say, “Finally”—how can you assume they are about to finish their speech? But this is very finally, in honour of you, Mr Deputy Speaker: when the Policing Minister replies, I want him to address the issue of the police funding formula.
We have been waiting for a long time for the new police funding formula to be decided upon. Every Member of this House has a constabulary. That includes you, Mr Deputy Speaker, and Lancashire was very vocal last year: its Chief Constable Finnigan said he was running out of money and the reserves were going to run out.
All the constabularies have been waiting for the Policing Minister to announce the arrival of the police funding formula. His predecessor told the House he could not give us the formula because Sara Thornton, head of the Association of Chief Police Officers, now at the National Police Chiefs’ Council, was doing her analysis and we could not have a police funding formula until she had completed her work. I understand that that is not the case and that there is no reason why we cannot have the police funding formula.
Why do we need that to deal with the issues raised in the Bill? It is because it is not all about the City of London. This kind of activity happens all over the country and if we expect local police officers in Leicestershire, Lancashire, Kent, Sussex and throughout the country to be able to plan to deal with this issue, we need the formula. Therefore, I hope that, as well as telling us about ELMER, the Minister will give us the co-ordinates and the new date for the announcement of the police funding formula.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
This is the first time that I have spoken from the Dispatch Box and I am pleased to find it accommodates even people of Rupa size.
I am pleased to be responding for the Opposition on the Criminal Finances Bill, which touches on issues that have been catapulted into the public eye with both the Panama papers scandal and the anti-corruption summit held here in May under the previous Prime Minister—how long ago that all seems now.
We have had a good debate today, which has strayed into the murky underworld of illicit finance, terrorism and international aid as well as home affairs, and we have had contributions from my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Leicester East (Keith Vaz), my hon. Friend the Member for Islwyn (Chris Evans), the right hon. and learned Member for Harborough (Sir Edward Garnier) and the hon. Members for Kingston and Surbiton (James Berry) and for Dumfries and Galloway (Richard Arkless) among others.
This Bill seeks to tackle money laundering and corruption, to recover the proceeds of crime and to counteract terrorist financing, all measures Labour supports. This seems like good news in a year in which that has been in short supply on many fronts, but we must temper our reasons to be cheerful by identifying certain omissions and sounding some notes of caution.
First, the green ticks. We welcome the eye-catching unexplained wealth orders, which would force individuals with assets way above their means to account for those possessions, which can now include jewellery and art work as well as property. The new seizure and forfeiture powers will mean that such assets can be frozen and possession of them can be taken. As a London MP, I am all too aware of genuine Londoners who want to get a foot on the property ladder, but the transactions involving the ill-gotten gains of gangsters are messing things up for those people and creating an over-heated property market.
We also commend the fact that the investigatory powers are being extended to politically exposed persons. A thumbs up, too, for the new offence of failure to prevent the facilitation of tax evasion being applied to corporations and regulatory bodies. We also applaud the improved data sharing between the private and public sectors, and the Government’s extension of disclosure orders to money laundering investigations, bringing them into line with corruption and fraud investigations. Also to be commended are the strengthened suspicious activity reports. The period of investigation used to be 31 days. I think that there will now be six extension periods, adding up to 186 extra days. We live in an age when terrorism is probably the biggest threat of our time, so we also welcome the extension of powers to include terrorists’ property and finances.
So, what’s not to like? We acknowledge the steps being taken to tighten the net on corrupt practice, and we shall not seek to divide the House this evening, but more could be done to end the status of the UK as a magnet for dirty money. There should be no safe havens, particularly in our own back yard, where the proceeds of international corruption often turn up. Taken as a package along with its overseas territories and Crown dependencies, the UK constitutes the most secretive tax jurisdiction in the world. That is not a record to be proud of. Good work has been done in the reports produced by the Public Accounts Committee and the Home Affairs Committee, when they were chaired by my right hon. Friends the Members for Barking and for Leicester East, but not all their suggestions have been taken up. Many Members on both sides of the House have flagged up the fact that action must be taken on our overseas territories and Crown dependencies, and we argue that they need public registers of beneficial ownership. The British Virgin Islands and the Cayman Islands are among the worst offenders, and we administer them. We assert that this is the most gaping hole of all.
A trick has been missed. Applying transparency to those opaque corporate structures is a key part of the solution, but the Bill does not go there. We know that 75% of the corruption cases investigated by the Met police’s proceeds of corruption unit involve companies in secrecy jurisdictions, and that 78% of the companies involved are registered in the UK’s overseas territories or Crown dependencies. We need full transparency, but the Bill does not go far enough. A measure on the failure to prevent economic crime was trumpeted in May 2016, but it is missing from the Bill. Without some degree of transparency in company ownership, we cannot be completely aware of the scale of the problem or the damage that is being done. Kenya, Nigeria and Afghanistan have all conceded this point.
It has been pointed out that the people interpreting the rules need resources, and the weaponry that we use for crime-fighting could do with an update. The National Crime Agency will have more work to do, so the Bill will have cost implications in that regard. The agency is the successor to several bodies that have been merged. Notwithstanding the one-off cash injection that it received in the spending review, it needs consistency in its funding rather than just receiving one-off blockbuster sums. My right hon. Friend the Member for Leicester East eloquently made the point that there were serious question marks over the IT system designed to support the suspicious activity reports regime. It was originally designed to deal with some 20,000 cases, but, as he said, it is currently processing 381,882 of them. It is creaking at the seams. A new system was promised—I think its name is ELMER—and I again ask the Minister to tell us when we can expect it.
Keith Vaz
I can assure my hon. Friend that I would never want to reduce her time. I congratulate her on making an excellent maiden Front-Bench speech.
The delay in ELMER, and in the new system that the Government will want to put in place as technology moves on, will lead to more criminal activity. The quicker this is done, the better.
Madam Deputy Speaker (Mrs Eleanor Laing)
I reassure the hon. Lady that she is quite safe in giving way during a winding-up speech. She has plenty of time. Indeed, she has until 10 minutes to 7, but she will know that the House would prefer that she does not take quite that long.
Dr Huq
I am grateful to you, Madam Deputy Speaker, and to my right hon. Friend for his intervention. I will resist the temptation to sing, rap or recite poetry and will finish well before 10 minutes to 7.
My right hon. Friend makes a good point. We cannot fight modern cyber-wars with catapults. Technology changes and we need to upgrade this wholly inadequate system. We were told that that was happening; we want to know when.
New powers for the Serious Fraud Office are all well and good, but it needs officers with the right training. Since it was set up in 2009, it seems as though the public purse has been used to train officers in financial crime, yet we are simultaneously powerless to prevent them from falling prey to private sector poaching, so something needs to be done. There was to be a working group on the recruitment and retention of investigators—what became of that? Are some of those deficiencies to be plugged at a later stage?
At the moment, 27 separate bodies are responsible for asset recovery—people who investigate SARs—and they are often in the private sector and sometimes funded by the groups they regulate, so there is a mismatch. It would not be a bad idea to have an overall SAR tsar or tsarina to get some coherence. What progress is being made on the anti-corruption strategy due by the end of the year? I understand that a joint ministerial council will meet at the Foreign Office next week. Will tax issues be on the agenda? If the Minister does not know, will he have a word with his friends in the Foreign Office to find out? If it is not on the agenda, can I politely suggest that it be added urgently?
What are the Government doing to ensure transparency in our overseas territories and Crown dependencies? What is the plan? My right hon. Friend the Member for Barking suggested that the Government could at least set a timetable to allow them time to adjust. In the meantime, will the Government give them every support to transition their business? They have propped up this business model for a long time and they need to move away from facilitating corruption. Without action in our tax havens, the small bits of good news in the Bill will be overshadowed by the Government’s failure to act. The Government should be able to persuade their own territories to follow their lead. Members on both sides of the House paid tribute to the former Prime Minister and his ambitions in this area.
We need to get away from the idea that not paying tax, whether by avoidance or evasion, is a victimless crime. Countries in the developing world lose three times as much to tax havens through illicit funds and re-laundering than they gain in aid. It adds up to a trillion pounds a year and we are pumping aid into these places at the same time—it makes no sense. Given our straitened circumstances, we should be justifying every pound spent, but HMRC estimates the tax gap to be £36 billion, including £5.2 billion owed to our Exchequer from tax evasion. My right hon. Friend the Member for Barking quoted the same figures, but other interest groups say that they are conservative estimates. By definition, secret transactions and hidden money mean that we do not really know the true extent. For that £5.2 billion, we could get 42,000 full-time doctors or 54,054 nurses a year. As my right hon. Friend the Member for Leicester East pointed out, we have a poor record of recovering costs, and these things do not pay for themselves.
The practices that this Bill seeks to tackle expose the dark side of globalisation, its links to terrorism, and the way global financial cross-border crime, terrorism and all these things can be done nowadays at the click of a mouse, meaning that illicit funds can fuel a golden age of money laundering. That is entirely possible and we do not want it to happen. We do not want illicit funds to finance terrorist operations, aided and abetted by financial secrecy jurisdictions of our own.
Governments can hold all the summits they like and people can orate good intentions, but warm words need to be matched with action. This Bill is a case of “could do better” on the Government’s report card, and I urge them to work together with us. In Committee, we will be pressing the Government on some of the issues outlined today—and more. When the opportunity for reform presents itself, the Government will surely not want to go down as having bottled it. We will not oppose this Bill on Second Reading, and we look forward to contributing constructively to its passage through Parliament.
The Minister for Policing and the Fire Service (Brandon Lewis)
I thank right hon. and hon. Members for this informed and valuable debate. We have heard strong and important contributions, and there has been support from both sides of the House for the principles behind the Bill. We will have interesting and strong discussions in Committee.
As my hon. Friend the Minister for Security emphasised at the start of the debate, there can be no doubt about the seriousness of the threats of terrorism and organised crime, or about the scale of the challenge that we face in combating them. As of July last year, about 5,800 organised crime groups were operating in the UK. Fraud due to organised crime is thought to cost this country about £9 billion, and the social and economic costs of illegal drug supplies are estimated to be some £10.7 billion a year. As has been said, these are not faceless, victimless crimes; they have an impact on people we know and those who live in our constituencies.
As we have heard, the UK is a fantastic place to do business, and the Government want to maintain that. We want to send out a clear message across the country that we are open for business, but if we are to maintain our position, we must ensure that this is one of the cleanest and safest places to invest. We need to send a message to those who would seek to corrupt legitimate trade.
I am grateful to all right hon. and hon. Members who have contributed to the debate, and I particularly welcome the hon. Member for Ealing Central and Acton (Dr Huq) to her Front-Bench role. I also welcome the hon. Members for Dumfries and Galloway (Richard Arkless) and for Kirkcaldy and Cowdenbeath (Roger Mullin) to their roles. I was pleased to hear that the Minister for Security has had the opportunity to discuss the Bill with the official Opposition and Scottish National party Members prior to the debate—indeed, some of the paperwork was shared some two months ago—and I know that we will continue that conversation during the passage of the Bill.
It is clear that Members on both sides of the House want to contribute to make sure that we end up with a robust, strong system of which this country will be proud. Almost without exception, hon. Members who have spoken have understood the importance of these powers and been supportive of the Bill. Of course, it is right that on such issues as money laundering and terrorist finance, the House should present a united front, as it is doing on the principle behind the Bill. I welcome the fact that in our consultation on the Bill, a diverse group of stakeholders—ranging from the major banks, which have been mentioned today, to law enforcement investigators, prosecutors and civil society groups—have given an overwhelmingly positive response to its provisions.
Mark Field (Cities of London and Westminster) (Con)
I apologise that I was not able to contribute to the debate itself. I am afraid that I am a veteran of the consideration of the Bill that became the Proceeds of Crime Act 2002. Although I accept that there is a great deal of unity regarding some of this Bill’s provisions, the real issue is how enforceable those provisions are. It is important that the Bill is scrutinised very carefully in Committee because there is a danger that although we will put on to the statute book a lot of new laws, some of which might be regarded as rather draconian, they will not be properly enforced by the police, or will be ruled out by the judiciary when matters come to court. That is the one caveat I would set out, although it is right to say that these powers are important, especially the new ones in relation to counter-terrorism, which were not envisaged at the time of the 2002 Act.
Brandon Lewis
My right hon. Friend makes an important point, particularly by outlining the importance of the Bill’s Committee stage to ensure that Members have a chance to have an input into the debate, as indeed they have had this afternoon. He should have great faith in my hon. Friend the Minister for Security, who is determined to work with colleagues to ensure that the Bill is robust. The Bill gives a clear message to those who want to try to usurp our system that that will not continue—we will not allow it. Although we are a country that is open for business, we are also a country that believes in fairness and that will ensure that fairness prevails.
A couple of core issues have been raised by a number of Members, particularly about the overseas territories. We heard speeches from the right hon. Member for Barking (Dame Margaret Hodge), and the former Chair of the Home Affairs Committee, the right hon. Member for Leicester East (Keith Vaz). We have agreed that UK law enforcement and tax authorities will have, in real time, unrestricted and secure access to things such as the beneficial ownership initiative, and information about corporate and legal entities incorporated in the overseas territories and the Crown dependencies.
The right hon. Lady outlined the excellent work of David Cameron and the strong message that he gave when he was Prime Minister. This is something that the current Prime Minister is determined to continue. We will ensure that there is an end to people usurping the law. It is important that we work closely with our colleagues around the world to ensure that we have a strong and robust system. We have taken a lead on this. Those territories have agreed that they must commit to new global standards in tax transparency so that Her Majesty’s Revenue and Customs can investigate any untoward activity. As a result, later this year, HMRC will have new data on billions of pounds of accounts held in the overseas territories by UK taxpayers. This is a big step forward. I know that we as a Government are determined to ensure that we stamp out that kind of behaviour.
Funding was mentioned by a number of Members, including the right hon. Member for Leicester East. The NCA’s funding has increased from £448 million to nearly £478 million over the past year and police budgets have been protected. Funding for HMRC has also increased—up to £3.6 billion, with the £241 million input that was mentioned earlier.
I can be clear that we are determined to ensure that the police and the NCA have the resources that they need to be able to look at all this in the round, including IT issues. The right hon. Gentleman suggested that I use the debate to discuss the police funding formula, but he will have to excuse me for resisting that temptation for now. Over the past few weeks, I have written to all chief constables and police and crime commissioners to ask them to come to talk to me as we seek to deliver our election manifesto commitment of a fair funding formula for police, which we will do.
In response to comments about the overseas territories and Crown dependencies, I am pleased to announce that the British Virgin Islands and the Turks and Caicos Islands have just—conveniently, as I am here at the Dispatch Box this afternoon—committed themselves to the initiative on beneficial ownership, which many hon. Members have spoken about today. All the overseas territories have now agreed to have central registries, which will be accessible to law enforcement authorities. We will continue to push for all countries to introduce public registers. This is good news, and we will continue to work on it.
Richard Arkless
Clearly, I am delighted to hear the good news that the Minister has just given. Can he confirm whether his announcement confirms that those registers will be published?
Brandon Lewis
As I said just before the hon. Gentleman intervened, we will continue to push for all countries to introduce public registers. This is a step in the right direction. I welcome it, and we acknowledge that we want to continue to work on this. Another issue raised by his good self, as well as the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) and others, was about Scottish limited partnerships. I hope that they will take into account the fact that my hon. Friend the Minister for Security intervened to say that we want to work on that with colleagues across Parliament. We have very much taken those points on board.
My right hon. and learned Friend the Member for Harborough (Sir Edward Garnier) and my hon. Friends the Members for Kingston and Surbiton (James Berry) and for Wealden (Nusrat Ghani) spoke passionately and made incisive contributions. In particular, my hon. Friend the Member for Wealden outlined the Bill’s importance given the part that it will play in ensuring that we fight the funding of extremism. We have discussed the Bill’s vital importance in protecting the UK’s position and status as a global financial centre and in ensuring that criminals cannot benefit from the proceeds of their crimes. I expect and hope that right hon. and hon. Members will want to give in-depth scrutiny to the Bill, as they have suggested this afternoon, as we move on to clause-by-clause examination in Committee, and I look forward to a lively debate on its provisions.
I am proud that, by comparison to most European countries, we are positioned high in the league table for having a strong and independent judiciary, as well as a determined law enforcement environment. If we are to maintain our record and position, we always need to stay one step ahead of those who seek to undermine our attempts, especially in such a fast-moving global environment. That is why the Bill is so important, why it is reassuring that it has received principled, cross-party support in the House, as that sends a clear message, and why we must ensure that law enforcement agencies have the powers they need to combat the ability of criminals to launder the proceeds of their crimes, as well as to tackle terrorism financing and to bring more offenders to justice. I hope that the House will agree that that is in the public interest and that the Bill should be passed at the earliest opportunity with clear, continued cross-party support. On that basis, I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Criminal Finances Bill (PROGRAMME)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Criminal Finances Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 24 November 2016.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.
Other proceedings
(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Andrew Griffiths.)
Question agreed to.
Criminal Finances Bill (MONEY)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Criminal Finances Bill, it is expedient to authorise—
(1) the payment out of money provided by Parliament of—
(a) any expenditure incurred under or by virtue of the Act by a Minister of the Crown or a government department; and
(b) any increase attributable to the Act in the sums payable under any other Act out of money so provided; and
(2) the payment of sums into the Consolidated Fund.—(Mel Stride.)
Question agreed to.
Criminal Finances Bill (First sitting)
Tuesday 15th November 2016
(7 years, 5 months ago)
Public Bill CommitteesRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2016 - (15 Nov 2016)
The Chair
We are now sitting in public and the proceedings are being broadcast. Before we begin, I have a few preliminary announcements to make. First, can everyone switch off their electronic devices or move them to silent, if that is possible? As you all know, the rules of the House are clear that no teas or coffees are allowed during sittings. We will first consider the programme motion on the amendment paper. We will then consider a motion to allow us to deliberate in private about our questions before the oral evidence sessions and a motion to enable the reporting of written evidence for publication. In view of the time available, I hope we can take those matters formally, without debate.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 15 November) meet—
(a) at 2.30 pm on Tuesday 15 November;
(b) at 11.30 am and 2.00 pm on Thursday 17 November;
(c) at 9.25 am and 2.00 pm on Tuesday 22 November;
(d) at 11.30 am and 2.00 pm on Thursday 24 November;
(2) the Committee shall hear oral evidence in accordance with the following Table:
Date | Time | Witness |
|---|---|---|
Tuesday 15 November | Until no later than 10.20 am | National Crime Agency; National Police Chiefs Council; Metropolitan Police |
Tuesday 15 November | Until no later than 11.00 am | HM Revenue and Customs; Serious Fraud Office; Crown Prosecution Service |
Tuesday 15 November | Until no later than 11.25 am | Tax Research UK; Tax Justice Network |
Tuesday 15 November | Until no later than 3.15 pm | British Banking Association; Financial Conduct Authority; Law Society |
Tuesday 15 November | Until no later than 4.00 pm | The Herald; Christian Aid |
Tuesday 15 November | Until no later than 4.15 pm | Rt Hon Dame Margaret Hodge MP |
Tuesday 15 November | Until no later than 5.15 pm | Royal United Services Institute; Corruption Watch; Global Witness; Transparency International UK |
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 14; Schedule 1; Clauses 15 to 29; Schedule 2; Clauses 30 to 32; Schedule 3; Clause 33; Schedule 4; Clauses 34 to 44; new Clauses; new Schedules; Clause 45; Schedule 5; Clauses 46 to 51; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 24 November.—(Mr Wallace.)
The Chair
Therefore, the deadline for amendments to be considered at the first two line-by-line sittings has passed.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Mr Wallace.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Mr Wallace.)
The Chair
Copies of the written evidence that the Committee has received will be made available in the Committee room. We will now go into private session to discuss lines of questioning.
The Chair
We are now sitting in public again and the proceedings are being broadcast. Before we start hearing from the witnesses, do any Members wish to make any declarations of interest?
Victoria Atkins (Louth and Horncastle) (Con)
I used to practise as a criminal barrister and prosecute for many of the agencies that would use these powers.
The Chair
I think there are many in this place who are guilty of the same thing. We will list that.
Byron Davies (Gower) (Con)
I am a former Metropolitan police officer and member of the National Crime Squad.
The Chair
We will now hear oral evidence from the National Crime Agency, the National Police Chiefs Council and the Metropolitan police. Before calling the first Member to ask questions, I remind Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion that the Committee has agreed for this section, which will end at 10.20 am. Will the witnesses please introduce themselves for the record?
Donald Toon: Good morning, Chair. I am the prosperity director for the National Crime Agency. As part of my role I am responsible for the agency’s response to financial crime, including the operation of the UK Financial Intelligence Unit and, therefore, the suspicious activity reporting system. I am also responsible for our work on money laundering and asset recovery. As part of the agency, we have a responsibility to co-ordinate the law enforcement response to serious and organised crime, in this case in respect of money laundering and criminal finances.
Mick Beattie: Good morning. I work for the National Police Chiefs Council, which is the governing body of chief officers for the policing forces of the UK. I report directly to Mick Creedon, the national lead for financial investigation asset recovery. I am also the subject-matter lead for the regional organised crime units, which is the serious organised crime response from UK policing.
Detective Superintendent Harman: Good morning. I am a detective superintendent with the Metropolitan Police Service, specifically the SO15 counter-terrorism command. I head up the national terrorist financial investigation unit. Our responsibility is the investigation and prosecution of terrorist financing offences and financial investigation more generally within a counter-terrorism context.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
Q Thanks very much for coming in today. I have an easy question first. Because you all enforce this every day, what are the current difficulties with the legislation that we have in recovering assets from individuals who are suspected of involvement in criminal activity overseas?
Donald Toon: One issue is the ability to have an effective overseas end to the investigation. A particular problem around international corruption has been the need to have evidence from overseas, often from a difficult jurisdiction if we are talking about political-level corruption, that is capable of being used in a UK court to take action to recover assets. From our perspective, the introduction of the unexplained wealth order is a particularly important step in response to that.
The other issue, perhaps, has been very much the ability to have sufficient time to be able to get evidence from overseas in standing up a law enforcement response to a suspicious activity report, where that report may be looking for a defence against money laundering, commonly known as a consent SAR. The difficulty there is that we run against a 31-day moratorium period. Essentially, if we cannot have a law enforcement case in front of a court within 31 days for restraint of the assets, there will be a deemed consent and transactions will continue. That is acutely difficult when we are looking for information from overseas. In some jurisdictions that can take an extended period.
Another piece in the Bill that is particularly useful is the extension of the moratorium period, subject to court order, of up to 186 days. In terms of references to the legislative position, it is very much that ability either to get evidence or find a mechanism by which we do not need to rely on overseas evidence, particularly when we are talking about difficult jurisdictions.
The other area that is particularly difficult for us has been very much around the ability to access beneficial ownership information overseas. Although not strictly part of this Bill, that has been a recent focus for legislative change. That is a particular issue for Crown dependencies and overseas territories. I can expand on that as necessary.
Mick Beattie: Yes, I echo those sentiments. Over the past 13 years, operational use of the Proceeds of Crime Act 2002 has thrown up some operational challenges, many of which have been addressed in the Bill. In terms of investigative resources, an example of that would be disclosure orders. The current system operates as follows: if you have a suspect A identified as having accounts in bank B, then an investigator investigating that person for money laundering would go to the court for a production order. If the court approves the order and it is then served on a financial institution that subsequently gives over the information required that identifies yet another account at bank C, then the investigator has to go back to the court to obtain another production order, and go through the same process of serving an order on the second bank.
If that bank again identifies another account at another bank, then the process is repeated. When awarded, a disclosure order, or something like it, lasts for the lifetime of the investigation, and can be served on anybody with an interest in or information relating to the matter. The resource implications could be massively improved from something like a disclosure order.
As far as items of portable wealth are concerned, legislation exists that refers to cash seizure. We have civil legislation that caters for anything over £1,000 that is deemed to be identified as resulting from criminal conduct or being used in criminal activity, but criminals are adaptive. They can transfer that cash into items of wealth such as watches and jewellery, which are easy to transport. The new legislation relating to that gives us more opportunities to search and seize those kinds of items.
Dr Huq
Q In relation to what you said about portable wealth, do you think the £100,000 limit is about right, or can people convert money into things worth £95,000 by buying paintings up to that value?
Mick Beattie: They can, and obviously they can collaborate among themselves to do that. Getting through that is an operational challenge for us. We have to try and investigate that as part of the investigation, and we have to look for those kinds of things. Anybody who facilitates that is potentially committing money laundering offences themselves, and can be brought into the investigative chain.
Dr Huq
Q Is £100,000 a good figure or is it an arbitrary figure plucked from the air?
Mick Beattie: I do not know how the figure came about. It is a high figure, but we are talking about serious and organised crime and criminals here, and they operate in those kinds of areas of value. I would not know the origin of the £100,000 figure.
Detective Superintendent Harman: There are a great deal of positives around international co-operation in the counter-terrorism area, as you might expect. There are strong relationships across the world for the purposes of sharing intelligence, and doing so quickly. As with our colleagues, what can slow us down is when we are looking for evidence that we can use in a court during a criminal prosecution. That can take a bit more time, so the first challenge is the time that it can take.
There is also the issue of the visibility of what money is used for. We may very well be able to show that money was sent out to Syria, for example, and we may have a strong case for believing that that money was used for terrorist purposes in theatre, but to follow that money into the hands of a terrorist and show what is was actually used for is and probably always will be a challenge for us. Where this Bill may help us is in the fact that the more that banks—they often have an international visibility and reach—can tell us about transactions, the more they can share information with each other and build up that picture. That will help us in our international anti-terrorism efforts.
The other point I would make is that in terrorism we are often talking about smaller amounts of money. Sadly, it does not cost a great deal of money to commit a terrorist attack, depending on its scale. Spotting those smaller amounts within the financial system and dealing with those smaller amounts moving overseas is again more challenging, although not impossible.
Dr Huq
Q The Public Accounts Committee did a report on confiscation orders. It said that there was a tension between whether the point is to disrupt crime or recover criminal assets—sometimes they are facing in two different directions. Would you three agree with that? If we enact all the clauses in the Bill, will the new version improve the mismatch between those two limbs?
Donald Toon: I am not sure I would necessarily feel that there was a tension overall. The issue from our perspective is around the roles and responsibilities of the agencies involved that are using the legislation. The statutory duty of the National Crime Agency is to secure an effective response to the threat from serious and organised crime. One aspect of that is to make use of the powers in the Proceeds of Crime Act 2002 for the disruption of criminality. From our perspective, that is the responsibility of the agency. It is about the relentless disruption of serious and organised crime, where we are able to do so, using whatever tools are available to us, rather than purely focusing on the recovery of assets. That said, to be effective in using financial disruption we will very often use either the criminal confiscation process or civil recovery, which ultimately recover assets.
One of the points to cover is that, from our perspective, it is very much about asset denial. If we are talking about overseas, large-scale corruption, the point is about denying the criminal, the corrupt individual or their representatives access to the funds. If that means the funds are ultimately dissipated, for example, through legislation, we have still denied the criminal that access. Our focus is fundamentally around the vulnerability within the system, rather than purely about getting money and assets back for the Government and the taxpayer. That is a particular point when talking about overseas criminality.
Dr Huq
Q Do you think £100,000 is about right as a threshold or should it be lower for the unexplained wealth order?
Donald Toon: I think it is a perfectly reasonable value. The vast majority of property involved is of high value. If we are talking about property in the UK linked, for example, to non-European economic area politically exposed persons, it is almost certainly going to be of significant value. A small case from our perspective would be somewhere a little under £1 million. The majority of the casework in that space will be multiple millions, if not much higher.
Mick Beattie: For me, anyone who enters the criminal justice system should not be leaving it with their criminal assets intact. It is all about removing those criminal assets. First, they provide the symbolism of wealth and status that money or assets can provide. Secondly, removing those assets is a good mechanism for reinforcing the compensation programme—we can compensate victims as a result of confiscation, with the enforcement capability behind it. It also stops reinvestment into crime, as mentioned by Donald. Commodity purchase is required to perpetuate the continuing criminality.
For me, it is all about removing those assets and everything associated with it and the image that is portrayed by the retention of those assets. It is well documented by some that serious and organised criminals are quite happy or quite prepared to do the time relevant to a prison custodial sentence. What really hurts them and their associates and family members is the denial and removal of the assets and the image that portrays to the public. It gets a lot of positive reception when we carry that out. From a public perception point of view, we know how much they appreciate the removal of assets.
Dr Huq
Q And on asset recovery?
Detective Superintendent Harman: Counter-terrorism is quite a different context for asset recovery, as you will appreciate. The people we are interested in are not looking to make a profit, and they are not looking to embark on an enterprise that is going to last for a long period of time and create a huge amount of wealth. They are looking to get money to achieve an objective. Our absolute priority is keeping the public safe and stopping a terrorist attack. Our absolute priority is therefore getting hold of that money and controlling it before it can be used. It is not much good to us to be retrospective after the fact: we are looking at stopping the attack. For us, it is about seizing assets before they can be smuggled overseas, seizing assets while they are sitting in a bank account, and interrupting and intercepting transactions that banks have hopefully reported to us as being suspicious.
Yes, of course, some of our terrorists do use crime to make money to commit terrorism, but really, we are not so much in the business of seizing huge amounts of assets. We are looking at stopping the cash before it can be used to hurt the public.
Dr Huq
Q What do you think of the £100,000 figure?
Detective Superintendent Harman: It sounds a reasonable figure to me when we are dealing with a higher end, it certainly does, but we operate less in that realm. We are more about the slightly smaller amounts causing a great deal of harm.
The Minister for Security (Mr Ben Wallace)
I want to clarify the point: the seizure threshold is £1,000 and the unexplained wealth order threshold is £100,000. I did not want members of the Committee to get confused about the two. If we are talking about taking money out of a bank account, it is at the £1,000 level; if we are talking about confiscating assets on an unexplained wealth order, it is £100,000.
The Chair
Order. Can I just say to the witnesses that we have only a very short period of time and there are at least five other members who want to ask questions? The Minister may also do so at the end. Your replies are very informative and welcome, but could you make them more succinct? Similarly, could Members confine themselves to instant questions that people want immediate replies to and that can be given?
Mrs Flick Drummond (Portsmouth South) (Con)
Q Are you confident that the enforcement agencies will have sufficient resources to make full use of the new powers in the Bill?
Detective Superintendent Harman: Yes I am. In fact, the Bill is very helpful for counter-terrorism in that one of its sections allows us to make more of the resources we have. To be brief, about 40% of our financial investigators are police staff, or “civilians”, as they used to be called. Under current legislation, you have to be a warranted police constable to conduct a lot of the financial inquiries that we need to do. The Bill offers those civilian investigators new powers similar to those of a constable, allowing us to make the most of the resources we have. We are very pleased to see that in the Bill and confident we will make good use of it.
Mick Beattie: Likewise, I gave an example of the attendance at court which can be reduced by the disclosure orders. Obviously the policing bill has been cut, as is well documented and, yes, that has been challenging, but there have been some positives. The Government have recently provided additional funding for ACE teams—asset confiscation enforcement teams—which allows us to go chasing confiscation. They have provided additional funding for section 22 where you can revisit outstanding orders—it is a little technical—and, only recently, they have announced additional funding for the regional asset recovery teams, all of which will benefit from the improvements identified in the Bill.
Donald Toon: You have already heard about the disclosure orders but I also think the power to require information for the Financial Intelligence Unit and the information sharing provisions are important in making us more efficient. The one thing I would bring out is that it is not just about resources in law enforcement. We are talking about the ability to harness resources and capability from across the regulated sector, in particular financial institutions. From that perspective, I think it is a huge strengthening of capability.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
Q I would like to take a slightly different tack and ask about the existing powers that you have that this Bill seeks to build upon. I am concerned that the National Crime Agency has declined to deal with the Hermitage case, which has been discussed, and which involves about $30 million laundered in London. Although the evidence provided to the National Crime Agency has been sufficient in other jurisdictions to take action, there has been a refusal to take action here. Why is that the case? Is it a lack of resources or a lack of will?
Donald Toon: Frankly, it is neither. In the Hermitage case, the overwhelming majority of the actual criminality took place outside the UK. One of the key issues in terms of where we focus our attention has got to be the prospects of actually being able to bring the major criminality in front of a court, and hopefully achieve a conviction. The fact is that a number of overseas jurisdictions are investigating criminality that took place in their jurisdiction. The vast majority of the criminality did not take place in the UK, and those responsible are not in the UK. We have supported, we are supporting and we will continue to support inquiries in the UK that are designed to help to bring those people to justice in the jurisdictions where they can actually be targeted.
Roger Mullin
Q With all due respect, what I quoted was $30 million that was laundered in London. I am not talking about the other money laundered through Hermitage in other jurisdictions. My understanding is that they have been buying up different types of assets in London—they are not merely property assets—and that the individuals involved regularly visit London, which would seem to bring it entirely within the remit of the UK to do something about it.
Donald Toon: We have a remit in the UK to do something, as you say, but from our perspective, we have a remit to do something in support of those who are better placed to target the main criminals. My understanding of the position is that I am not at liberty at the moment to go into the detail to which you refer.
Scott Mann (North Cornwall) (Con)
Q I have three questions for you, Mr Toon, if I may. What have been the most significant challenges for the NCA in tackling economic crime? How will the measures in the Bill help the NCA to tackle economic crime? The third question is a small supplementary on the seizure orders and unexplained wealth orders. A small number of people make money from online gambling. Could you tell me how the Bill might affect them?
Donald Toon: I outlined earlier a couple of the biggest problems. Essentially, at the top end of money laundering, asset hiding and asset tracing, we are talking about something that is fundamentally international in scope and often involves us dealing with difficult jurisdictions. That has been an ongoing problem, notably around our ability to access sufficient information to track asset movements and identify ultimate beneficial owners. The fact that we have provision in the Bill for information sharing with the private sector is from our perspective hugely valuable. We have been working with the banks in a joint money laundering intelligence taskforce for about the past 16 or 17 months. This legislation essentially gives more cover for the banks to be able to share information effectively. Currently, they can do that only through us, through our gateway.
It is important to bring out that, with the capability that we have had so far, 58 arrests have flowed from the ability to share information with the banks. We have identified more than 2,100 suspicious accounts. Most importantly—there is something here about the shared intervention response—we have also had 730 bank-led internal investigations into customers and the use of particular accounts, which is hugely valuable to us. We are often dealing with large multinational financial institutions. They are in a very strong position to track the movement of money and see transfers between particular accounts, which enables us to identify the routes that we need to go down to track beneficial ownership. That information sharing provision, together with the work that has been done around improving transparency on beneficial ownership, is hugely valuable.
I have already mentioned the value of the unexplained wealth orders. Equally, there is the power to require provision of further information. We have an issue with suspicious activity reporting. Yes, we get a very large number of reports and that number continues to rise, but it is overwhelmingly from the banks. We have significant concerns about the quality and number of reports that we get from other parts of the regulated sector. Often, banks report suspicious transactions involving other parts of the regulated sector. It is very unusual for us to be able to see and track those transactions as they have gone through, say, the legal profession, accountants or company service providers. We should see better quality reporting in that space. The power in the Bill will give us the ability to seek additional information, either where we have a report and it lacks quality or where we have a report that leads us to want to start asking questions of other parts of the regulated sector that have been involved in the transaction. That is hugely valuable from our perspective.
The Bill as a package is really valuable, but not just because of that. I have mentioned the SARs moratorium period. That moratorium period has been so difficult, not just from our perspective, but from the perspective of law enforcement’s ability in the round to make effective use of SARs. With a seven-day turnaround and a 31-day limit, as soon as we go international, even with supportive jurisdictions, it is very hard to get information within that 31-day limit to be in a position to get a restraint order. That we can now see that go up to a maximum of just over six months—186 days—and that there is court oversight to give safety, is a hugely valuable step forward. Those are the major advantages of the Bill.
On the point about internet gambling, I confess I have not focused on that area. I would expect that, when we are in a position to be able to track those who are making particular profits, they could be targeted using the same provisions. The interesting thing is that while the information-sharing provision starts with the banks and the financial sector, the intention is to broaden that out and share information with the wider regulated sector. That would take us into things such as the gambling operators.
The Chair
Order. Before we proceed, I will say to the witnesses that this is your time. You have asked to appear and you have come to give evidence. This section will end at 10.20 am, no doubt whatsoever, so you are using your own time. You need to be more succinct to get more questions asked of you and replies given.
Scott Mann
Q Just quickly to pick up on what Mr Toon said, could you give me the timeframe for the 58 arrests?
Donald Toon: Those 58 arrests would be over a 15-month period.
Peter Dowd (Bootle) (Lab)
Q I want to come back to the issue of resources and capabilities. You all gave an answer but I did not get the sense that you were convinced that you have adequate resource. You told us that the capabilities in the Bill would give you just that—capability. You also said that additional resource was being put in and that other agencies, such as banks themselves, would do a lot of the investigation but you did not tell us that you believed that you were going to get sufficient resources for the proposals in the Bill and what you were being asked to do. I will ask a second time: do you believe that you will get sufficient resources to do the job that you are being asked in the Bill?
Donald Toon: From our perspective, the vast majority of our resource is not specific to criminal finances. We operate on the basis that we deploy resource against the particular problem we are dealing with at the time. We have got approximately 4,500 resources. We are capable of flexing that. Could we do more with more? That is always the case in any organisation but the Bill will make us more capable and efficient in terms of delivering results. We think we deliver decent results now and will be better at it.
Mick Beattie: Again, it is a case of competing demands. Obviously, in policing we have to refocus now with this emphasis on child exploitation and the emergence of cybercrime in recent years. That has really impacted on the limited resources that we have. There are approximately 1,800 financial investigators in and around the policing community. We could all do with more but, in terms of the balance around the competing demands, we have a very strong and productive capability.
Detective Superintendent Harman: Yes, I do think that we have sufficient resources to take advantage of what is in the Bill, a specific example being the seizing of portable items. We are expanding our teams at the ports who intercept illicit cash and goods; we are not reducing them. That is one example. As I touched on, an area of the Bill would enable us to make better use of the resources that we do have. To answer your question directly: I am content.
Peter Dowd
Q So it is reasonable to assume that you will not be coming back to us within, say, the length of this Parliament to ask for any more resources, all things being equal?
Detective Superintendent Harman: I would like to talk about financial investigation and that area of counter-terrorism. Obviously, counter-terrorism is a huge national issue and I would not like to speak for the assistant commissioner for national counter-terrorism. In relation to whether I can take advantages of the powers and measures in the Bill, yes, we have resources in place to do that.
Mick Beattie: I echo that. In terms of financing investigation, the Bill gives a lot of opportunities for improved efficiencies. I reiterate that only recently we have had notification of another financial injection to policing’s financial investigation capability.
Peter Dowd
Q That is not the question I asked. I am getting quite exercised about the response to this question. You have told us that you have the current resources, and therefore it is reasonable for me to say, on the basis of your projections of the level of crime out there and in the future, that you do not believe you will be coming back to us with any significant additional asks for at least the length of this Parliament—both in terms of legislation and, more importantly, in terms of finance.
Mick Beattie: I do not think I am in a position to answer that question.
Peter Dowd
It is a no, then.
Mick Beattie: For me, it is about financial investigation. In terms of policing plc, financial investigation is one capability. There are competing demands across the policing —or any law enforcement—landscape. By comparison and proportionately, I believe that we have a strong capability. Yes, we would like more financial investigators; yes, as the regime becomes more aware of the capacity and capability of financial investigation and what it can bring, there will always be requests within my organisation for more capabilities. In terms of an overall policing budget, though, that is not for me to respond to.
Antoinette Sandbach (Eddisbury) (Con)
Q To pick up on that last matter, is it not correct to say that proceeds of crime seizures in effect go to central funds and can be used, and there is part that is returned to the agency bringing the prosecution? To a certain extent, therefore, it is self-financing.
Mick Beattie: Of the money confiscated, 50% goes back to the Treasury and the remaining 50% is split three ways between the prosecuting element, the law enforcement agency and the court services. It is called the incentivisation fund. So yes, it goes back directly into law enforcement.
Antoinette Sandbach
Q So strengthening and broadening your powers will enable you potentially to seize more assets. Clearly, therefore, the aim of these measures is to deal with money laundering. How does the new criminal offence preventing the facilitation of tax evasion link in with that money laundering aspect of your investigations?
Mick Beattie: I am not a tax expert and do not represent Her Majesty’s Revenue and Customs. In terms of investigative capacity, as a senior investigating officer presented with an investigation, in determining your strategy you will look at what outcome you hope to achieve. It could be a criminal justice outcome, a disruption option or along those lines. You will look at all measures to achieve that. In some cases, the information, intelligence or evidence is such that a tax investigation may be more effective than a criminal investigation. We work with the National Crime Agency and HMRC colleagues in determining who should lead the investigation. In terms of legislation strengthening HMRC’s capability, it is clearly going to be advantageous to us in decision-making around the best strategy for a financial investigation.
Antoinette Sandbach
Q One criticism often levelled at law enforcement agencies is that they do not take enough steps nationally to recover assets that are the proceeds of crime. Apart from the disclosure orders and the aspect of portable goods—for example, jewellery—that you have already spoken about, what particular powers will help you with that asset recovery, and is there anything that is not in the Bill that you think should be?
Mick Beattie: The Bill contains technical amendments that, though they are not specific in themselves, tighten things up. Some of the legislation was restrictive and stopped upon a conviction; money laundering investigation powers would often stop. The Bill will nudge some of those on, to allow those powers to remain while there is a confiscation investigation. The powers in previous Bills have strengthened the investigative capability into the confiscation process, where there was a gap before in terms of what we could and could not do in serving production orders on accounts, for example. That has definitely helped.
Antoinette Sandbach
Q Is that the same, for example, with regard to extending the powers to revisiting orders under the Proceeds of Crime Act 2002, which was a gap that was not there previously?
Mick Beattie: The power to revisit the disparity between a benefit amount and a realisable amount is primarily the current role of the asset confiscation enforcement teams I mentioned earlier, which have been funded additionally by the Home Office directly from ARIS. The asset recovery incentivisation scheme has been top-sliced and a portion of that has been given to the three agencies to proactively do section 22 revisits.
Antoinette Sandbach
Q Are you therefore satisfied that the current procedures in the Bill tackle the major challenges you face in your aspect of the investigations?
Mick Beattie: It definitely improves some of the operational difficulties we have highlighted. We have been privy to the formation of the Bill, we have been invited, we have been allowed to comment and we have contributed to the drafting of the Bill. You always want more. There is more we would have liked around information sharing. But there are definitely advantages to the Bill that will help criminal investigations.
Nic Dakin (Scunthorpe) (Lab)
Q Thank you for your evidence. You seem to be saying there is more that perhaps could be done, Mr Beattie. What additional things should we take the opportunity to look at in the Bill, to make sure you have the powers you need to do your job?
Mick Beattie: A lot of what we would have liked, we have got. Information sharing between the private and public sectors is done through the NCA UK Financial Intelligence Unit, which is under a lot of pressure. It is a unit that services the whole of UK law enforcement. The Bill allows communication between the banking sector and the UKFIU, which would then release that information to policing. If we had a particular interest, we may have to go back through the UKFIU back into that institution. We would have liked a little bit more direct access, but it is not a problem. It is something we can overcome.
In the early stages, I can understand the reticence from the banking sector. This is a new area of business for them, piloted through the joint money laundering taskforce very successfully. I can understand the small-steps mindset in relation to that—get some understanding, some evidence and some culture. So we are very supportive of what we have got in the Bill.
Donald Toon: From our perspective, the Bill takes us forward on a range of difficult issues, but it does that in a balanced and thought-through way. From law enforcement’s perspective it is always easy to want more power, but that has got to be balanced against the fact that, for example, the financial services sector has to continue to do business.
We are satisfied that this makes the changes and we have been able to set out a clear, operational, evidenced case for the change. Do we think this will stop and it will be the panacea for the future? No, because we are involved in an arms race here. There are people on the other side—whether professionals involved in providing money laundering services or serious criminals—who will always be looking for another opportunity. That is why the Proceeds of Crime Act 2002 has had to be amended so many times since it was first introduced.
Do we think this will stop further amendment? No. Does it actually address the issues we can evidence now? Yes.
Detective Superintendent Harman: I echo that. The answer for us now lies not in more legislation. The Home Office consulted very closely with us. We are seeing the legislation in here that we asked for. The answer now for us is about co-operation with the financial sector, about sharing information. Just like we asked the public for information to help us to fight terrorism, now we are asking the regulated sector, and I think the Bill will help with that.
Richard Arkless (Dumfries and Galloway) (SNP)
Q For the most part, my questions have been dealt with by colleagues previously asking about additional powers, but I will come back to one point. There is a huge array of regulatory bodies that cover money laundering in the UK. Do you think that consolidating these would make life easier for you in the pursuit of money laundering activity?
Donald Toon: The Treasury has been doing work on this space now. From our perspective, all those regulated bodies are covered by anti-money laundering regulations and are required to submit SARs. We need to see clear, consistent standards across all parts of the regulated sector. I do not care whether that is achieved through one supervisory body or a number, provided they are all operating to the same set of standards and the same commitment to ensure that SARs are produced—and produced to the necessary quality—and they are prepared to take action against those parts of the regulated sector that they supervise when they do not live up to those standards.
Mick Beattie: I support that. The police get nearly 400,000 suspicious activity reports a year. There are definitely gold nuggets in there, but some of those reports are of such a poor standard, or they are defensive reporting or a means for the bank—really, their own regulators could have a role around the quality of the SARs submitted.
Detective Superintendent Harman: I do not have anything to add to what Mr Toon said.
Richard Arkless
Q You make it clear that there is an urge for law enforcement to have additional powers, but a balance needs to be struck. It is for Parliament to strike that balance, so take that out of your contemplation. You are not responsible for striking that balance, so what extra powers would you like to see in the Bill?
Donald Toon: As I have said, what we have in the Bill is what we are able to stand up a sensible evidential case for. We are conscious that we will see the opposition try to adapt. How they adapt, and in particular how some of the powers bed in, is what is going to inform the next stage. It is not something we feel that we are crying out for at this point.
Mick Beattie: I would like to see the courts given the power to defer Crown ownership on assets. I can understand the reasons—third-party ownership and the issues clogging up the courts—why that was not accepted, but that would have been a bonus.
Detective Superintendent Harman: As has been said, we see the powers in the Bill that we feel we need. I do not think we are looking for more powers; we are looking to ensure that we are using the powers well and we are co-operating with all partners in delivering our aims.
The Chair
We have eight minutes left before we must wind up this session, and a number of Members still want to ask questions. You will have to be brief on both sides. I call Mr Davies, briefly.
Byron Davies
Q My question is simply this, with respect to unexplained wealth orders and politically exposed persons. It is perhaps more to you, Mr Harman, than anyone. The measures reflect the concerns about those involved in corruption overseas and laundering of the proceeds of crime. How operationally viable do you think those are from an investigation point of view, particularly with some of the more difficult countries that we have to deal with?
Detective Superintendent Harman: I think there will be challenges, as you have highlighted. The unexplained wealth orders will help us to deal with the higher end, if I can call it that, of terrorist financing, where there are perhaps sham companies or charities being exploited and it is far more complicated. Such a power will ensure that people account for the money that they have. It will be challenging. To be honest with you, it will be a small part of our casework in the terrorism financing context, but it will be helpful.
Donald Toon: From our perspective—we run the international corruption unit for the UK—we see this as a hugely valuable step forward. We have a real problem at the moment in a number of jurisdictions where we cannot get usable evidence yet we have assets that are of deeply questionable probity. We do not expect the numbers to be huge, because the cases are large and complex, but we do think this is a very useful step.
Mick Beattie: We support that. Most of our international investigations go through the NCA anyway, so we agree with that.
Carolyn Harris (Swansea East) (Lab)
Q I have one observation and one concern. The observation is that one of my colleagues mentioned that you would need to come back for more money, and another colleague said you would be self-funding. That means you will have to bring in far more than you cost to run, so just be aware of that.
I am really concerned that you are not concerned about money laundering in the gambling industry. You seem to have little or no evidence that that is an issue. I am very concerned that high street bookies are able to launder, and if they are not actually reporting any excessive or unusual activity, that is a great concern.
Donald Toon: Can I correct the position? The specific question I was asked was about the application of these powers to online gambling. Do we see the gambling industry as a potential risk for money laundering? Yes. Traditionally, it has been an area where money laundering has been relatively straightforward, in the sense of being able to demonstrate the source of funds. Actually, we have seen quite a lot of improvement in the way the gambling industry has targeted that, particularly through the casino structure. We work with the industry and the main industry bodies, and we work very closely with the Gambling Commission on the regulation of that, and we do see some very good reporting. Is it still an abused area? Yes. It is an ongoing risk; we do seek to target that risk. It was a specific question I was responding to.
Carolyn Harris
Q Is there a benchmark to which you would expect bookmakers to report high or excessive use in a high street bookmakers?
Donald Toon: We would expect them to apply an objective test for suspicion and report. That is the point where we work with the Gambling Commission on making sure that that test is right.
Carolyn Harris
Q But you leave it them to decide at what level they report?
Donald Toon: It is an important point. It is absolutely the decision of any part of the regulated sector, including gambling operators. It is their decision when they should report. Should they fail to report when they should have done so, there are consequences. If they could be shown to be facilitating money laundering when we had gone into a major investigation and tracked back, then there would be potential consequences. Either we would seek to take action ourselves, or we would refer them—it does not matter which part of the regulated sector we are talking about—to their supervising regulator for action.
Carolyn Harris
Q Would it be helpful if it was a mandatory reporting level? For excessive use of a fixed odds betting terminal, for example, if we set a level and said, “Anything in excess of £1,000 a day,” from someone who would not normally spend that money?
Donald Toon: Frankly, no, I do not think it would. Every time you set a level, all you do is encourage people to create a level of complexity that always keeps below the level.
Mick Beattie: It is about the suspicion. It is all relevant to that individual, that money laundering reporting officer, their level of suspicion and the circumstances or action that determines that suspicion.
Nusrat Ghani (Wealden) (Con)
Q I apologise for being late this morning; I was at another Committee meeting. My question is to Detective Harman. I think you have already tackled funding of terrorism this morning but, as we know, terrorism has no borders nor does the funding, and with technology it becomes increasingly difficult for you to follow the flow of these funds. The Bill proposes more information sharing between the public and private sectors, which you have said will be incredibly helpful. Could you share whether there will be pushback from the banking sector and, as we seize the assets of terrorists, what might they do? What will be their next steps, so we can be ahead of the curve? Can you give us some advice on where they might end up putting their funds, so we can be a position to start seizing those funds once they come out of the mainstream?
Detective Superintendent Harman: It is a big topic. Briefly, our relationship with the financial sector—the banks and the MSBs—is fantastic. We have a very positive relationship. There are some official mechanisms for that such as the JMLT that has been mentioned. So, I do not expect any pushback, quite the opposite really. The banking sector wants to work with us, obviously respecting their client confidentiality and the rules around that, but they do want to work with us, and they do work with us. This really gives a legal gateway for the goodwill, if you like, that already exists. We look forward to working with them as the way people bank changes—becomes more digital and so forth. We will evolve with that; that is our intention.
The Chair
That brings us to the end of the allotted time for the Committee to ask questions. I thank the witnesses on behalf of the Committee for their excellent presentations and the queries that they have answered. We will now move on to the next panel.
Examination of Witnesses
Simon York, Mark Thompson and Nick Price gave evidence.
The Chair
We will now hear evidence from HMRC, the Serious Fraud Office and the Crown Prosecution Service. Gentlemen, please present yourselves and give a brief background to why you are here.
Simon York: Good morning. My name is Simon York. I am the director of Her Majesty’s Revenue and Customs fraud investigation service. We deal with criminal attacks and the most serious tax fraud against the tax system. I am here because we use a range of proceeds of crime powers alongside tax powers. We also have a specific provision in the Bill on the corporate offence of failing to prevent the facilitation of tax evasion, among a number of important provisions for us.
Nick Price: I am Nick Price. I am head of the Crown Prosecution Service proceeds of crime service. Why am I here? We have been working closely with the Home Office and partner agencies in bringing the Bill together.
Mark Thompson: I am the chief operating officer of the Serious Fraud Office. I was appointed only in September and before that I was head of the proceeds of crime division in the SFO for the previous four years. That is why I am here.
Dr Huq
Q Thank you for coming in. I guess to the layperson there are many bodies involved in these issues—the police, who we have just heard from, the CPS, HM Courts and Tribunals Service and the Serious Fraud Office. The natural thinking is that there should be more co-operation between different bodies. I notice that the report from the Home Affairs Committee says that one person should take the overall lead. Where do you stand on being more joined-up and having a more overall person? It said for the recovery of criminal assets it should be the National Crime Agency that co-ordinates and oversees the various different agencies operating at local levels, with the proviso of adequate resources and tools. Where do you stand on the point about an overarching person and who that should be, if we did have one?
Simon York: We all work closely across law enforcement on a whole range of issues tackling criminality including the proceeds of crime, and that co-operation is really important. What we find particularly useful in HMRC, though, is the ability to use tax powers, proceeds of crime powers and criminal investigation powers in concert. That is what we find works best. We will use whatever combination of powers gets us the right result that allows us to confiscate, recover and prevent the losses. It is important to us that we have the ability to do that in the range of other things.
Dr Huq
Q And you are happy with how it is at the moment with you all working in concert. Does anyone think there should be overall supervision?
Nick Price: We all work very closely together. It is worth the Committee being aware that the CPS has lawyers embedded with HMRC, the NCA and the regional organised crime units where the regional asset recovery teams work. We work very closely with the SFO. So, we already work very closely.
In terms of overall supervision, the Committee will be aware that there is a Criminal Finance Board that is ministerially chaired. Sitting beneath that are a number of sub-groups. There is a criminal finance improvement plan. Those things draw together the agencies with real strategic oversight as well.
Mark Thompson: The only thing I would add to that would be the need for integration between those tackling proceeds of crime and those who are in a criminal investigation. I actually think one lead agency would make things worse, not better. The reason these things are successful is that I have proceeds of crime people working in the Serious Fraud Office alongside our criminal investigators, and that is the best way to tackle these crimes.
Dr Huq
Q Part 3 of the Bill introduces the controversial criminal offence of failing to prevent the facilitation of tax evasion. Some people who have given evidence to the HMRC consultation have argued against the new corporate offence. How do you rate the risk posed to the Exchequer from illegal tax evasion, compared with tax avoidance and other activities that contribute to the tax gap? There are some really scary figures; the most shocking one I saw was that over the last 26 years, the Government have collected 26p of every £100 generated by criminal activity. What do you think of the new offence? Nobody here has a crystal ball, but could you comment on the scale of offshore tax evasion?
Simon York: We estimate the tax gap in relation to tax evasion as a whole as around £5 billion a year. That includes a range of different types of evasion, such as what is colloquially known as offshore evasion. This is certainly an important issue. Corporates can be significant facilitators of tax evasion, as we have seen on a number of occasions. There is a real public and, I think, political appetite to tackle it. We find a difficulty in attributing criminal liability to these sorts of corporate entities. We think this is an important proposal in improving corporate behaviour in this area—deterring bad behaviour and improving good behaviour. This is by no means the only provision or capability that we need to tackle tax evasion, which is a very broad issue, but it is an important one in tackling a very specific area.
Nick Price: I cannot really add a great deal to what Simon said on that topic.
Mark Thompson: Me neither. Tax is HMRC’s primary responsibility.
Dr Huq
That is only from 2010, so it is not an old Act, and again, nobody here is Mystic Meg, but do you have the tools in this legislation to bring about successful prosecutions or are there too many obstacles, such as that the SFO is involved and that behavioural change would be needed, as you said? Do you foresee there being a low or high level of prosecutions when the Bill is enacted?
Simon York: A good result would be that corporates change their behaviour and that there is less facilitation of tax evasion, and consequently, less tax evasion. We certainly have the tools, through a combination of this proposed legislation and our existing capability—HMRC is a very competent and successful law enforcement agency and criminally investigates many people and convicts them successfully every year, so I think we have that capability. Do I think we will have a lot of prosecutions in this area? I hope not, but I think we will be looking for a number to act as part of this deterrent to show that the legislation has teeth and to show that we mean business.
Nick Price: I would just make a quick general observation: all prosecutions are difficult and we operate an adversarial system, which of course we are well used to. This is a really useful piece of potential legislation, with some really useful elements to it. Are we going to see a phalanx of extra prosecutions coming over the horizon? Perhaps not, but there are some really useful aspects of the Bill that we will no doubt deal with shortly.
Mark Thompson: In my experience, it is not inherently a numbers game, in terms of numbers of prosecutions. We have found that the section 7 offence of the Bribery Act is a useful tool for us as prosecutors. It focuses the corporate mind and there has been a large response from the private sector in complying with that. I would be surprised if the tax evasion offence did not have the same implications.
The Chair
Thank you. May I point out that we have got 30 minutes left, and eight other Members of Parliament want to ask questions? I remind both witnesses and Members that it is your time, and that witnesses are here today to answer as many questions as possible.
Mike Wood (Dudley South) (Con)
Q This question is directed in particular to Mr Thompson. Could you tell us more about the challenges faced by the Serious Fraud Office in investigating a suspected criminal financial activity, and how the specific measures in the Bill will help you to do that more effectively? In particular, I would like to know more about how unexplained wealth orders might be expected to help in pursuing foreign officials suspected of grand corruption.
Mark Thompson: Members of the SFO and I have been involved in consulting with the Home Office as this process has developed. Unexplained wealth orders provide an avenue for us to start civil recovery investigations effectively in a way that we cannot do at a moment. Where information is held abroad, or is in jurisdictions where co-operation is unlikely, this tool provides us with a way of kicking the process off and taking action against property in the UK that we suspect to be derived from crime. As things currently stand, the thresholds for pursuing civil recovery are, in many cases, high enough to make this difficult. That is how I would see our using the legislation in the first instance.
Nic Dakin
Q The new corporate offence relates only to tax evasion, which makes sense. But is there a case for extending it to dissuade companies from facilitating quite aggressive tax avoidance?
Simon York: At the moment this is a criminal offence, and tax avoidance is not a crime, which is why that would be difficult. We are currently consulting on additional legislation that would penalise the enablers of tax avoidance, so we are seeking legislation in that area too.
Victoria Atkins
Q Thank you, and it is a pleasure to serve under your chairmanship, Sir Alan. I want to pick up on the point about avoidance and evasion. Mr York, you said that these powers are directed at tax evasion, which is a crime. To give us an idea of the complexity of veering into the world of tax avoidance and tax efficiency, is it not right that a person simply investing in a pension can be described as being tax efficient because that prevents them from paying as much tax as they would otherwise pay?
Simon York: Certainly it can be tax efficient. We tend to use the phrase “tax planning”, so a pension or an ISA or something like that would fall into that category. Tax avoidance is typically where people are using schemes—which are often quite contrived and artificial—to do something that Parliament never intended. They are not lying to us, or being fraudulent, or misrepresenting something, but it is all artificial. We will criminally investigate the kind of situation in which people step over that line—which sometimes they do—and when they are part of something that might appear to be an avoidance scheme that actually becomes fraudulent, or where they are deliberately going out to defraud and disguise it as an avoidance scheme. We have had some significant wins over the past 12 months on big complex frauds disguised as avoidance. When it crosses that line, we will come right down on that. But if it is avoidance in the theoretical, pure sense, we will tackle that through civil litigation and take those cases to court.
On the subject of tax avoidance, the Government have done lots of work on tax avoidance over the last five or six years, and 40 loopholes have been closed down. In particular, we have brought in the accelerated payments legislation which completely changes the economics of tax avoidance, and makes people pay upfront while we wait for tribunal results. There are some really striking figures. The flow of new schemes is now down 99%. In 2006, there were 600 new schemes a year; last year there were seven. A couple of years ago, there were 2,300 new users of avoidance schemes; last year there were 410. We are really taking the bottom out of the individual market of avoidance schemes. The proposed legislation is to tackle another intractable problem, which is evasion, which is a criminal offence.
Victoria Atkins
Q On behalf of all the lawyers in the room, only one person may be convicted, but that conviction may mean that many hundreds of millions of pounds has been stolen from the Exchequer. With one conviction, you have solved that crime. Is that correct? In other words, one conviction does not necessarily reflect the extent of the damage that that particular defendant has inflicted on the UK economy.
Simon York: Not necessarily, no. We will use whichever approach we think is the most effective. Sometimes—for example, in relation to organised crime or groups of wealthy individuals—we will use a mixture of our civil tax powers and criminal investigation powers quite deliberately to get the biggest impact. My team recovers or protects about £5 billion a year through a combination of civil and criminal activity.
Roger Mullin
Q I have two short questions. First, what types of business formations are most susceptible to use by criminals?
Simon York: I think most sorts of business formations can be susceptible. Companies, partnerships, limited liability partnerships, Scottish limited partnerships and trusts are all used most widely for completely legitimate purposes but all, in the wrong hands, can be used to attempt to obscure ownership or value, or to launder profits of crime. They can all be used in different ways.
Nick Price: I am not sure that there is a specific type that lends itself to criminal activity any more than any other.
Roger Mullin
Q Perhaps this is for HMRC again then. How effective are we at supervising for anti-money laundering purposes all trust or company service providers that register UK companies?
Simon York: HMRC is the supervisor—TCSPs are not regulated in any other area. Our strategy is that we have teams that conduct anti-money laundering supervision, try to support that industry, particularly those that are susceptible or vulnerable to money laundering, and help them. My teams tend to get involved when we clearly suspect some of those organisations of facilitating crime, money laundering, tax fraud or whatever. Our strategy is to, again, use a combination of the money laundering supervisory regulatory powers and our tax powers. We have some really quite significant projects—I cannot go into too much detail—on the go at the moment in relation to TCSPs in particular.
Antoinette Sandbach
Q I want to come back, Mr York, to attributing criminal liability to corporates. You felt that that would prompt good behaviour. For example, there have been some well publicised cases of licence payments where profit will be taken out of the UK because of some form of licensing agreement or other device that removes profits from the UK. How do you see the new advisory part 3 capability in tackling that? That is tax avoidance, rather than tax evasion, is it not?
Simon York: It could only be used to tackle that sort of behaviour if that, in itself, was a criminal offence. I think what you are describing is typically the sort of tax planning or avoidance that multinationals might engage in. If that was fully presented to us and it was completely upfront, this would not be the appropriate response to that. If, however, anything was misrepresented to us and it effectively became a fraud and a criminal offence, and that was being facilitated by someone else, it could. But this is not really aimed at that at all.
Antoinette Sandbach
Q Can I perhaps take it to the other extreme, where, for example, single parents are trying to claim support from non-resident parents who are not declaring their income appropriately? That would be tax evasion. Would you see this offence as dealing with those people’s accountants and advisers? In other words, if professional accounts have been filed and there is then a tribunal finding that there has been an inappropriate amount declared for income tax, would you get involved?
Simon York: Our interest is in tax and tax evasion, so if we see tax evasion in whatever form, we will tackle it. We certainly could tackle scenarios like that. It is already a criminal offence for individuals to evade tax and for others to directly facilitate that evasion of tax. What is new here is that the Bill deals with a corporate body failing to take reasonable steps to prevent its representatives from facilitating the evasion of tax by someone else. It is that third stage; it is when you get to the corporate, which under current English law it is really quite difficult to attribute criminal liability to. That is what this offence is designed to address, so I do not think it would directly affect that sort of situation, but we would tackle that in other ways.
Antoinette Sandbach
Q Could it, for example, affect a high street accountant that was providing advice on something that may be on one or the other side of the line?
Simon York: It could if that accountant was a corporate body and its representatives or employees were facilitating or enabling tax fraud. Yes, it could help there.
Antoinette Sandbach
Q Mr Price, will unexplained wealth orders help the CPS make greater use of its existing civil recovery powers?
Nick Price: Unexplained wealth orders are interesting. We welcome that provision, and we have worked closely with partners in bringing it forward. The CPS is not an investigatory body, as you know. We think that these orders are likely to be used more by our partner agencies. Will it mean that we do more by way of civil recovery? As you know, the NCA already has its own capability to do that; it is likely that HMRC will get its own capability to do that as well—there are provisions in the Bill that would enable that—and the SFO likewise. We are likely to do a small additional amount of civil recovery work, and unexplained wealth orders may well be part of that, but I think the vast majority of that work is going to be done by the other agencies.
Antoinette Sandbach
Q Will extending the moratorium period on SARs assist you in getting the material that you need to get cases to a point where you can charge?
Nick Price: This is a very significant and welcome change for us. There are cases that we have not been able to take forward for early restraint simply because the moratorium period was far too short and the investigation simply could not be completed in the time that we had. Why is early restraint important? It is, I suppose, a trite observation in this field, but if you are unable to restrain assets at an early stage in proceedings, the likelihood of them being available later on is pretty remote. The extension of the moratorium period is critically important to us. There is considerable judicial oversight of that provision—you will have seen that in the Bill—so we very much support that.
Peter Dowd
Q The Chartered Institute of Taxation has expressed some concern that the new corporate offence of failure to prevent the criminal facilitation of tax evasion may lead to a string of prosecutions in relatively small cases where current civil penalties already provide enough punishment. What is your view about that?
Simon York: That is probably unfounded. Our approach here, like it is with all our criminal investigation work, would be to focus on where the behaviour is at its worst and most fraudulent, and therefore on where it is having the most impact, particularly where a corporate is having a very wide impact on a wide group of taxpayers and where the amounts involved are large. That is typically our approach. We would be equally selective with this power.
Peter Dowd
Q Some people suggest that HMRC has got form for not going after the big organisations—the Googles—for tax avoidance. What confidence can you give us that you will not just avoid the big ones because they are in the “too difficult to do” box?
Simon York: Our track record on this side is that, last year, we charged around 1,200 people with criminal offences, and about 12% of those were for frauds involving more than £0.5 million. You will probably have seen reported in the press some extremely big, valuable and complex frauds that have been in criminal court for over a year—that sort of thing—and that we have won. We are increasingly targeting that sort of behaviour. We have had extra investment from the Government, particularly to build our capability to tackle wealthy individuals, corporates and offshore evasion, and we are busy doing that at the moment. We have a significantly stronger pipeline of that sort of work currently.
Peter Dowd
Q Which brings me nicely to my last question, which is about your confidence in whether you as enforcement agencies have sufficient resources under the new provisions to do your job properly.
Simon York: In my part of HMRC, I have 4,500 people carrying out investigations into serious fraud, both criminal and civil investigations. Within that, and relevant to what we are talking about here today, I have a team of over 400 who deal with proceeds of crime in the widest sense—financial investigators, criminal taxes teams, insolvency practitioners and so on. It is something we treat as very important. We have had increasing investment over the years from Government, so the size of my team has increased quite significantly over recent years.
Nick Price: The CPS set up a proceeds of crime service just over two years ago. Operating on a national basis obviously means that we can be as efficient as we possibly can be, and we can meet the peaks and troughs in demand in terms of the various casework we are dealing with. We deal with work from the very top end at my end of the scale, down to the other end of work. As I say, that is on a national basis.
We are sufficiently resourced, and we also benefit from additional resource from the top-slice arrangements in relation to the asset recovery incentivisation scheme, or ARIS. That money is financing a specific project: we are working in conjunction with the police asset confiscation enforcement or ACE teams in the RARTs and ROCUs—regional asset recovery teams and regional organised crime units. That work is focused around section 22 revisits. You will of course be aware that there are some really important provisions in this Bill that enhance our ability to deal with revisits. I will add very quickly that we have seen a 150% increase in the number of revisit cases we are dealing with, so the provisions in the Bill are critically important to our work.
Mark Thompson: From our point of view, the proceeds of crime division has roughly doubled in size in the last two to three years. It remains a high priority for the SFO, and our funding model allows us access to additional funding from the reserve if we have cases that exceed a certain size. I make no complaint about resources at the moment.
The Chair
Order. We have 11 minutes left and I will stop this at 11.30 am, so help yourselves: please give yourselves more time for each other.
Mrs Drummond
Q I will be quick because you have touched on a lot of the stuff about which I was going to ask, particularly about the overseas corporate offence and how that works in practice. Mr York, will this actually pick up companies that operate mainly out of the overseas territories and the Crown dependencies?
Simon York: Yes if they are facilitating tax evasion in the UK or if their representatives carry out their business in the UK and are facilitating tax evasion that happens somewhere else. It catches Crown dependencies and overseas territories in the same way it catches other jurisdictions.
Mrs Drummond
Q Even though they have headquarters over there?
Simon York: Yes. That is precisely one of the targets of the legislation. If a company is facilitating tax evasion that is occurring in the UK—someone evading UK taxes—it would absolutely catch that. Equally, if that organisation is based overseas but its representatives are doing business in London to help someone in London to evade taxes in France, it would catch that as well.
Richard Arkless
Q First, to Mr York, the UK tax code has a reputation for being unnecessarily complicated. I am sure you are acutely aware of those allegations. To what extent does that complication play a role in criminality? Does it make it more susceptible to criminality? Do any specific examples arise out of the complication that would encourage, facilitate or make criminality easier?
Simon York: I am not sure that it does. Criminality is always pretty straightforward at its core. It is people lying, misrepresenting things and forging things. Sometimes that is disguised within the complexity of the tax system. I mentioned some times when people disguise a fraud as avoidance. We also get quite a lot of criminal attacks over the years that revolve around the VAT system, particularly the cross-border European stuff, known colloquially as MTIC—missing trader intra-community—fraud or carousel fraud. That can appear quite complicated but it is typically the criminal who is creating the complication to try to disguise the activity.
Richard Arkless
Q I am acutely aware of time. Mark and Nick, do you think that the threshold of £100,000 for unexplained wealth orders is at a fair level? Should it be lower or higher? International standards would dictate that it should be a little bit lower. What are your views?
Nick Price: From my perspective, it is a reasonable level at which to set the threshold. If you look at the two gateways into an unexplained wealth order—politically exposed persons or people suspected of involvement in serious criminality—you see that the likelihood in those cases is that the overall values will be far more than £100,000. For me, that is broadly where it needs to be.
Mark Thompson: I would agree with that. To make the criminality serious enough, I would have thought that it needs to be at a level that marks that sort of criminality. I think it is about right.
Richard Arkless
Q Many properties in my constituency are valued at less than £100,000 but more than £50,000, so I hope we are not basing that on London property prices.
Mr Thompson, on corporate economic crime, it is clear that the provisions in the Bill extend to employees facilitating tax evasion, and it does not go beyond that. Do you think there is a case for going beyond that? It strikes me that there is nothing in the Bill that gets at what the public understand as being the problem with corporate criminality. There is nothing that could catch the riggers of the LIBOR market, for example. There is nothing that could catch swathes of unscrupulous mortgage advisers giving 120% mortgages to dogs in kennels, which many people would argue has caused a great deal of the suffering that we are still all trying to recover from. Is there is a case for that?
Mark Thompson: There is a case for it. The SFO has made that case previously. The Attorney General has also called for consultation. My understanding is that there has not been a consultation yet on that measure, and that the Government may consider one. We have made the point before that it is inequitable that bribery and tax evasion attract these sort of corporate penalties, but that money laundering does not—it is a crime that attracts 14 years in jail. It also seems unreasonable that it is easier under the current law to prosecute small and medium-sized enterprises and not big corporates because of the way they operate. We have made that point before, but my understanding is that it was never going to be in this Bill anyway. It is a wider matter.
Scott Mann
Q There are information and data-sharing initiatives as part of the Bill. How would you interact with those measures and with the joint money laundering intelligence taskforce?
Mark Thompson: We do already interact with the joint money laundering intelligence taskforce, and we have a representative who attends it. We have access to that through the National Crime Agency. The data-sharing provisions are mainly for the NCA, and we would benefit from those arrangements. We entirely support them and think they would be advantageous.
Dr Huq
Q Are there any other changes to the existing proceeds of crime regime that you would like to see in the Bill? I was thinking of some sort of parallel enhanced supervision of the property market. Is there anything else on your wish list that you would have liked to see?
Nick Price: From a CPS perspective, we are content with the provisions in the Bill for now. It is too early at this stage to know how those will play out and the impact they will have. Inevitably, we will assess the use of these provisions as we go forward.
Mark Thompson: These are the second changes to the Proceeds of Crime Act 2002 in relatively recent succession. We still need to work out exactly how we use all these powers effectively. Like the CPS, I am content with where we are.
Simon York: We are content and very supportive.
Dr Huq
Q Finally, I would like to ask a question that I asked the other selection of witnesses. The Public Accounts Committee’s report on confiscation orders said that sometimes there is a bit of tension between whether the point of those orders is to disrupt crime or to recover the proceeds and collect criminal assets. What would you say to that statement?
Nick Price: From a CPS perspective, as I said earlier we deal with cases at the low end of the spectrum, and we deal with cases that are very much at the high end of the spectrum. In all those cases, there are victims. In many of those cases, there are people worthy of compensation. I do not believe there necessarily is, and I would not see it as, a tension. We deal with the full range of cases, and it is important we do that.
Mark Thompson: From our perspective, we only deal with the top end of fraud and corruption cases. Inevitably, there is a financial element, and it behoves us to consider confiscation and compensation of victims in all those cases, which is what we do.
Simon York: Our aim is to take the profit out of crime, whichever way we do that. Whether it is disrupting criminals or recovering proceeds afterwards, it is all part of that overall picture.
The Chair
I thank the witnesses for appearing in front of us. We are grateful for the concise and informative way in which you have helped us today. We will now move on to the next panel.
Examination of Witnesses
Alex Cobham and Professor Richard Murphy gave evidence.
The Chair
We will now hear evidence from Tax Research UK and the Tax Justice Network. You have until 11.25 am prompt. Even if we are not concluded by then, I will adjourn the Committee because Members have to be over in the House for other business. Would you introduce yourselves and outline the work you do?
Professor Murphy: I am Richard Murphy, the director of Tax Research UK. I am a chartered accountant and also a professor of practice in international political economy at City University.
Alex Cobham: I am Alex Cobham, chief executive of the Tax Justice Network and a visiting fellow at King’s College London.
Dr Huq
Q It is a pleasure to serve under your chairmanship, Sir Alan. It is good to have two academics in front of us; I am an academic trapped in an MP’s body.
Part 3 of the Bill would introduce the new criminal offence of failure to prevent facilitation of tax evasion. How do you rate the risk posed to the Exchequer by illegal tax evasion? We have just heard the figure of £5 billion a year. Is that accurate? Is it a conservative estimate? What are your thoughts on tax evasion versus tax avoidance and other activities that contribute to the tax gap? What would you say is the true scale of offshore tax evasion?
Professor Murphy: I have probably prepared the only alternative estimate to HMRC’s. My estimate is that tax evasion in the UK could be as high as £70 billion a year, in contrast to the HMRC estimate of £5 billion. Let us put that in the context of a £1.8 trillion UK economy. My estimate of tax avoidance is around £25 billion a year, as opposed to the Revenue’s, which again is around £5 billion. I believe its estimates are wrong. I think this Bill is focusing heavily on types of tax evasion that are a small part of the problem. The biggest part of the problem is the domestic economy; the biggest risk within the domestic economy is the fact that HMRC does not collect tax returns from 1 million UK domestic companies a year. The problem is with HMRC in this case.
Alex Cobham: We find Richard’s analysis rather more compelling than HMRC’s on the tax gap in general. Perhaps the difference is that we consider the international avoidance element to be particularly badly treated in the HMRC methodology. In some ways, if all your estimates are lower than they should be but in proportion, that is not a big deal, because it is not telling you to go the wrong way, but if your estimates of avoidance are significantly depressed compared with your evasion estimates, and you then put your policy emphasis according to those bad estimates, that does matter. I think we would be concerned that the tax gap is not a neutrally wrong estimate; it drives attention towards evasion rather than avoidance. We think evasion is important—certainly Richard’s numbers show that—but we are concerned that it encourages HMRC to take avoidance less seriously, and that is a risk.
Dr Huq
Q Several stakeholders who responded to the HMRC consultation—these clever people who know how to get around the rules—argued that a new corporate offence was unnecessary. It sounds as if you take issue with that. Do you think there is enough in the Bill to provide the significant behavioural change that is really needed to drive this out?
Alex Cobham: I think the behavioural change question is really important. There are two elements of it: one is how directly it affects the behaviour of actors involved in the process, but the second is how it affects the wider behavioural change. Over the years, we have had any number of economic models of tax behaviour, all of which have suggested that, in country after country, if we were rational economic maximisers we would be much more abusive about tax than we actually are. The reason for that is that we do not respond just to the risk of being caught and the price of being caught. Paying tax is a social act, and by and large two things drive people’s tax compliance. One is the extent to which tax revenues are redistributed and seen to be redistributed in a fair way—the more you think that, the more likely you are to contribute. The other is your perception of other people’s compliance. If you think that the people at the top—the big companies and wealthy elites—are systematically not paying their fair share, the prospects of you complying as a normal citizen are much lower. Who wants to be the only mug if the big guys are not playing the game?
There is one thing that I think is really important for the Bill. On the technical side we can have concerns about how it is framed, and on the enforcement side we might have concerns whether the resources are actually there to make it happen, but what is perhaps missing from that discussion is whether or not we have consistent reporting about the performance under this measure. If, year on year, we hear HMRC saying, “This is our estimate of the tax gap in this area. This is the amount of evasion we have stopped and the number of prosecutions, the revenue at risk in that area,” then, “This is the number of those cases where we have also gone after the facilitator, and so this is the proportion where we are consistently tracking this all the way through,” what you do, apart from giving HMRC a useful metric to demonstrate progress—if HMRC thinks this is the biggest part of the tax gap, then clearly it needs to be tracking this, showing the reduction over time—it also shows the public this is not just one more piece of tax law that may be more form than substance.
Particularly if you think about the Google tax law, for example, there is a growing sense of a lack of trust among the public that when tax laws are passed they are actually meaningful or meaningfully enforced. This is a great opportunity to go the other way, to make sure from the beginning that you will have that accountability and, to go back to your question, to have that in place in a way that is likely to drive behavioural change both of the immediate actors and facilitators but also of the wider public.
Professor Murphy: Can I make three brief points? The first one is that the law as drafted is going to be very difficult to prosecute. We have seen that from the Bribery Act 2010 on which it is based. The number of prosecutions is likely to be very low indeed. This is a strict liability offence—tax evasion triggers the potential liability. The defence that is provided is that there are systems in place. That means that the company—the corporate entity that permits the action—has a defence available to it. That defence will largely be available only to the biggest companies. They will have systems that can be easily documented. Most money laundering training systems now in place in large companies will provide an automatic defence to them: the defence is that they have the systems in place and that there was a bad apple who did the wrong act. Therefore, I think the chance of prosecutions against large companies under this Bill is remote in the extreme.
I think at most this will reinforce the impression that smaller companies are subject to penalty and larger companies are not. First, the chance of prosecution is low because the amounts of money involved will not attract SFO attention—by and large the SFO goes for high-profile cases and there will not be many here that can be prosecuted. Secondly, the behavioural change resulting from this Bill will be very low indeed. There are vastly better ways to achieve behavioural change in this Bill.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
Q One of the attempts to deliver that kind of behavioural change is among the new clauses I am submitting. Will they garner your support for asking the Secretary of State, for example, to make an annual report to Parliament about unexplained wealth orders, to make it a duty to prevent corruption, and to establish quite swiftly a publicly accessible register of beneficial ownership of UK properties? Do you think the good intentions of the Bill could do with a boost to make sure the foot is on the accelerator on some of this?
Professor Murphy: I would entirely agree with a number of points you make. In fact, I would support all those measures. I do not need to comment further; they would all help.
It is clear that transparency is of enormous benefit. The biggest problem with regard to transparency in this country is that 400,000 companies a year in the UK do not file an annual return with the Registrar Of Companies and do not file accounts as required by law. We have no idea what those companies do. They are struck off. It is assumed they have no tax liability, so it is just assumed they have not traded. That is a completely unreasonable assumption for the registrar to make. HMRC does not pursue these companies. I did some research in 2014 on the recovery of penalties imposed on these companies for non-compliance. More than 99% of the penalties imposed were not paid.
In other words, we have an enormous hole in our economy, so we cannot rely upon these systems of registrars and beneficial ownership. The proposed register of beneficial ownership in the UK is simply a voluntary honesty box arrangement, because there are only four extra people being tasked to monitor it. When 400,000 companies do not even file a return, which is where they would disclose their beneficial ownership data, the chance that we will have reliable information is incredibly low indeed. We have to get down to very basic levels to get this right.
I am not saying that the Bill is wrong, but in terms of direction of effort, parliamentary time and resources, there are many more important tasks that would bring about the behavioural changes that Alex has talked about that would encourage compliance.
Roger Mullin
Q I have been concerned for some time about the Scottish limited partnerships and similar vehicles. To what extent do you think that there are particular types of business formations that are most susceptible to criminal activity and tax evasion?
Alex Cobham: This is one of the interesting features of the Bill. If the Government were a relevant body, I think the continuing provision of Scottish limited partnerships would make it very easy to prosecute the Government for facilitating evasion. The work of Richard Smith and David Leask, who I think will be giving evidence later, is very clear on this point. Something like one in four limited partnerships in the UK, but about two in three of Scottish limited partnerships, are structured in such a way that one of their partners is an anonymous company registered in a secrecy jurisdiction.
That is the perfect model for unaccountable business, unaccountable ownership of assets and income streams that may be criminal. The effective facilitation that the UK provides in that way is simply unacceptable. What is good about this Bill is a very clear recognition that that facilitation is unacceptable; what is missing is application to the Government themselves. I think the only consistent action would be to make impossible the use of anonymous partners for limited partnerships.
Professor Murphy: I agree with all that. I extend the concern to the limited liability partnership. I have been a partner in limited liability partnerships and they potentially have a very useful commercial role—they are tax transparent in a way that is very important, which is why I used one. The truth is that they are also used extensively by offshore agents, again using anonymous companies, to create structures that look as though they are present in the UK and give them an air of credibility. In fact, they are entirely controlled offshore and can be used for abuse. Both need a significant review. I can see no legal or commercial justification at all for limited partnerships in terms of their current use. Limited liability partnership legislation needs explicit change to make sure that it cannot be abused.
Roger Mullin
Q You mentioned a review, so I take it that you would support the new clause we have tabled calling on the Government to have a specific review of Scottish limited partnerships?
Professor Murphy: Yes.
Roger Mullin
Q You have mentioned the issue of money laundering and have given us an estimate of the tax gap. Do you have any estimates of the extent of money laundering in the UK?
Professor Murphy: The money laundering estimates that are available—for example, peer-reviewed work undertaken for the World Bank—would suggest that the UK has a shadow economy of about 10% of GDP. Curiously, that is very consistent with the data reported by HMRC with regard to VAT abuse, where the figure consistently runs at around 10%. It is absolutely impossible that you can lose 10% of VAT and end up with an overall tax gap of 6.4%, by the way. You cannot lose 10% of the top line and yet end up collecting the tax elsewhere. There is no accounting mechanism for that income to reappear in the national profit and loss account to be taxed further down the system—I say that as a chartered accountant. Therefore, absolutely on a basic methodological and logical level, HMRC’s estimates have to be wrong, but around 10% is likely. We are relatively low in that figure, by the way; as a contrast, in Germany the figure is 16%.
Alex Cobham: On the money laundering point, an informal or shadow economy of 10% is not out of line with a number of other high-income countries, but at least anecdotally, the number of times that UK vehicles crop up in foreign criminal cases seems disproportionately high. It is true that because the UK has been a leader to an extent in transparency it is easier to do some of this analysis involving UK companies, but that would also be a reason why they should not be used by people committing crimes and yet, they still seem to be. I think you would probably conclude that at the moment, although the evidence is not consistent, it is likely that the UK is disproportionately important in national money laundering. How disproportionately so is completely uncertain and, again, that makes the case for a review.
Professor Murphy: We do have a disproportionate number of companies per head in the UK compared with any other European country.
The Chair
Can I point out that four Members are still asking to get the floor and you have 10 minutes left?
Antoinette Sandbach
Q Professor Murphy, I want to come back to your evidence that the new offence of corporate liability will effectively target small or mid-range companies. In relation to the “bad apple” point you made, do you accept there is still reputational damage for a company if one of its employees is charged, and that that in itself may make big companies’ compliance far more rigorous?
Professor Murphy: That is obviously true. No company wants to appear on the front page of a newspaper and no company wants to be prosecuted. I have spent quite a lot of time in the last year or two talking to large firms of accountants—names you will be familiar with—and large companies about their response to the sea change in public attitude towards tax, and I am reasonably convinced that they have noticed that there is reputational risk to them, and that they are changing their behaviour as a result. To that extent, I feel that this legislation is a little too late, in the sense that they are trying to steer clear of some of these activities as fast as they can. Again, that is a reason why I think the impact will be on smaller businesses. The largest ones will have learnt how to get rid of the risk.
Antoinette Sandbach
Q If I can go back to the smaller business point, I do not know if you were here when I asked Simon York about the other end of the scale. Some tax evasion is not for the purposes of evading tax—the purpose is to evade other liabilities that follow on from declaring taxable income. That can be supported by small accountancy firms that may not apply regulations as rigorously as they should do. Do you think this offence will have a deterrent effect on the smaller and mid-range companies?
Professor Murphy: I think it will. The reason why is that it is a strict liability offence: the existence of evidence of tax evasion is sufficient to prove liability without motive being questioned. That could be important in certain cases. I can think of a very recent example—it has been in the press—where somebody has not paid tax quite deliberately, it seems, out of a company for which they were responsible. It would make it easier to prosecute in those cases. It will have a deterrent effect. I do not have a problem with strict liability offences for that reason. I know many in my profession do.
Nic Dakin
Q You both spoke earlier in giving evidence about the great opportunity to bring about behavioural change or improve compliance. Are there measures we ought to be looking at in this legislation that you would like to see us take the opportunity to put in?
Alex Cobham: I would say it is the reporting of it. If the Bill is seen as having made it on to the books without driving any serious change either in the way that HMRC operates and the extent to which it looks at enablers or in the ultimate prosecutions and revenue recovery, or if there is a perception of that even without that being the case, that is a missed opportunity in terms of how much impact it has. There needs to be a requirement for consistent reporting of the numbers of prosecutions, and of the transition between prosecution of evasion cases and, for each of them, whether there is a related prosecution of the enabler or not. If the second number is a very small fraction of the first number consistently, there needs to be space to come back and review, but at least having that will drive attention.
Professor Murphy: I would make the non-provision of accounts and a corporation tax return a strict liability offence for tax evasion under the terms of the Bill. I would also require a provision that is very similar to one we are demanding internationally, which is that banks simply report each year to HMRC which companies they provide services to.
We will next year be in the absurd position that HMRC will get more information on a company owned by a British person in the Cayman Islands than they will on a company owned by a British person in Stockport, because there is automatic information exchange from the Cayman Islands and there is not within the UK. If banks were required to provide information to HMRC on which companies they provide services to and the simple value of sums deposited in a bank account each year, we would know which companies were trading and therefore which were due to file accounts and which were due to submit a corporation tax return. Failure to submit would be a strict liability offence. Nothing would scare the accountancy profession or small company directors more than that. Make them personally liable for the tax not paid at the same time and you have solved the problem of tax evasion virtually overnight. It is simple.
The Chair
We have only five minutes left, so I will ask the three Members who want to speak to ask their questions first, and then you can reply. You will get a copy of the minutes, which will include any questions that you did not have time to answer.
Victoria Atkins
Q Professor Murphy, there is good precedence in the world of health and safety, where companies are prosecuted for causing workplace fatalities and accidents or bringing about an environment in which they occur. Do you agree that that success in health and safety bodes well for sending out the message to corporate entities that tax evasion is not permissible and will be prosecuted where evidence of it exists?
Richard Arkless
Q Professor Murphy, you have highlighted the difficulty with the Bill’s proposals on tax evasion in relation to corporate economic crime. Your solution would be a position of strict liability. Do you see any case to extend the provisions on corporate economic crime beyond tax evasion, leaving aside the problem of strict liability and enforcing it? Is there a case, for example, to extend the provisions to catch people who rig the LIBOR market, or perhaps mortgage brokers who fraudulently completed application forms that caused the mess we are in? Do you think there is a case for extending corporate economic crime beyond facilitating tax evasion?
Peter Dowd
Q On resources for agencies—enforcement or otherwise—in relation to prosecutions and chasing up, do you believe that the authorities have sufficient resource to do their job, or are they just misdirecting the resources that they already have?
The Chair
You have only two or three minutes to answer, so please be very brief. If you want to give fuller answers to Members, you can write to the Committee Clerk and we will make sure that all Members get a copy.
Professor Murphy: One brief answer—yes, it is effective. I think there are more effective mechanisms available but I am not disputing it has a behavioural consequence. I am afraid I am not expert enough to comment on the other areas. I simply am not an expert on mortgage fraud or LIBOR in that area. I am a tax specialist not a criminal finance specialist.
Does HMRC have enough resource? No, clearly, it does not. It needs to have a lot more resource and to be seen in local communities so that people realise that the threat is personal in that sense, but it is going in the wrong direction of travel at present. It is the risk of being caught that changes behaviour at the criminal end of activity, and transparency would expose that. That is why I think creating the smoking gun of information is the critical measure that needs to be taken to give HMRC a chance to identify those who are creating most risk.
Alex Cobham: We have a report out with the Public and Commercial Services Union, being launched across the road this afternoon, that says exactly that HMRC neither has enough resources and nor are they appropriately allocated to deal with the relative prioritisation that we think it should have.
Mr Wallace
Q The ARIS scheme allows HMRC, the investigators and the prosecutors to keep 50% of the proceeds of any confiscation. If the Bill leads to further confiscation, would you say that therein lies some of the solution that you are going to highlight across the road? If they will be able to keep what they recover, will unexplained wealth orders, for example, or seizures improve their budgets?
Alex Cobham: That seems potentially helpful, but I think you would be wise to look at the bigger question of whether HMRC is appropriately resourced given the bang per buck that it actually gets in different areas, rather than having just that one measure in mind.
Professor Murphy: I would rather have no crime and no proceeds than fund collection through increased recovery.
Mr Wallace
Q Unlike Corbyn economics, we live in the real world.
Professor Murphy: But it is the wrong direction of travel.
The Chair
I thank the witnesses for coming to answer Members’ questions. If you wish to give fuller answers, please submit them to us in correspondence.
Criminal Finances Bill (Second sitting)
Tuesday 15th November 2016
(7 years, 5 months ago)
Public Bill CommitteesRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2016 - (15 Nov 2016)
The Chair
We will continue with oral evidence from the British Bankers Association, the Financial Conduct Authority and the Law Society. We have until 3.15. I had better warn you before we start that there were lots of questions in the session earlier today, so please try to be succinct in your answers. I must also warn you that there is likely to be a vote at 3.15, coinciding with the end of your session. We will have to adjourn, go to vote and then come back. Hopefully you will be able to escape before then. Can you please introduce yourselves and tell us about your role?
Amy Bell: I am the chair of the money laundering taskforce at the Law Society. I am a solicitor. The taskforce comprises a number of solicitors and professionals dealing with money laundering, and we provide support for the Law Society on matters of policy and interpretation of the legislation.
Nausicaa Delfas: I am Nausicaa Delfas. Until last week, I was director of specialist supervision at the FCA, responsible for financial crime supervision. I am now executive director at the FCA and acting chief operating officer.
Anthony Browne: I am Anthony Browne, chief executive of the British Bankers Association. Despite our name, we represent banks operating in Britain, rather than just British banks. That includes all the foreign banks. I am not a financial crime specialist, and I should say that if there are questions needing follow-up, we will provide written evidence afterwards.
The Chair
Before I call Dr Huq, I want to apologise to you; the Minister is involved in the debate in the Chamber at the present, as is the Whip, who is also on the Committee. Hopefully they will be able to attend, but perhaps not during your session.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
Q 7070 Thank you for coming to give evidence. To continue the thread, although I guess you were not here this morning, I will compare some of your answers to what we heard from the panels then. Part 3 of the Bill would create a new criminal offence to prevent the facilitation of tax evasion. Quite a few of the stakeholders who provided evidence to the HMRC consultation do not think that that is necessary. Why do you think that might be, and do you think that it is needed or not?
Nausicaa Delfas: If I can answer from the FCA’s perspective, we would be looking at systems and controls in banks in any event. Tax evasion is a predicate offence to money laundering, so that is something we would look at in any event, but we do not have a view on the provision in the Bill; it is just our perspective.
Anthony Browne: We are not convinced that it is necessary, but we are not opposed to it, and we accept it. We think it is probably better to lead as a regulatory approach with the co-operation of the regulators and the banks in a partnership way, but we accept the Government’s wishes to do it.
Dr Huq
Q So it is a good step up, but it was not absolutely necessary?
Anthony Browne: We think that it would be better to use regulation to enforce this, rather than creating a criminal offence for banks as such, although there are also already criminal offences for individuals.
Amy Bell: Our view is that there is already a predicate offence in relation to this, but our tax law committee has been involved, and they are generally happy with the drafting.
Dr Huq
Q There is also evidence that since 2009, a lot of specialist trained investigators of financial crime who were trained on the public purse have jumped ship and gone over to the commercial sector, some of them even to gambling. An amendment that we are tabling would keep people within—I cannot remember the exact wording, but they would have to repay the cost of training. Do the three of you have any thoughts on that and potential poaching?
Nausicaa Delfas: I do not have a view on poaching, but we have accredited investigators at the FCA.
Anthony Browne: I do not have any views on this, but I can ask my members about it. There is clearly circulation between law enforcement authorities generally and banks on a two-way basis, in the sense that people at banks go to work for law enforcement authorities and vice versa. If you ask the law enforcement authorities and certainly the banks, it is actually very valuable to get that exchange of information, insight and expertise across the two. This is partly a development of the fact that the battle against financial crime, to which the banks are very committed, is a lot more of a partnership now.
Law enforcement authorities see that the banks are fully committed to this and working to the same ends. We have the same goal in mind: banks do not want to handle illicit money. Bringing the expertise of law enforcement experts within the banks helps the battle against financial crime. I do not have a view on the costs of training.
Amy Bell: We do not have a view on that either. It is not something that we see very often, people coming from law enforcement into solicitors’ firms. It happens occasionally but not on a widespread basis. We prefer investigators.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
Q A lot of research indicates that about 70% of major organisational crises are caused by culture. Why has the FCA scrapped the proposed review of the culture of banks? How is that going to assist in an attack on criminality?
Nausicaa Delfas: You are aware that the FCA is looking at culture with each individual institution. Although we would not be conducting that particular piece of work, we are doing other work. In terms of the Bill, I do not have anything further to add.
Anthony Browne: It was an investigation into the culture of retail banking and it was a decision for the FCA what it did with it. We did not ask for them not to do it at any time and would have been very happy for them to do it. As Nausicaa said, the FCA does a lot of work on culture already. The banks are doing a lot of work on culture through a lot of different means. We completely agree with your assessment of the importance of culture and of getting a better culture in banking. That is why from the chairmen and chief executives down they are spending so much time, effort and money trying to improve the culture in banks.
Roger Mullin
Q I will try another familiar area. There has also been removal of a proposal regarding the reverse burden of proof. How is the removal of that proposal going to assist in an attack on holding people responsible for criminal behaviour?
Nausicaa Delfas: That was a matter for the Government and legislation. There are still protections within the regulations to address senior management responsibility.
Richard Arkless (Dumfries and Galloway) (SNP)
Q I would like to push Ms Delfas on the point about banking culture. Do you see a link between banking culture and criminality? Do you think that a bad banking culture—to put it in layman’s terms—could be a conduit for criminality, or could exacerbate the potential for criminality in the financial sector?
Nausicaa Delfas: Obviously, we regard banking culture as incredibly important. We believe that it should be driven from the top down. We have not seen connections with criminality. We actually see that a lot of the sector operates well. Where there would be any issues around crime, they would obviously need to be detected and rooted out.
Richard Arkless
Q Do you agree with the Government’s decision to row back from the oversight committee and the reverse burden of proof? You rightly mentioned that it was a decision by Government. Do you agree with that decision?
Nausicaa Delfas: The regulations operate well as they are. Obviously, cases need to be made but I question what this has to do with the Bill.
Richard Arkless
Q The inference is clear. There is a link between banking culture and a financial system with banks being susceptible to criminality. I think it would be remiss for us to ignore that dynamic.
Nausicaa Delfas: What is really important here and what the Bill really promotes is how best to detect and prevent the financial system being used for financial crime. I think that should be our focus, so that many of the Bill’s provisions such as information sharing actually help to make the system more effective, so that crime and money laundering can better be detected and better information be given to law enforcement agencies to be able to deal with the issue. I think that is the focus here and that is absolutely right.
Richard Arkless
Q We heard evidence earlier that the new provisions for corporate economic crime may disproportionately impact smaller organisations, the theory being that larger organisations would find it easier to demonstrate protocols and processes that they could use to rebut the allegations that employers and their systems have failed to flag it up. Is that something that your members have discussed and that you have a view on? This may well be obvious, but as a former consumer lawyer, I can tell you the amount of times that big banks used to roll out their processes and protocols in defence of various actions, which smaller companies found it hard to do. Is that something that concerns you that might impact widely and disproportionately on your membership?
Anthony Browne: I agree with the general principle of your question. I have not had discussions with my members regarding this Bill. In terms of regulation more generally, there is no doubt that it can often benefit large organisations at the expense of smaller ones for exactly the reasons that you claim. It can act as a barrier to entry for smaller banks or as a barrier to growth for exactly the reasons you say: they do not have the resources, scale or internal expertise to deal with some very complex issues. The more complex a regulation is, the more that issue will be realised, as it were.
It is important to distinguish between proportionality ––we support proportionality of regulation––on the prudential side and proportionality on the conduct side. Proportionality on the prudential side, in terms of the capital that banks have, is a more straightforward issue. On the conduct side, it is quite difficult to argue that there should be lower standards for smaller banks because then the criminals or the misconduct would all be focused at smaller banks and you would create an unintended consequence. We massively support competition in the banking sector. We have done a lot of work to try to ensure that there is a level playing field and to remove any barriers to growth or entry.
Richard Arkless
Q Do you think that your members are in favour of the Bill’s corporate claim provisions? How do you think your members would react to those provisions being extended beyond tax evasion?
Anthony Browne: As I said in response to the question from Dr Huq, we do not think it is necessary, but we accept it and we have worked very closely with the Government on it. We are doing tax guidance–– 60 pages of guidance for banks to help them comply. In terms of extending it to a general criminal offence in respect of facilitating economic crime more widely, I just make this observation. There are lots of different bits of regulation and legislation on different elements of financial crime. There is tax evasion, counter-terrorism finance, money laundering and bribery. They all operate in a different way, and we would like to see a more coherent view of financial crime more generally. This is a longer term aim and this Bill is part of it. They are all different aspects of financial crime, so we are not opposed to the broad principle of extending it but we would say that it would need very careful consultation. You would need to think through very carefully how it might operate in order to make sure that there are no unintended consequences because there are a lot of very detailed complexities. You need to make sure that it would work effectively in the way that you, Parliament and the Government intend.
Antoinette Sandbach (Eddisbury) (Con)
Q Back in 2012, Coutts was fined £8.75 million by the FCA for systemic failings that had resulted in an unacceptable risk that it had handled the proceeds of crime. Do you think part 3 of the Bill will effectively address those risks at a banking level? In the not so distant past, we had HSBC Switzerland accounts being used to evade UK tax. Are you confident that the measures in part 3 will address those systemic failings in the banking sector?
Nausicaa Delfas: The Bill’s provisions will certainly help law enforcement to address these issues and, by virtue of that, will also have an impact on the banks themselves.
Antoinette Sandbach
Q Will they help you as a regulator?
Nausicaa Delfas: From our perspective, the areas that will particularly help us are information sharing, which I mentioned—so greater effectiveness in the anti-money laundering regime to detect and prevent instances of money laundering—and the civil recovery powers being extended to the FCA in line with those of other law enforcement agencies, so that when we undertake investigations we are able to move forward and take the civil recovery as well. That will help the FCA.
Antoinette Sandbach
Q The corporate responsibility obligations are only on tax evasion. They would not pick up issues around the LIBOR scandal, for example. Do you think any other measures are needed in the Bill or are you satisfied that it provides the appropriate tools?
Nausicaa Delfas: From our perspective, it is not so much a matter of powers. To go back to information sharing, the one proposal we would make is for the threshold for sharing information to be lowered, so that institutions can share information when they see unusual activity and not just when they actually have enough information to have a suspicion, because then they have to file a SAR. I know that there would need to be safeguards and that we would need to look into the matter in more detail, but the biggest benefit from our perspective would be to enhance that and therefore get better quality, rather than quantity, of information going to law enforcement.
Antoinette Sandbach
Q Mr Browne, you spoke about other pieces of legislation. Those have clearly not stopped the kind of matters that I referred to, in terms of the way the law has been interpreted or applied by your members. You said that you felt your members would be willing to have the scope of the Act extended to a broader economic crime.
Anthony Browne: You raised the question of LIBOR. Legislation was brought in after LIBOR to deal specifically with that. I should say more generally that we support almost everything in the Bill to different degrees. As banks, we are totally committed to combating all forms of financial crime. We spend in excess of £5 billion a year doing it and we want to make sure that that is as effective as possible. We have thousands and thousands of staff who deal with it. We support provisions such as information sharing, undisclosed wealth orders, disclosure orders and so on—we can talk about those in more detail later, perhaps.
In terms of widening the criminal offence to prevent wider economic crime, my point was that it is very complicated when you get into the details. We would caution against introducing it suddenly without detailed consultation about how it might operate or not operate. There is a very complex constellation or jigsaw, with lots of different interlocking bits of legislation and regulation on financial crime. Putting a blanket thing on top could make it less effective and lead to unintended consequences.
Antoinette Sandbach
Q Ms Bell, do you think part 3 of the Bill will affect your members more, particularly the high street firms that may be caught by its provisions?
Amy Bell: I echo what the BBA said in relation to the smaller firms and their resources to implement these things. We in the Law Society provide quite a lot of support for the smaller firms—the high street firms. In relation to these kinds of offences in particular, we published a toolkit when the Bribery Act 2010 was being implemented to help our members to implement the Act.
Antoinette Sandbach
Q But should not your members be aware of what constitutes tax evasion?
Amy Bell: Yes, sorry—the reasonable provisions. Sorry, I am talking about the procedures that they need to put in place. That is the part that would be difficult for smaller firms that do not necessarily have compliance departments to help them with that. We are talking about practitioners on a day-to-day basis. They will absolutely understand the law but it is about what reasonable preventive provisions they need to put in place.
Antoinette Sandbach
Q And you are providing guidance on that, or you will do.
Amy Bell: Yes, absolutely.
Victoria Atkins
Q (Louth and Horncastle) (Con): Just to pick up on that point, tax evasion is tax evasion, whether it is committed by small companies or large companies.
Amy Bell: Yes, of course.
Victoria Atkins
It involves an element of dishonesty. So any member of your profession or any other business who is conducting tax evasion is liable to be prosecuted in the criminal courts. I am slightly concerned about that distinction, that tax evasion conducted by small companies is not quite as bad as tax evasion conducted by large companies.
Amy Bell: No, I do not mean that. I am talking about the implementation of the provisions and the requirement to have reasonable procedures in place. Absolutely, tax evasion already is a crime. Picking up on what you were saying about the implementation of measures, I am talking about whether preventing corporate tax evasion is prohibitive for smaller businesses. But that is about guidance, and it is our role at the Law Society to help our members understand what is necessary.
Anthony Browne: I would like to make it clear, lest there is any question about my response, that although we want to ensure that there is as much competition in the banking industry as possible, the point I made about proportionality in terms of conduct being problematic is exactly that. Tax evasion is tax evasion; it does not matter how large the firm is that is doing it. Mis-selling to customers is mis-selling; it does not matter how big the firm is. The sort of protections you need against misconduct apply to all sizes of firm.
Peter Dowd (Bootle) (Lab)
Q This question is not specifically directed at you, Ms Bell, but I notice that you are the head of compliance and training at the Jackson Canter Group. One of the new clauses we have before us relates to the National Crime Agency making a report to Parliament about the training it provides to its staff on financial investigation and the operation of the Proceeds of Crime Act 2002. In a more general sense, what is your view about the whole question of training within, let us say, the finance sector, in relation to the issues before us? Do you think there is enough training? Too much? Give me a view about that.
Amy Bell: In relation to anti-money laundering?
Peter Dowd
Yes, take that for a start.
Amy Bell: We are fortunate to have the Solicitors Regulation Authority recent thematic review, which looked at that in some detail in relation to the legal profession. The authority visited 250 firms of varying sizes that it considered to be high on its risk rating, either because they were very large or because they already had some identified issues. In those firms it saw good levels of training and that people understood their obligations under the regulations—that systems were in place to enable people to do that—and about suspicious activity. So we have some qualitative data from the Solicitors Regulation Authority that show that in the legal profession training is taken very seriously and is effective.
Peter Dowd
Q May I ask the other two witnesses their view about training in general? By training I might mean awareness and the extent of trying to prod that awareness within the industry.
Nausicaa Delfas: My observation, from our work through supervision, is that firms take the matter very seriously and devote a lot of resource to anti-money laundering controls and related training.
Anthony Browne: I have not had a direct conversation with my members about the amount of training in terms of financial crime, but they put a huge amount of time and effort into it. There is absolutely no point in having regulations on anti-money laundering or anything else unless staff are properly trained to be aware of it and know what to do and when. The banks expend a lot of effort in ensuring that their staff are competent in carrying out those roles.
Peter Dowd
Q Do you think that the amount of training within the system fits the Bill, so to speak? Is there enough there?
Anthony Browne: There are certainly a lot of training providers. I should declare an interest here in that the BBA provides training, although we are a tiny part of the whole. Larger banks tend to do in-house training. There are a lot of third companies, external to banks, that provide training. There could be an almost unlimited supply of training, so I do not think that that is a constraint.
Nausicaa Delfas: We have talked about training in firms but there also is training for investigators exercising the powers in the Bill and other legislation. There is accreditation and monitoring of them, so the system is robust.
The Minister for Security (Mr Ben Wallace)
Q Thank you very much for your input into the formation of the Bill. It helps the Government, and hopefully the Bill reflects some of that. I am keen to find out from the regulated sectors and the professions what you envisage could or would happen to any one of your members should they be convicted of the offence of corporate tax evasion or money laundering. What penalties are available to you to deal with either law firms or the individuals who could be convicted?
Amy Bell: In relation to law firms, while the Law Society is the named supervisor, we delegate enforcement responsibilities to the Solicitors Regulation Authority. Its powers are incredibly wide and include restricting or stopping a firm from practising, intervening in a firm, closing the firm down, stopping the individual solicitors involved from being able to practise and ultimately referring them to the solicitors disciplinary tribunal, where they can lose their right to practise and be removed from the role. Quite serious options are open to the SRA.
Mr Wallace
Q And for the banking and financial sector?
Nausicaa Delfas: From our perspective, obviously, individuals could be prohibited from the industry. In terms of firms, there are significant fines and reputational damage.
Mr Wallace
Q And they could potentially lose their banker’s licence, if they are a bank.
Nausicaa Delfas: Removal of permissions, yes.
Mr Wallace
Q Ultimately, if an international bank loses its British banker’s licence, what does it mean for that bank in the global world? Is it usually the case that if they lose their banker’s licence in a developed market, it is pretty much curtains for them in the rest of the world?
Nausicaa Delfas: It would have a significant impact, yes.
Anthony Browne: If you lost your licence to operate in London, it would clearly have a dramatic effect on an international bank.
Mr Wallace
Q Do you think some of the overseas offences here will have a change of behaviour effect on foreign-owned banks that operate here as well? Ones that may previously have been able to exploit their jurisdiction elsewhere will find that the stakes are higher for them.
Nausicaa Delfas: Undoubtedly so. Obviously, where controls are exercised from the UK, those powers already exist, but this certainly goes further.
Anthony Browne: One aspect of the criminal offence of failing to prevent tax evasion about which we do have concerns is its extraterritorial impact and the degree of extraterritoriality. For example, if a US citizen who is a customer of a US bank operating in the US evades tax in the US and that US bank has a branch in the UK, the entire US bank could become criminally liable for an action that has no nexus in the UK whatsoever—it is a US citizen, US tax and a bank operating in the US under US law. The same goes for Japan, and so on. Effectively, that would place us as regulators for jurisdictions overseas. The US Department of Justice, for example, does not have such authority over UK banks operating in the US. It could have a dramatic impact on the UK’s competitiveness as an international financial centre.
Mr Wallace
Q But the US regulator does have a say in things like foreign and corrupt practices over examples such as the one you used. You do not have to have an entity with their extraterritorial reach in their other legislation.
Anthony Browne: It has to be a nexus in the US, I think. That is my understanding of that, but we can get back to you on the detail of it. Our understanding is that there no legislation which has this impact, in the sense that it is entirely extraterritorial without any nexus. It does not involve UK taxes, UK citizens, UK banks or UK laws.
Mr Wallace
Q But we do not really want tax evaders anywhere, do we? We do not want to allow tax evaders to rob other countries of their wealth either. We do not want to be a permissive society.
Anthony Browne: No, but obviously, the US, Japan and other countries have very sophisticated tax evasion laws already. Getting them to comply with two different laws simultaneously on a global basis, for both the UK and other jurisdictions, would have quite big implications. I do not know whether you have spoken to other Governments about the impact of this.
Mr Wallace
We have not had any representations from the United States objecting to this.
Roger Mullin
Q I would like the panel’s views on whether there is a case for strengthening protection for whistleblowers in the financial sector.
Anthony Browne: The protection for whistleblowers has just been strengthened in the financial sector. Ms Delfas might know more about it. We have been working with the regulators to ensure that each bank has a proper independent whistleblowing regime that does exactly that: protect whistleblowers. There is a senior manager or a board director who is a champion of the whole whistleblowing regime within the bank. That is a process that we have been going through over the past 18 months or so, to strengthen it.
Roger Mullin
Q Are you satisfied it is working satisfactorily?
Anthony Browne: I know that, as the banking sector, we think that it is a lot stronger. It is very important to have a strong whistleblowing regime. It is an important part of improving the culture of banks and preventing wrongdoing. We have been working with the regulator on this, so you should ask the regulator.
Nausicaa Delfas: I agree that the regime has been strengthened. We regard it as very important. It feeds into work on culture in banks as well. I would be interested if you thought it should be further improved.
Amy Bell: I cannot comment, unfortunately, in relation to the financial sector. In relation to the solicitors’ profession, we do have in our regulations the obligation for people to report serious misconduct. We do not have any specific whistleblowing provisions but that is not something we have encountered an issue with.
Nic Dakin (Scunthorpe) (Lab)
Q From the evidence we had this morning I formed the opinion that there is a view that banks are pretty good at spotting irregularities and bringing them forward to the authorities but other parts of the regulated sector are less proactive in that way. That seemed to be what was coming through the evidence this morning. Does that ring true to you? Are the measures in this legislation likely to improve the performance of other parts of the regulated sector?
Anthony Browne: We think it is important that the Government and law enforcement authorities use all the tools that they can to combat financial crime and not just rely on banks. I would agree with the assessment that banks do an awful lot; we certainly do an awful lot. It is important that you do not underplay or pay too little attention to other sectors—not just lawyers but accountants and estate agents. There are lots of different groups that get involved with this. They can all play their part against financial crime. We should all play our full part in that way.
Nausicaa Delfas: I agree with that. I obviously cannot speak for the other professions but we are aware that there are about 400,000 suspicious activity reports filed with the NCA each year. The vast majority of those, I understand, come from the financial sector. Obviously, perhaps more could be done. I go back to the point that that is a huge number. It is a quantity issue and we would urge any changes that could be made to improve the quality of those so that there are better leads for law enforcement.
Amy Bell: We have to be careful in judging the numbers of suspicious activity reports. The Financial Action Task Force and the NCA’s predecessor, SOCA, were both clear that there is no right number of reports. It is fair to say that the vast majority of reports do come from the financial sector. They see patterns of financial activity that we do not see. I do understand that there is criticism levelled at the professions in relation to reports about clients that banks report but maybe the professions are not reporting, but that is because we see different parts of the transaction. That should not be underestimated.
Although I think we should continue to be vigilant, we need to be very careful about drawing any conclusions from the disparity in the numbers. I think the information sharing will help because that means that the bank can communicate with the regulated sector where they see things that will give data to the professions to be able identify suspicious activity.
Peter Dowd
Q This morning we had evidence from the National Crime Agency, the National Police Chiefs Council, the Met police SO15 counter-terrorism policing, Her Majesty’s Revenue and Customs, the Serious Fraud Office and the Crown Prosecution Service. To a man—they were all men, by the way—I would say that they looked at the Minister, gulped and said that they had enough resource to do their job. Will you give me a view from outside, so to speak, as to whether you get the sense that those agencies have sufficient resource to do their job, given that you presumably have pretty close relationships at points in the investigatory process?
Nausicaa Delfas: Every organisation has constraints around resources. The question is how best to deploy them. The more precise the information, powers and so on that can be given, the better, but there are constraints in all cases.
Anthony Browne: Clearly it is important that they are properly resourced. We submit about 80% or 90% of the SARs that are submitted—360,000 last year. One of our concerns as an industry is that they are not all followed through, and we get very little feedback about what follow-through there is. A huge amount of SARs are put in, but we have concerns about whether there is sufficient resource to follow up that suspicious activity.
As you know, there is a whole Home Office programme to reform the SARs regime to make it more intelligence-led and less of a tick-box exercise, and to improve the quality of the SARs rather than just the numbers. We totally support that but it will only work if there are enough resources to follow through. That is why one thing that we have proposed in a submission to the Government is a forfeiture for the proceeds of crime in bank accounts such that the money raised is used to add resource to the SARs regime.
Amy Bell: The well known difficulty with the SARs regime—the reporting system—is one of resource. I echo what my colleagues say in relation to the numbers of SARs that go in and the feedback we get, and I believe that is a resourcing issue.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
Q This question might not quite fall within your competencies but I will ask it anyway, given your knowledge of law, finance and the City. It seems that one of the challenges in the current legal set-up is a kind of fear among statutory and investigative authorities about the cost of pursuing certain lines of inquiry, with all the legal ramifications if those who are pursued for unexplained wealth orders and so on are found innocent. How does it affect the culture of investigation within the City when there is a fear about reputational and financial impact on those pursuing those lines of inquiry? Do you have any thoughts on that either from a legal or financial stance? There is a chance to think about an amendment regarding capping the reimbursement of costs or not allowing for the costs.
Nausicaa Delfas: We are aware of the costs but I suppose we regard it as part of the discipline of litigation, so it is not exceptional. The capping idea is certainly interesting.
Amy Bell: I do not think we have a view on it, but we are happy to take it back and get in touch with the Committee if we have any views.
Tristram Hunt
Q I will pursue this slightly differently. Do you have any sense of the international comparisons? Is the UK behind the curve on these investigations or is it out in front?
Anthony Browne: I do not know.
Dr Huq
Q Can you think of anything that is not in the Bill that you would have liked to have seen in it? I was kind of thinking sideways—maybe enhanced supervision of the property market or something. I know that is not one for you three directly, but if there is anything you would like to see in the Bill, we are told that the Minister is in listening mode.
Mr Wallace
Always.
Anthony Browne: We broadly support this Bill and almost all the provisions in it. The one thing we would like to see changed in the Bill is the threshold for intelligence sharing, which is a point that Ms Delfas made earlier. It would be beneficial and make the regime more effective if you lowered the threshold for intelligence sharing. If there was activity that was just below the formal level of suspicion, so that banks do not deal with it as a suspicious activity report, if they could at that stage share intelligence with other banks like two pieces of a jigsaw, they could find out that something happening in bank A is also happening in bank B.
That could raise it to a suspicious activity and so enhance the intelligence sharing and make it far more useful and effective. We are worried that the way it is prescribed at the moment would actually be a lot less effective than either the Government or the banks want.
Dr Huq
Q Do you think that the £100,000 for an unexplained wealth order is about right as the threshold where that kicks in? Would you like to see it higher or lower?
Anthony Browne: I do not have a view on that, but I can get back to you.
Nausicaa Delfas: I do not particularly have a view but, certainly from our experience, the cases of money laundering tend to be of higher value. I do not have a view on the figure as such.
Dr Huq
Q Is there anything you would like to see?
Nausicaa Delfas: Yes, there are other points. I have mentioned the lower threshold on information sharing. There are other ideas that we have in terms of how the SARs regime could be improved so that it is better quality rather than quantity. One is information sharing. Other ideas would probably not be in the Bill but are for future thought. What are the incentives for people who are submitting the SARs? For example, there is criminal liability on an MLRO. Is that right? Obviously, it is a difficult question but there are certainly incentives to report defensively.
We have heard from banks other ideas in which we can see the merit, such as having a sort of centralised transaction monitoring system to be able to see how transactions are flowing through banks. That is another very big issue that would need to be looked at. Again, it would improve the effectiveness of the system.
There are other provisions such as reliance. A bank cannot rely on another bank’s due diligence of a customer, so the customer has to go through due diligence again with the second bank. There would be a question about whether legal liability on the second bank could be removed, so that it could rely on the due diligence of the first bank, provided it had done some checks.
All those things are ideas that we are happy to share, or have shared, with the Government for the future, in terms of improving the regime overall, its effectiveness and efficiency. Mr Browne mentioned that his members estimate that the current regime costs them about £5 billion. Things that can reduce the cost and relate to effectiveness are welcome.
Richard Arkless
Q You have made it clear that you are broadly supportive of the measures in the Bill and you have given the reasons why. I think most people in the Committee are broadly supportive. The point of contention comes when some of us do not think that the Bill goes far enough.
I am quite perturbed by some of the answers you have given in relation to what could be done to make it easier for the people you regulate or your members. I am not getting the impression that those are things that you think would make it easier to catch the criminals. Am I confused by this? It smacks of self-preservation. What I want to hear are things that we could put in the Bill to make it easier to catch the criminals, not to make your lives easier.
Nausicaa Delfas: I am not suggesting how we can make our lives, or anyone else’s, easier. I am suggesting exactly what you said: to improve effectiveness in terms of being able to produce useful intelligence that helps to prevent money laundering in the financial system. That is certainly our aim; it is not to make anything easier. I think the Bill contains good provisions that will go towards that aim. We can always think about these issues and what we can do in future. We are certainly supportive of the Bill.
The Chair
That brings to an end the time allotted for questions. I want to thank all the witnesses who have come forward to give evidence. At some point, copies of your evidence will be available. Thank you very much for attending.
Examination of Witnesses
David Leask and Toby Quantrill gave evidence.
The Chair
Thank you very much for attending. We expect a vote on the Floor of the House quite soon, so your evidence may have to be interrupted. Before we start, could I ask you to tell us about your background and some of the roles that you have in your industry?
David Leask: My name is David Leask. I am a newspaper reporter with The Herald in Scotland. I am here because I am very interested in the use of Scottish shell companies by tax avoiders and other unpleasant people in other parts of the world, particularly the former Soviet Union.
Toby Quantrill: My name is Toby Quantrill. I am the principal economic justice adviser with Christian Aid. We are here because we have been working in the area of financial transparency, especially with regard to tax, for over 10 years. We are members of a number of global coalitions of civil society—the Global Alliance for Tax Justice and the Financial Transparency Coalition—which include members from both the north and the south. Our concern is with the management of British overseas territories specifically and the problems that they cause with regard to financial secrecy and criminal activity, especially in developing countries.
The Chair
You informed me, Mr Leask, that you were defended earlier by one of our Scottish Members, who explained that you were the chief reporter of The Herald, not “The Glasgow Herald”. We were put right on that.
Dr Huq
Before we were so rudely interrupted, Toby, because of the stuff you have published, I was going to ask you—this may also be relevant to David—about the new corporate offence, which will apply to tax evasion offences both in the UK and overseas. Will the foreign tax offence have a significant impact on developing countries?
Toby Quantrill: Potentially, yes. We very much welcome the extraterritorial nature of this. We would like to see this extended beyond tax evasion to all financial criminal activities—we are slightly puzzled as to why it is restricted in that respect.
The question will be implementation. As long as sufficient resources are put into implementation, we think this has the potential to have quite a significant impact around the world and in developing countries. So, yes, we welcome it.
Dr Huq
Q The same question about other jurisdictions—which Scotland might be if certain things continue going in one direction.
David Leask: The thing that we have been interested in at The Herald is the way in which some of these Scottish companies are directly marketed as a means of not paying tax. In that respect, when you have UK entities explicitly sold off the peg as a way of not paying tax, perhaps that is something that you will want to think about.
Dr Huq
Q How do you rate the risk posed to the Exchequer by illegal tax evasion? We heard different figures this morning: the witness from HMRC told us the tax gap was £5 billion and the professor said it was £70 billion. Do you have estimates on that?
Toby Quantrill: No, we do not take a particular view on the tax gap. It is clearly significant. There are many different ways of calculating it, but our main view is it is significant. It goes beyond pure resources and finance; this is about fairness and justice as well. It is about people everywhere in the world understanding that if they pay their taxes, so should everybody else.
Dr Huq
Q Christian Aid’s evidence keeps going on about the need for the beneficial registers of ownership to be made public. Will you stress again why you think it is important that it can be consulted when needed, and why it is not enough just to have it?
Toby Quantrill: As I said, we welcome the Bill overall. We very much welcome the leadership that has been shown by successive Governments. David Cameron especially at the G7 at Lough Erne put the issue of financial transparency and tax on to the global agenda, and the UK is the first of the G20 countries to create a public register of beneficial ownership, so that UK companies registered in the UK have to put on the public record who really owns them and who sits behind them.
Our concern is that this is a criminal finance Bill that does not address the question of our overseas territories and the role that they play in the global system of corruption and financial crime. That is strange and rather odd. We do not really understand why that has not been included. For us, what is really critical is that the company secrecy that is enabled in our overseas territories in places such as the BVI and Cayman Islands needs to be dealt with by doing exactly what we have done in the UK. We need to ensure that the registers of beneficial owners that are being created are put on to the public record and made public. We would like to see that done through this Bill or through some other process, but done with a clear timeline so that we know when it will happen, because that is not something that can wait. As I say, I represent civil society from across the world in many respects and there is a clear concern about the role the UK plays.
Dr Huq
Q The Public Accounts Committee has raised concerns that there is not a sufficient number of successful prosecutions of offshore tax evasion for it to deter people effectively. Do you agree and do you think that the new corporate offence in part 3 will make a difference?
Toby Quantrill: I think it has the potential to make a difference. The critical thing is to avoid these things happening in the first place. It is important to have some sort of measure that creates the requirement to put in place the measures to stop this from happening. As I said, it is a measure that we welcome. We especially welcome the fact that it applies to the way that UK companies act anywhere in the world.
Antoinette Sandbach
Q I am not as familiar with the Scottish devolution settlement as you are, but I had always understood that Scotland had a separate legal jurisdiction.
David Leask: That is correct.
Antoinette Sandbach
Q Can that legal jurisdiction not regulate the Scottish companies that you refer to? Where does the ultimate responsibility for that regulation lie? Is it with the Scottish Parliament or with Westminster?
David Leask: You probably need to speak to somebody more qualified in the law than I am. I can tell you about what these companies do and why people want to own them. Obviously, the companies were created by this place more than 100 years ago and not by the Scottish Parliament. In terms of law enforcement rather than regulation, if you were to ask the police what they would do about this, I honestly think they would tell you that they would do very little, because the criminality, or sometimes the unethical behaviour, is being carried out outside the legal jurisdiction of Scotland.
Antoinette Sandbach
Q I accept that, but what I am asking—it may well be that you do not know the answer and we need to get that from elsewhere—is whether company law is devolved in Scotland.
Antoinette Sandbach
My suggestion was that, given that there is a separate legal jurisdiction, there is the power already in Scotland to deal with these matters, but I see my colleagues are shaking their heads. To that extent, would the changes, particularly in part 3 of the Bill in terms of corporate responsibility for tax evasion, largely address the concerns that you have?
David Leask: I do not think it is my job to come here and have concerns. It is my job to come and tell you what these companies are doing, why people are using them and just how many of them there are.
Antoinette Sandbach
Q Have you looked at the Bill and read the provisions that are in it?
David Leask: I do not feel qualified to tell you as a legislator how to legislate, I am afraid. Sorry.
Antoinette Sandbach
Q You cannot give us an opinion on whether you think it will tackle the abuses that you are trying to describe to us?
David Leask: There is a reasonable case for the United Kingdom authorities to take a detailed look at Scottish limited partnerships and what it is that they do. I think there is a reasonable case for you to look at what similar English companies are doing and ask yourself whether you want Britain and Scotland to be associated with that kind of activity, and whether you think that is good for your national brands.
Antoinette Sandbach
Q We heard the evidence of the various law enforcement authorities in earlier sessions. I do not know whether you were here for that, but they were quite clear about the additional protections the legislation will afford them in tackling illegal tax evasion.
David Leask: They would be better placed to tell you about that than I would be. However, the issue really is that right now, tens of thousands of companies and firms are operating around the world and we do not know who owns them. They are involved in things that are quite questionable, from simple matters of peddling diet pills that do not work and combs that they tell you will grow your hair back—I am sure they do not—to very serious criminality, including, for example, being used as legal intermediaries by corrupt officials in countries such as Ukraine. Prosecutions are now under way of individuals in Ukraine who are accused of using Scottish and English companies as intermediaries in arms deals. These are serious matters, and they are outwith the jurisdiction of the law enforcement officials that you saw this morning. It is within the power of Westminster to change the law in respect of Scottish limited partnerships, but you probably need to take a closer look at what they are doing.
Roger Mullin
Q I will direct my questions to Mr Leask, but I would be very happy if Toby decided to join in as well. If it had not been for Mr Leask’s groundbreaking research over the past year or more, I would not have been aware of the seriousness of the situation, so I would like to put that on the record. Could you give us a sense of your perception of the scale and type of criminality that is associated with Scottish limited partnerships?
David Leask: There are some 25,000 of these firms on the register at Companies House. A colleague of mine, Richard Smith, has scraped data from these and we think some 17,000 of them have entirely opaque ownership, meaning that they are owned by members—partners in partnerships—who are in some of the places that Toby has talked about, such as the British Virgin Islands, Panama and Belize. There is no way of knowing who stands behind those companies.
How do we know what they are doing? We cannot gauge the scale of criminality, tax evasion or anything else because we do not know who these companies belong to or who controls them, but some of them have started cropping up in criminal matters elsewhere. For example, we have seen a company called Fuerteventura Inter, which is registered on the high street in a small mining village in Lanarkshire, named in a prosecution in Ukraine for corruption involving the export of shells from Ukraine to the middle east. We have seen minor cases as well: for example, in what you might think are tuppenny-ha’penny corruption cases—they involve tens of thousands of pounds—officials have used them as fake intermediaries for exports of alcohol. They then take a cut, allegedly.
We have also started seeing these companies being used substantially in the world of e-commerce, both for what you might think of as being criminal, unregulated and unethical behaviours. Only yesterday, we reported that Scottish limited partnerships were being used as fronts for the kind of unregulated cash-transfer firms—sort of PayPals, only not regulated by anyone—where an anonymous sender can send an anonymous amount of money to an anonymous recipient by email. They actually guarantee that they can provide identity-masking. That may not be an illegal activity but it is unregulated, and again, we do not know who stands behind those companies.
Roger Mullin
Q To follow up on that, I read the article yesterday and I was taken aback, to say the least, when it alleged that there could be contacts with what used to be known as the KGB.
David Leask: There have been stories in Ukraine that have accused some of these companies of having connections—albeit tenuous ones, to some extent—with people who are connected to the security service in Russia. However, the companies concerned deny that.
Roger Mullin
Q You have already started to give us a sense of the type of criminality that is involved. To confirm, we are talking about financial criminality, but not just financial criminality—I think one of your investigations was into things that involved, for example, paedophile websites. Is that correct? Could you say a bit more about that?
David Leask: One of the types of companies that Scottish limited partnerships have become quite popular as fronts for are businesses that you might call cyber-lockers. They are essentially subscription services where you can access material and peer-to-peer sharing. That might include, for example, bootlegged Hollywood blockbusters. It can also be things that are quite unpleasant. People post such things to those sites and you pay a subscription to access that material. There is a lot of concern about the use of those peer-to-peer file sharing systems. Sometimes it is quite innocent—people sharing pictures of their families—and sometimes it is not. That is subject to an investigation by police in Scotland.
There is a similar issue involving the alleged theft of copyrighted material by a well-known torrent site. That is another site where people can access copyrighted material such as TV programmes and films in the United States, where the estimated value of the copyrighted material stolen is $1 billion. That involves a Scottish company as part of the payment mechanism for those services.
Roger Mullin
Q I will allow other Members to speak, but I want to ask one more follow-up question. I can understand why you are reticent to suggest what legislators should do but, as far as I am aware, you have been one of the leading researchers in the field. However talented you may be, Mr Leask, you are limited in your resources to research further. Would you welcome the UK Government putting their shoulder to the wheel, as it were, and conducting a detailed review of the use of SLPs for criminal purposes?
David Leask: That is a reasonable ask. As I said earlier, we are talking about companies that are trading on the brand of Scotland and the brand of Britain. When they are offering these services, they are stressing that the addresses that they are using are British. The United Kingdom’s status is part of the reason that these companies are popular. That is part of the reason that you may want to look at the matter.
One of the reasons that people in countries such as Ukraine or Russia may wish to use a Scottish or British company as a shell company is that it lends the enterprises respectability. I am not sure that our authorities will want to lend the respectability of countries such as Scotland, which have an image in the world of being stand-up places where there is the rule of law, to some of the enterprises we are talking about.
One thing I urge you to do if you are remotely interested in the issue is simply to go online and google “Scotland” and “offshore”. If you can do so in Russian, all the better. You will see the most extraordinarily explicit explanations of how these companies do not need to pay tax, report any financial findings or reveal who their owners are, because those owners will be in entirely opaque jurisdictions.
Q Toby Quantrill: So much of what Mr Leask has talked about in terms of how anonymous companies are used applies equally to our overseas territories, including the issue of respectability by connection to the UK.
I want to say a couple of things on volume, especially with respect to developing countries and the impact there. A high-level panel was put together by the United Nations economic and financial committee. It was run by Thabo Mbeki, so it is known as the Mbeki panel. That panel estimated that illicit financial flows out of Africa run at somewhere in the region of at least $15 billion a year. That is money being lost from Africa at a far greater rate than aid is going in. That money is either illegally obtained, illegally transferred or illegally utilised, so it covers a range of activities including transfer pricing—the illegal movement and transfer of finances—and criminal activities and many of the kind of things that have been described. It is worth noting that the sort of picture being painted there would apply equally and, in many respects, more so.
One little pertinent fact that I have written down is that 11% of foreign-owned companies operating in Russia are apparently registered in the British Virgin Islands, but we do not know who sits behind them.
Mrs Flick Drummond (Portsmouth South) (Con)
Q This question is really a supplementary to some of Dr Huq’s comments on the overseas territories. I asked a previous panel including the Serious Fraud Office, HMRC and the Crown Prosecution Service whether they thought they had the resources to go in there. They have automatic access to all the records, although I know that it is not public document. I want to know a bit more about that, Mr Quantrill, because obviously you are a great expert on it. To add to that, are you confident that the enforcement agencies have enough resources and the capability to do what is in the Bill and prosecute people in the overseas territories and Crown dependencies?
Toby Quantrill: It would be an awful lot easier if we had transparency in regard to beneficial ownership. It is true that all of the overseas territories have now agreed to share information with the UK Government and a number of other Governments on a Government-to-Government basis. However, from the perspective of a citizen in a developing country who may well not trust their Government and wants to know what is going on, they will not be happy. First, they cannot hold their Government to account to use that data even if they get it—most developing country Governments will not. As long as it is shared only between Governments, there is a limit to who will see it and who can act on the information. That is critical.
We cannot put this an awful lot better than David Cameron did when he was talking about the UK’s beneficial ownership register. He was asked, “Is it not enough for it to be available to Government officials?” and he said:
“we in government will use this data to pursue those who break the rules, and we’re going to do that relentlessly, but there are also many wider benefits to making this information available to everyone. It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”
Yes, there is a question of resources and availability to use the information once it is provided, but the more people who have access to it, the more likely it is first to be accurate and secondly to be utilised.
I was talking to a colleague from Global Witness just before last weekend. They spent the whole weekend with a group of data analysts sitting and looking at the information now available through the UK’s beneficial ownership register, making connections and linking that with other databases they have. This information does get utilised, and the more people utilising it, the more likely it is to be helpful. Our sense is that it is not enough just for the authorities to have access.
Mrs Drummond
Q As far as the Bill goes on transparency, obviously it is only for the UK. You have also been talking about other countries and it is up to them to follow our lead and have more transparency.
Toby Quantrill: The UK has legislative authority over the overseas territories.
Mrs Drummond
Yes, but I think Mr Leask was talking about other countries and corrupt Governments. We cannot cover that in the Bill. We can cover the overseas territories. Were you not talking about other countries outside the overseas territories when responding to Mr Mullin?
David Leask: We were talking about the use of both English limited liability partnerships and Scottish limited partnerships as shell companies. Those shell companies often provide cover and a way for people in Russia, for example, to buy a company in the British Virgin Islands. Often the shell on the outside will be British, but, when you crack it open, on the inside you get the British Virgin Islands or another Commonwealth or British overseas territory. Sometimes it is a country such as Belize or Panama.
One of the things said to me by a colleague—a lot of work is being done on these stories by colleagues in countries like Ukraine and Latvia—was, “We keep coming up with that British Commonwealth problem.” That really struck me, once you start unwrapping these shells. One final point I will make is that, in many countries, there are blacklists of offshore fiscal paradises and tax havens, and the British and Scottish companies enable you to bypass those blacklists.
Toby Quantrill: In the recent Panama papers data that were revealed, just under half of companies in the documents in Mossack Fonseca in Panama were registered in the British Virgin Islands. It was by far and away the most utilised location. It is at the heart of the system. With the ability to deal with that comes a responsibility to do so.
Mr Wallace
Q I thank The Herald for what you have done. I have read some of your stuff and it has been quite an eye-opener. The SNP obviously raised it in the debate and that prompted me to have a meeting with one of my business Minister counterparts to see where we can go forward with it. Some of the stuff that you have identified—well done for it—is the truest form of good investigative journalism that can be produced. It was the Glasgow Herald when my grandmother wrote for it way back 40 or 50 years ago. It is clearly a structure that has been abused, and I think we want to ensure that that does not happen.
I want to ask Mr Quantrill about a bigger issue: the Crown dependencies and overseas territories. If we stack it up, going back to the anti-corruption summit chaired by David Cameron back in May, we have got to a position now where all of them will have a central register of beneficial ownership, except the Caymans, which will have a linked register of ownership. Our law enforcement agencies will have access to them. We are the only country in the G20 to have a public one. Never mind the dependencies or anywhere else; our neighbours in Europe do not have them yet, so the trajectory is in the right direction. It seems to boil down to a call to make the Crown dependencies make them public—that we, the UK Government, impose our will on the Crown dependencies and territories, in primary legislation.
Do you recognise what that actually means? I have many constituents who, for example, have very strong feelings on abortion. Does that give this sovereign Parliament the right—technically, we are sovereign over Scotland and the Crown dependencies—to impose that very strong will on those Crown dependencies? That is the next step. The step you are suggesting is for us to ignore their own Parliaments and impose our will on them, because it is a subject that you and many other people feel passionately about. I respect that, but it is what you are proposing. Is that something that you are happy to do?
Toby Quantrill: Not happy—
Mr Wallace
By working with them, we have got to a position rather quickly of having central registers and getting our law enforcement automatic access to those data without long, drawn-out court cases. We have done that in the space of a year. Is Christian Aid proposing that we override the democratic expression of those countries, whether they like it or not, because it is a subject that you have decided is more important than other issues?
Toby Quantrill: I certainly recognise the difficulties. I would also very much prefer that we did not have to go down the path of legislation. I do not necessarily think that we would need to, but it ought to be available, and it ought to be made clear that it is available. There have been precedents in the past.
That is one thing, but what we are looking for is a timeline and to be really clear by when this will happen, so that we know what is happening and can see the UK using all its powers to persuade and support these places to go in that direction, primarily. However, we do not think it is acceptable for this not to happen within a timeline. The reason for that is that the impact globally is so great. The Panama papers are a game-changer in this respect. It puts these places right at the heart of the system. The damage being done globally, to our mind, overrides the very real discomfort of taking this action, but it is not an action without any precedent. The UK has gone down that route in the past, as I am sure you are aware, on a number of different issues.
Also, interestingly, I had sight of a paper recently, the Foreign Office annual report on the Cayman Islands Government from 2003; it goes back some time. In it, there was a single paragraph relating to the EU savings directive. At that time, the Caymans Government clearly did not want to implement it; it was a similar issue of making certain information available. The paragraph stated that voluntary action by the Caymans Government meant, effectively, that we did not have to legislate. It was clear that the threat of legislation had been used, and had been effective in that case. It has been done in the past, in a similar incident.
Yes, I recognise the difficulty—I honestly do—but there are potential implications of maintaining secrecy in these places. It is not just one particular place; it was, as I said, one of the most important centres of financial secrecy in the world. I think the potential impact of that staying in place is too great to ignore, but what we are looking for is a timeline, persuasion and all means possible first.
Mr Wallace
Q You quote the Panama papers, which was a significant leak, and there have been previous ones—Liechtenstein and others. The access that our law enforcement agencies will now get will be greater than the Panama papers. The Panama papers are not complete, and they are effectively within the control of the journalists in the sense that they were selectively leaked to them and then published. No one is able to get the full picture because we do not have open access to Panama, which is not a Crown dependency or an overseas territory; it is a place that Scotland had a bad relationship with a few hundred years ago.
What we are proposing, and what the Crown dependencies are giving our law enforcement access to, is the complete picture. In one sense, we will have a greater advantage than the Panama papers because our law enforcement agencies will be able to have full access to the full range automatically. Therefore, in one sense we are 90% there. As you said, we do not have the transparency bit, but the Government’s intention is to do that. We are doing it, first, by leadership. We are the first in the G20 to say it is our aspiration. The step that seems to be mooted is to impose the sovereign will of Parliament on them, but in 12 months we have gone 90% of the way.
Toby Quantrill: We are looking for a timeline. We must give time and support to moving in that direction and be clear about when we are going to reach it. The Panama papers demonstrated the power of making this information public, because the impact has been global. In countries all around the world, citizens have gained information about people often within their Government and judiciary, and they have been able to investigate, follow those leads and hold their Governments to account. That is the power of transparency. It should be full transparency, not just the bits and bobs. We should not have to rely on leaks to hold our Governments to account. That is the point we are making.
Carolyn Harris (Swansea East) (Lab)
Q Have you ever heard of the Magnitsky clause?
Toby Quantrill: No.
Carolyn Harris
Q This is a blank piece of paper. If you had the opportunity to write what is in the Bill, what would be on it?
Toby Quantrill: There is already an amendment—new clause 4—that we support. The critical thing is to see action, whether within the Bill or through other means, to get the outcome we are looking for. All I would write on that paper is simply a public register of beneficial owners in overseas territories by whatever means. As I said at the start, this is a Criminal Finances Bill, and it seems odd not to include that issue in it.
David Leask: I have nothing to say on that, I am afraid.
Richard Arkless
Q First, David, thank you for your groundbreaking work. I was very heartened to hear what Ben, the Minister, said about reading your work and taking note of it. I was encouraged to hear that. Let me be the matchmaker in the middle here. Would you be willing to work with the Government and provide them with all the evidence you have uncovered in the past few months, based on what Ben has said?
David Leask: It is entirely published in the pages of what Mr Wallace would like to call the Glasgow Herald. It is therefore up to date. I can offer you a subscription, if you like.
Richard Arkless
Q Perhaps that is something that the Minister could consider. He very helpfully expressed a willingness in the Chamber to have a look at the issue, and he clearly demonstrated that he is doing so, so hopefully there can be communication from here on. For lay people watching this who find it difficult to conceptualise how transparent companies can be conduits within a system that can lend itself to criminality, is there a way that you can explain very simply what it is about SLPs that makes them susceptible to criminality?
David Leask: In some ways, the way to look at that is to ask how they are being sold and marketed off the peg, and what people find attractive about them. I am sure you could find lawyers who can identify some of the weaknesses in the Scottish limited partnership, but what fascinates me is the way in which they are sold. They are companies that have legal personalities, which means that, for example, you can open up a bank account with such a company—or a firm, strictly speaking.
Richard Arkless
Q How do they differ from normal companies, then?
David Leask: That is normal for a company with a legal personality. I will start again. Imagine that you are sitting somewhere like Kiev, and you open up the internet to look at agencies that are offering offshore companies. You will see a menu drop down and you will be offered a limited partnership in Canada or a limited company in the Czech Republic. You will have to choose the one that best fits your bill.
In this case, the Scottish limited partnership has legal personality, like many other types of company, which means you can open a bank account. These agencies will then offer, right there on the same internet page, to open a bank account for you. That bank account is often going to be in Switzerland, or even more often in Latvia. It is almost as if you are able to pick and choose the areas of the world where they have the weakest regulation. For Britain, that is going to be corporate law. For Latvia, it is going to be banking. You had bankers in here earlier talking about what they can do in Britain against money laundering; perhaps there are other jurisdictions where it is weaker.
You have to see a Scottish limited partnership or an English limited liability partnership as part of a kit that you can buy online. It is essentially a do-it-yourself kit for tax avoidance at best and money laundering at worst. That will include all the things that certain people like about SLPs: the fact that they have legal personality, that you do not have to say who the ultimate owner of the company is, and that there are no tough reporting restrictions. As I said, we have 25,000 SLPs in Scotland; I have never seen a single one of them file accounts, and I do not think that any ever have. I am happy to be proven wrong on that, because I have not read the paperwork for all 25,000. Some of them are perfectly legitimate businesses.
The next thing is that because there is no taxation on a Scottish limited partnership that does not operate in the United Kingdom, the agencies are quite entitled to tell people who want to invest in an overseas offshore company that they can have a zero-tax company, and they are bluntly marketed in that way. There is no taxation, so there is no need to say who you are and no need to file any accounts. There is then, of course, the extra element of these companies, which is that they do not fall under the blacklists that some Governments have imposed on their citizens.
Lastly, there is the simple prestige of owning a company or a firm in the European Union, in the United Kingdom, and in Scotland. It is about that particular cocktail being of particular interest to certain types of people. Some of those people might then look around those menus and find another type of company. That might be a British company or an English company, or it might be one elsewhere, but they will pick on the weakest regulatory regime they can for any part of their kit to launder money. In the case of companies, I am sorry to say that I think that is Britain.
Richard Arkless
Q That is very useful, Mr Leask. Thank you very much indeed.
Mr Quantrill, it seems from the discussion today that most people around this table would agree with most of the Bill’s content. As you have rightly said, the point of contention comes with what is not in the Bill. You have mentioned overseas territories and Crown dependencies, but those aside, could you quickly run us through perhaps two or three aspects that you think ought to be included in the Bill but are not?
Toby Quantrill: There are a couple of other areas I would highlight. I think my colleagues from Transparency International and Corruption Watch UK will give evidence; we support them and work with them closely. In part 1, could the unexplained wealth orders be extended so that they also apply to assets held in, for instance, the overseas territories? That would be helpful. We welcome the fact that the “failure to prevent” legislation is extraterritorial in nature, but perhaps that could be extended to other financial crime, beyond tax evasion.
Richard Arkless
Q Do you have any idea of which crimes you would extend it to?
Toby Quantrill: Just broadly.
Richard Arkless
How about market manipulation?
Toby Quantrill: Yes, those sorts of things. I do not have a particular list in front of me, but it seems strange to limit it to just one specific type. Beyond that, our main focus has been on the one issue, as I have probably made very clear.
Tristram Hunt
Q I was struck by what you said about the debate in Africa about the amount of money flowing out of that continent. We obviously give a huge amount of money to different countries in Africa through development aid. Will you give us a sense of the nature of people’s frustration about some of the money leaving the continent of Africa and their analysis of where they see London and its role in all this? What kind of reforms are being urged in many of those countries on the continent that, on the one hand, we are supporting through development aid, but from which on the other hand, it seems to me, we are allowing too much wealth to leave?
Toby Quantrill: As I say, this issue has been picked up by a number of civil society coalitions—our networks of partners and organisations across Africa—as being critical. They highlight the fact that on the one hand we are providing aid and on the other, we are facilitating these losses, which may massively extend, in terms of volume, way beyond—I think this goes beyond more than money, though. The other frustration is the fact that we are talking a lot about corruption, but, through our overseas territories and other forums—property ownership and so on is being dealt with appropriately—we are perhaps helping to facilitate or not doing enough to clamp down on some of the kind of flows of corrupt money, supporting corruption and so on. It is very hard to get into a lot of detail, because a lot of this activity, by its very nature, is secret and hard to pin down.
The best example is a very real one, which has been used before. A very good investigation was run by Global Witness into a particular case in the Democratic Republic of Congo. There was the massive underselling of mining rights—as low as 5% of market value—out of the country to a company registered in the British Virgin Islands and a number of others. Today, a new press release from Global Witness also links this to companies in the Cayman Islands, at extra money. Those rights are then sold on to other companies including, for instance, Glencore, at massively inflated prices. Somewhere in the middle somebody is making a lot of money and we do not know who. It is estimated that the losses from that particular transaction could be worth as much as $1.3 billion to the DRC, so the people of the DRC are being ripped off and they do not know who to blame for that. They do not know who to point the figure at, because they cannot find out.
The Chair
I will now bring this session to a close. It has been very good of you to come here and we are all very grateful for your evidence, but we must finish this session. Thank you for your attendance; we will start the next session at 4.30 pm.
The Chair
Q We will now hear oral evidence from the right hon. Dame Margaret Hodge. I have known Margaret for a very long time, and I am pleased that I know her. There are new Members of Parliament who are not up to date on your background and work on the Public Accounts Committee and so on, so before we begin, could you just give us a brief summary?
Dame Margaret Hodge: First, thank you for asking me to give evidence. I was really pleased to be given the opportunity. My interest arises out of the work that we did on the Public Accounts Committee, which I chaired for five years from 2010 to 2015, and particularly our work on tax avoidance and evasion, and the links to corrupt practices. I warmly welcome the Bill, as I am sure everyone has said to you. I hope that in the brief time I have, I can say where I think there are a few gaps and where we could strengthen the Bill—there are a few omissions that the Committee could rectify as it considers the Bill.
We tend not to think about this, but we have to remember that, along with our overseas territories and Crown dependencies, the UK is probably the biggest secret jurisdiction in the world. That is why so much money gets laundered through the UK and why the Bill is so important in tackling corruption around the world. David Cameron was really strong in saying that he would lead on anti-corruption. He said quite clearly that we have to lead by example. There are certain omissions and issues in the Bill, but if we strengthen it, we could make a reality out of his statements and commitments.
The Chair
Thank you very much for that. We are time limited. We have until 4.52 pm, which does not leave us much time at all, so will Members please be concise with their questions?
Dr Huq
Q It is great to have you here, Dame Margaret. You were the Chair of the Public Accounts Committee when a landmark report came out in 2014. How much of the stuff that you recommended is reflected in this legislation? You hinted that there are some omissions that need addressing. Could you tell us about those?
Dame Margaret Hodge: Again, in the context of general welcome for the Bill, let me talk about three issues, including the overseas territories and Crown dependencies. What is missing is a clause in the Bill— I know an amendment has been tabled already and I hope the Committee will consider it carefully—that provides for registers of beneficial ownership that are open to the public. Let me just quote from somebody who made a statement about this because it is really important:
“Now some people will question whether it is right to make this register public. Surely we can get the same effect just by compiling the information and using it within government and sharing it between governments? Now of course, we in government”—
that gives it away a bit—
“will use this data to pursue those who break the rules, and we’re going to do that relentlessly, but there are also many wider benefits to making this information available to everyone. It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”
That was actually David Cameron when his Government launched the UK public register of beneficial ownership.
We have given the overseas territories and the Crown dependencies three years to come on board with this. It was first raised by David Cameron in 2013. I think that is long enough. I know there is a reluctance by the Government and that they feel that we have come some way, but that commitment to openness and transparency is vital. It is at the heart of ensuring that we really tackle corruption and money coming into the UK. If we cannot get the commitment in the Bill, which is what I would love, we are seeking a timeline that says that, within a certain time if the overseas territories and Crown dependencies have not come on board with public registers, we will instruct them through Order in Council to do so. We have the powers to do that.
Dr Huq
Q Are there examples of where that has been done before? You probably know more than me but I think there is precedent.
Dame Margaret Hodge: There are plenty of examples where we have used those powers. May I quote again from a Government White Paper? This is particularly about the overseas territories, which is a slightly different position from the Crown dependencies. This is a Government White Paper—I understand that there have been some questions about that during your consideration today. The paper says:
“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”
We do have that power. I am sure you heard examples this morning. A Conservative Government used it to outlaw capital punishment. A Labour Government used it to outlaw discrimination on the grounds of sexuality. We used it in the Turks and Caicos when there was systemic corruption and maladministration, and we should use it again. This is so much at the heart of the whole agenda. It would be a terrible missed opportunity if we did not, during the course of the Bill, go for public registers of beneficial ownership. I just cannot see an argument against it.
Dr Huq
Q A last question from me: the new corporate offence relates to cases of tax evasion, so is there a case for extending it to come down on companies for facilitating tax avoidance?
Dame Margaret Hodge: Or economic crimes. Can I just say again that I really welcome the Bill? This is the first time that we have tried to get at those companies and organisations that are actually responsible for devising many of the schemes that lead to aggressive tax avoidance or evasion. It is a really important toe in the water and a first step forward. The real experts on this are Edward Garnier, Nigel Mills and Catherine McKinnell—all lawyers who have been arguing strongly that the provisions ought to cover all economic crime.
Another amendment could be really helpful. If we could at least have a report to Parliament showing how the failure to prevent tax evasion power is actually being used by the enforcement authorities, I think that would really improve the Bill. I would like to see how much it is used. We could then see how effective it is, as with the unexplained wealth orders—it is important to report to Parliament once a year on the progress made on the use of unexplained wealth orders. I cannot see anything particularly controversial about that sort of amendment, so I would do it for both. Of course, I think you will find that the lawyers think we should do this for all economic crimes. I am with the lawyers on this.
Antoinette Sandbach
Q Dame Margaret, I am very interested by your proposal that that should apply effectively to every company’s beneficial ownership, because it was, of course, the Government that you were part of in 1998 that passed the Data Protection Act, which recognised that there should be privacy around individuals and disclosure of their data. Why, at that time, did you not—
Dame Margaret Hodge: Sorry, I am trying to think what you are getting at here. I do not quite understand what aspect of the Bill you are referring to. I am really sorry.
Antoinette Sandbach
You are talking about disclosure of beneficial ownership—
Dame Margaret Hodge: By companies.
Antoinette Sandbach
By companies, which would presumably relate to named individuals. The register looks at controlling interests—
Dame Margaret Hodge: The register of beneficial ownerships?
Antoinette Sandbach
Yes, of named individuals or other companies. I can see why, if it is another company, there would not be an issue, but if it is a named individual, this Parliament decided to protect data around individuals. Does your premise not assume that every company is therefore acting in a way that is, in effect, criminal, and should not the burden be the other way? In other words, having private registers allows the Government to interrogate the data where there are serious allegations of crime, but still to protect the privacy of individuals.
Dame Margaret Hodge: I am slightly muddled, so I apologise if I am answering this wrongly—if so, do come back at me. The register of beneficial ownership of companies in the UK is actually public. It is not private. In fact, I think another weakness of the Bill, and of the unexplained wealth orders, is that until we bring into legislation the George Osborne commitment that there would be a register of beneficial ownership of properties in the UK, it will be very difficult to administer the unexplained wealth order power. I hope the Committee will look at that.
Do I think it will create difficulties for individuals? I do not. Should we have done it? Yes. It is ironic, the whole issue. It gained momentum. It was not a big issue at the time. That is my only explanation. Transparency is at the heart of it. Whenever I look at any of these problems, I always find that if you have transparency, you are well on the route to tackling some of the bad behaviour, be it tax evasion, avoidance or whatever. Have I not answered properly?
Antoinette Sandbach
Q Clearly there is a distinction between evasion and avoidance. One is legal, and the other is illegal.
Dame Margaret Hodge: Can I come back on that?
Antoinette Sandbach
Certainly.
Dame Margaret Hodge: There is a distinction. I call it a spectrum, which is why I think this power is limited and why we need to think further. There is a spectrum from sensible tax planning through avoidance and into evasion. The honest truth is that people often say to me, “But we’re only acting within the law.” There is a story in The Guardian today about people being employed by companies set up to avoid national insurance and other taxes.
The reality is that when we as parliamentarians write far too complex, far too long tax law, we have an intention. If we could write it in a way that was really copper-bottomed, covered every eventuality and had no ambiguity, we would do so. I do not think this is a particularly partisan thing. We cannot do it. Therefore, you find that a lot of aggressive avoidance is unlawful when HMRC finally, if it has the resources, catches up with it, but it is difficult to call it evasion.
Antoinette Sandbach
Q I understand that there are now changes. We are awaiting tribunal assessments where there is doubt about whether it is legal avoidance or illegal evasion, but the law has now been changed to require individuals to pay up front.
Dame Margaret Hodge: That is an improvement.
Antoinette Sandbach
The burden has been reversed.
Dame Margaret Hodge: But it still assumes that HMRC catches up with them, and it does not always do so.
Antoinette Sandbach
Q Given that this is a really important first step, and that the Government are working with the overseas territories to get co-operation, would it not be useful, rather than going to a broader system that is more difficult to manage, to focus on the more serious cases and allow that co-operation initially? If it is then seen to be inadequate, we can perhaps broaden it out.
The Chair
Order. Before you answer that, Margaret, we have two Members still to ask questions and you have got two minutes. I am going to ask them to ask their questions, and then we can hopefully get some correspondence from you to answer the questions more fully.
Dame Margaret Hodge: There are lots of answers. One is that they have had three years to get on with it, and they have not done it. David Cameron said they should be public at this point. I am sure people have talked to you about the Panama papers, but so much of that went through the BVI, for example—nearly half of the corporations were established through the BVI. If we do not tackle that, it particularly impacts on the poorest countries because they do not have the resources we have for enforcement. We are bad at it, and they are even more poorly equipped. If they do not have the resources, they lose three times as much in tax avoidance and evasion as they gain through the international aid that we give. They have had their time, and this is the moment when we should get tougher. We are saying that there should be a timeline.
The Chair
Can the two Members—Mr Hunt and Mr Mullin—ask their brief questions? Then we will conclude.
Tristram Hunt
Q Our previous witness from Christian Aid proposed the idea of looking into unexplained wealth orders for overseas territories. I just want to know your views on that.
Dame Margaret Hodge: Looking at them for overseas territories—
The Chair
I think we will have a written reply.
Dame Margaret Hodge: Okay. I am going to think about that one. Thank you. That will save me, Sir Alan.
Roger Mullin
Q Is there a case for extending public registers to cover trusts?
Dame Margaret Hodge: Yes.
The Chair
Order. I am afraid that brings us to the end, Dame Margaret. Our allotted time has run out again. Thank you very much for coming. It was a delight to see you.
Examination of witnesses
Tom Keatinge, Dr Susan Hawley, Chido Dunn and Duncan Hames gave evidence.
The Chair
We are now going to hear oral evidence from the Royal United Services Institute, Corruption Watch, Global Witness and Transparency International UK. I have got to warn you before we start that we have had votes and they have put everything back. We are also restricted on time because there are Members who have got other things to go to, as do two of the panel, so we are going to conclude by 5.30 pm at the very latest. Can you briefly introduce yourself and be very concise, because Members want to ask questions?
Duncan Hames: Good afternoon. I am the director of policy at Transparency International in the UK.
Tom Keatinge: I am director of the Centre for Financial Crime and Security Studies at RUSI.
Chido Dunn: I am from Global Witness, and I work on governance and corruption issues.
Dr Hawley: I am from Corruption Watch.
Dr Huq
Q I have an easy question first of all. What difficulties in recovering assets from individuals suspected of involvement in criminal activities overseas have you encountered? Can we start with Susan Hawley?
Dr Hawley: I think Chido and Tom might be better placed to start off with that one.
Chido Dunn: Based on our investigation in Global Witness, the use of anonymous companies incorporated in places such as the overseas territories and Crown dependencies—[Interruption.]
The Chair
Order. I am afraid we have some bad news for you. We are suspended for 15 minutes for a vote.
The Chair
Q Order. I apologise to the witnesses. Members engaged in the vote will come back, but we have not got much time left and, to be fair to you, we should try to give you the time to make a statement about what you think of the Bill and where any problems may be. The time is yours and we have only until 5.30 pm. If there is time left for questions, we will use that, but if not we will receive in correspondence any more ideas you have left out or we may write to you with questions that may arise from today. Mr Hames, would you like to start?
Duncan Hames: Thank you, Sir Alan. We at Transparency International warmly welcome this piece of legislation, which we believe could be the most significant in the fight against corruption since the Bribery Act 2010. We are particularly interested in part 1 of the Bill, which introduces the new investigatory order: the unexplained wealth order.
We think that is important for two particular reasons. First, if we want to prevent corruption, we need to restrict the opportunity that corrupt individuals have to enjoy the benefits of their illicit wealth. Secondly, it is often the case that where corruption occurs it is so endemic in that society that those corrupt individuals are untouchable by the law there and they have not received a criminal conviction for their actions. To answer the question posed before the Division, at the moment it is incredibly difficult to start along the road to recovering corrupt assets without a conviction in the country of origin. So we very much hope that the unexplained wealth order will be a tool available to UK law enforcement as a result of the legislation.
We have been asked, and we have heard you ask other witnesses, about what is missing from the Bill and about other matters. The Government have a raft of commitments in the anti-money laundering action plan, which is clearly relevant to a piece of legislation on criminal finances. The Government recognise the need to reform the supervision of anti-money laundering activity and it would be welcome if they were to bring forward measures to do that. We have made a number of recommendations, which I will be happy to provide to the Committee in writing. But, principally, the No. 1 change we would like to see is the word “Bill” replaced with “Act”.
Tom Keatinge: Thank you for the opportunity, Sir Alan. As mentioned, I am from RUSI. Our research focuses on the partnership and information sharing efforts to tackle financial crime. We are particularly interested in the provision for information sharing in the private sector; what is or is not happening with regard to the SARs regime and reform thereof; and importantly, how this architecture will improve the UK’s ability to tackle financial crime. Like many others, we welcome the Bill, but it is important that we do not view it purely as a piece of legislation and that it is used and implemented by law enforcement. As Donald Toon said very honestly at the Financial Conduct Authority financial crime conference last week, we need to improve our understanding of financial crime in the UK. As I say, we need implementation and understanding.
We welcome the opportunity for private sector organisations to share information with one another. They often work in trenches and silos, and by being able to build a complete picture, they can support law enforcement in its attempts to prosecute criminals. We question the mechanism by which information can be shared. At the moment, as I understand it, it needs to be shared on the basis of suspicion; we think it should be shared on the basis of assisting to form suspicion. We also welcome the unexplained wealth orders. There are one or two other nuances about which I can perhaps write to the Committee in the interests of time.
The important point to remember is that we are on a journey. We would like to see urgent reform of the SARs regime, which the Home Affairs Committee highlighted in its inquiry earlier this year. We will be judged on our effectiveness by the Financial Action Task Force next year. Implementation of this legislation will be important to demonstrate that we are effective.
The last thing I would say is that we would like to see early and strong use of these new powers. It is no good having them if we do not see things like unexplained wealth orders used, because that will quickly add a deterrent factor. As Dame Margaret said, it is important that there is regular reporting to Parliament on the way in which the Act is being used.
Chido Dunn: I am Chido Dunn from Global Witness. We are also very supportive of the Bill. We think the UK has shown real leadership in recent years in recognising its own role in facilitating corruption overseas and providing a safe haven for corrupt people and their assets. We have conducted more than two decades of investigations, and we see some common features arising. Usually, state money is stolen by a foreign official and funnelled into places like the UK via an anonymous company, which is almost always incorporated somewhere like the UK’s tax havens. There is almost always a UK facilitator involved—a bank, an accountant or a solicitor—who, while perhaps not violating their obligation under the anti-money laundering rules, has allowed that deal to happen.
That is why we welcome the Bill: it addresses a lot of those issues. We welcome in particular the extension of the suspicious activity report period and the unexplained wealth orders, as my colleagues have mentioned. There are some practical issues that will have to be fleshed out in later versions of the Bill, and we are happy to make submissions on those later, but I would echo the points that have already been raised in terms of the biggest gaps. Given the role of the British overseas territories and Crown dependencies in all the deals and behaviour we have seen so far, it is a striking absence that they are not addressed in the Bill and that some other commitment has not been made to address the problem of there being no public registers in those overseas territories and Crown dependencies. Also, given the role of facilitators so far, we welcome my colleagues’ calls for the “failure to prevent” offence to be extended to other financial crimes, like money laundering. It is a very useful and welcome move, but it could have a real impact if it was extended.
Dr Hawley: Corruption Watch welcomes and applauds the Bill’s ambition and courage and the fantastic cross-party support for it. We think the Bill is a unique opportunity, and we are concerned that it may be the last legislative opportunity to put all financial crime on an equal footing, given the impact that Brexit will have on the legislative calendar.
The Home Secretary spoke last Friday about how the Government are committed to developing world-leading legislation to combat financial crime. We think an amendment to part 3 to include other financial offences could be a significant step towards achieving that, and we would like to see the Government give such an amendment serious attention.
One of the key issues is that business has not yet been consulted on extending part 3 to other financial crimes. I would like to quote a leading QC I was discussing this with yesterday, who said, “Well, you don’t consult burglars on burglary legislation.” The idea behind this legislation is to capture those bad actors who are not fulfilling their regulatory requirements under the Financial Conduct Authority handbook to have procedures in place to ensure that they are not used to further financial crime.
The second point that we would like to make is that this would be a very good first step, but it would only be a first step. There is urgent need for broader corporate liability reform. As I am sure some of you are aware, the current liability laws in the UK penalise small and medium-sized enterprises, which bear the brunt of prosecution; give effective impunity to large companies; and create a perverse incentive for bad corporate governance. On Second Reading, Sir Edward Garnier made an important point that we need broader corporate law reform to be on the agenda, whether that be vicarious liability or a change to the identification principle that governs substantive offences. We would like the Government to show some commitment to producing, as a priority, something on broader corporate liability reform.
Thirdly, we think that the Bill could be an important opportunity to consider something that was raised by the Select Committee on Home Affairs—the creation of specialised confiscation courts. The Serious Fraud Office has been calling for specialised economic courts for some time because it takes 18 months on average to get a court slot for some of its cases. Perhaps this would be a legislative opportunity to find some way of ring-fencing Southwark crown court for financial crimes, and to create a cadre of specialised judges who have the expertise and experience really to tackle financial crime across the board, including confiscation orders.
From our monitoring of how the Bribery Act is being implemented, we think that three key things have to happen to instil confidence that a failure-to-prevent model can work. These are all covered by various amendments that have been tabled by Members. One is to ensure that senior executives can be held to account for those failures. That is where we think an amendment to the Company Directors Disqualification Act 1986 would be important. Another is to ensure that companies that fail to prevent these offences are excluded in some form or manner from public procurement. We welcome and support the amendment to put the offence in part 3 into the Public Contracts Regulations 2015.
Finally, companies that are convicted and companies that are offered settlements need the equivalent level of scrutiny of their compliance procedures, so we welcome and support the amendment to introduce corporate probation orders. This is a unique opportunity for the Bill to set world-leading legislation on financial crime.
The Chair
We have around about 12 minutes left, so would all Members and witnesses be concise in their questions and replies?
Dr Huq
Q Are you confident that enforcement agencies will have sufficient resources to make full use of the new powers in the Bill? I am thinking of the creaking IT system, ELMER, which was designed to cope with 20,000 SARs a year, and the figure at the moment, before this legislation, is more than 300,000.
Tom Keatinge: Resourcing is clearly a major issue. Cynically, one of the reasons for involving the private sector is to harness it to do some of the work. The point that I was trying to make in my remarks was that implementation will be critical. I do not believe we have the resources that we need. For the structure as it currently exists, the question is whether we are tackling financial crime the right way or whether we can make more efficient uses of the resources we have. Do we really need to have 381,000 SARs a year, and everything that that means for resourcing? We do not have them for the structure that we have now. Is the structure we have the right one? That is the question that we need to answer.
Duncan Hames: I would not go as far as to say that we were confident, although I am sure that people make special pleading cases with every area of Government spending. Reform of the use of the consent SAR would help to give more time for law enforcement bodies to collect the information they need to know how best to respond to it. That is a welcome measure in the Bill.
Chido Dunn: One argument made for public registers in places such as the overseas territories is that there can be more eyes than just law enforcement and Government actors. People such as journalists and civil society actors like us can help the process by identifying potential crimes and alerting the authorities to them.
Dr Hawley: We would like to ensure that the National Crime Agency’s international corruption unit, which will bear the brunt of enforcing unexplained wealth orders, is adequately resourced. We have concerns that at the moment there is not enough transparency in the funding model of that unit. It is partly funded by the Department for International Development, which leaves a whole series of countries that are not DFID priority countries to be funded. We need transparency that the Home Office is putting up the matching funding to cover those countries, because UWOs are going to be global—they will not be just for DFID priority countries.
Antoinette Sandbach
Q Mr Keatinge, may I pick up on the point about reporting to Parliament? It is very easy to get data in the public domain about the number of requests or prosecutions under a particular Act: you can use the Freedom of Information Act, or parliamentarians can table written questions to get those data in the public domain. Why do you feel that that requires a report? Dr Hawley, in relation to the cadre of specialised financial crime judges, why do you say that judges are not capable of adequately dealing with financial cases when effectively you have juries sitting on them? If you cannot explain them to the jury, you will certainly not be able to explain them to the judge.
Tom Keatinge: Let me take your first question. The way in which we seek to tackle financial crime in the UK cuts across a number of different Departments. There are many cooks in this particular kitchen, for various reasons. As an outsider, my question is: who is ultimately accountable for ensuring that the Bill is used effectively when it is enacted? Should there be a commissioner? Ultimately, what I would like to see is someone who has to report to Parliament what has happened as a result of the new legislation. As for where that information comes from, I accept that it can be brought to light by Freedom of Information Act requests or other means, but I would like to see someone made accountable for explaining how the Act has been used.
Dr Hawley: Judges play a key role in instructing the jury how to interpret some parts of the law. These are incredibly complex cases. In a way, we are reflecting what has been expressed to us by some in the law enforcement community who are trying to put these complex cases to judges who are not specialists and so do not have the level of knowledge about the crimes that they would like.
Antoinette Sandbach
Q That could apply to any crime, whether it was murder or child pornography.
Dr Hawley: The difference is that these are much longer trials than for those kind of crimes. Another key issue is that cases of economic crime are often at the back of the queue for court slots, essentially because defendants are often given bail, which in murder cases they would not be. That is why it takes so long for the Serious Fraud Office to get court slots.
Tristram Hunt
Q Could the Committee have some examples from Global Witness of case studies of that three-way process—the extraction of wealth, often from developing nations, the facilitation via London and the hiding of that wealth in overseas territories or Crown dependencies? It would be good to have some narrative examples. Secondly, one issue that has been put to the Committee and on which I will pursue a probing amendment is the fear among enforcement agencies that, if they use unexplained wealth orders or go after those who have allegedly hidden wealth and committed crimes, they will be liable for the costs involved. That has serious ramifications for the culture of risk within an organisation. I am interested in whether you think either that those costs should not be borne by the state or that they should be capped.
Chido Dunn: I will speak briefly to the narrative examples point, but I am happy to provide more. One of the case studies we worked on, which was covered on the BBC last week in anticipation of the Bill, was a case that arose in Kyrgyzstan. The former President was overthrown in a coup and he and his family were accused of widespread corruption and violence. His son fled and arrived in the UK on a private jet and claimed asylum. At Global Witness, we identified him living—we have no proof of who owns the property—in a mansion in Surrey. It was purchased for £3.5 million six or seven years ago, so it is worth a lot more than that now. The home is owned offshore and no one can prove exactly who owns it or where the money came from.
At the time when the Bakiyevs were in power, Kyrgyzstan was ranked by Transparency International as one of the 20 most corrupt countries in the world. Since then, we have seen the Kyrgyz authorities trying to rebuild their courts and their systems and not receiving the assistance they would like from foreign powers. They are finding themselves coming up against a lot of legal hurdles around issues of mutual legal assistance, extraditions and things of that nature. That is just an illustration of the extent of plundering that can happen overseas, the fact that London in particular is seen as a safe haven by corrupt officials and their families, and some of the practical difficulties in trying to seize those assets or identify the people involved. In that case, we identified UK estate agents and lawyers involved in the deal.
That is one of the best case studies that shows how a Bill such as this could help. It would allow the police to have more time to conduct their investigations. It would lessen the burden on them in identifying who owns a property and whether the money came from legal sources. There are many, many other examples that we could give, but generally it is the same pattern of behaviour that we see time and time again.
Duncan Hames: It is not initially clear from the Bill what the degree of exposure in relation to costs for law enforcement would be. It may be that the investigatory order of the UWO is less exposed to action to recover costs than other asset recovery actions and the interim freezing order, for example. Perhaps in the course of the Committee’s consideration, you will be able to get some clarity on that. We would like you to bear in mind that there will be a great backlog of established illicit wealth already in this country for law enforcement to address when awarded this power, should the Bill become law. We would not want them to be impeded from making full use of this law because of potentially intimidatingly large costs being incurred by those against whom they are using either the unexplained wealth order or the interim freezing order.
Peter Dowd
Q The Home Office set out the intentions of the Bill, which are about giving
“law enforcement agencies, and partners, the capabilities and powers to recover the proceeds of crime, tackle money laundering and corruption and counter terrorist financing.”
The Bill also aims to make the UK a more hostile place for those seeking to move and hide proceeds and so on. Do you think the Bill is a game-changer in terms of that aim?
Witnesses: Yes.
Tom Keatinge: Yes, if it is implemented and if we have the resources to use the powers to make this a hostile environment.
Peter Dowd
Q The second thing is this: you mentioned the key element of resources, and you almost intimated earlier that you were not convinced about the capacity and resources of the enforcement agencies. Is that a fair assessment? What would you say to that? Do you think the capacity and the resources are available to the agencies to make the Bill a game-changer?
Tom Keatinge: It remains to be seen. There are resourcing issues. In theory, some of the powers—the UWOs—could be used relatively swiftly. If we use them swiftly and roll out the deterrents quickly, we have the resources.
Duncan Hames: You make the case for having strong accountability on whether the powers are being used. That may contribute to being able to understand the case in relation to your question after the powers are brought into law.
The Chair
Order. I am afraid that that brings us to the end of the session. We are very grateful to the witnesses for coming here. We assure you that if you want to provide any further advice, the Committee would welcome receiving it. There are no further questions, so I invite the Whip to move the Adjournment.
Ordered, That further consideration be now adjourned. —(Andrew Griffiths.)
Criminal Finances Bill (Third sitting)
Thursday 17th November 2016
(7 years, 5 months ago)
Public Bill CommitteesRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 17 November 2016 - (17 Nov 2016)
The Chair
We now begin line-by-line consideration of the Bill. Before we begin, would everybody who has a mobile phone switch it off so we can get on with the business of the day? Although it is a bit cold at the moment, hon. Members may remove their jackets if they wish to.
The selection list for today’s sitting is available in the room, and shows how selected amendments have been grouped together for debate. Amendments grouped together are generally about the same or similar issues. A Member who has put their name to the lead amendment in a group is called first. Other Members are then free to catch my eye to speak on all or any of the amendments in that group. A Member may speak more than once in a single debate, and I will work on the assumption that the Minister wishes the Committee to reach a decision on all Government amendments. Please note that decisions on amendments do not take place in the order in which they are debated, but in the order in which they appear on the amendment paper. In other words, debate occurs according to the selection and grouping list, and decisions are taken when we come to the clause that that amendment affects. I hope that explanation is helpful.
The Bill contains 51 clauses, which is a substantial number considering that we only have today and two days next week to discuss it. I would appreciate it if Members could be concise and full in their presentation as possible, so the examination can be as full as possible. After all, it is Members’ time and the House’s time. I will use my discretion on whether to allow separate stand part debates on individual clauses and schedules following the debate on relevant amendments.
Clause 1
Unexplained wealth orders: England and Wales and Northern Ireland
Dr Rupa Huq (Ealing Central and Acton) (Lab)
I beg to move amendment 1, in clause 1, page 1, line 17, after “sought” insert—
“(and the property specified may include property located outside the United Kingdom)”
This amendment would ensure that unexplained wealth ordered may be issued for property located outside the UK.
It is a pleasure to serve under your chairmanship, Sir Alan.
In summary, we welcome the Bill. The unexplained wealth orders are a good thing, but amendment 1 is an example of where we think the measures could go a little bit further and be further improved. The amendment would provide that property located outside the UK could be utilised in an unexplained wealth order brought before an individual. It is meant to be a technical rather than political amendment. We are happy to work with the Government, but I think we can all drink to this amendment regardless of political affiliation.
The amendment would facilitate information sharing across different jurisdictions and would provide the United Kingdom with vital information regarding illicit financial activity that has taken place elsewhere across the globe. Reports by both the Select Committee on Home Affairs and the Public Accounts Committee hinted at this, and there is even a line in the Government’s action plan for anti-money laundering and counter-terrorism finance from April that says we should increase
“the international reach of law enforcement agencies and international information sharing to tackle money laundering and terrorist financing threats.”
Therefore, if an individual provides false and/or misleading information in relation to an unexplained wealth order, they can be prosecuted, but we would widen the scope of the property that comes under such an order so that we can question those who might be resident in the UK regarding their suspected illicit activities regardless of where their wealth is. As we know, people travel and cross borders, so we might not be able to recover wealth from that person. That throws up issues around cross-jurisdictional co-operation, and it is one area where confiscation orders kept hitting a brick wall and coming to grief.
We can glean intelligence on behaviour abroad and share it with other states, which would act as a disincentive to come to the UK to corrupt politically exposed persons who may contaminate our economy with their illicit wealth. If criminals know that on entering the UK, there is a process and our enforcement agencies can compel them to talk about their suspect wealth or property regardless of where they have placed it, they will think twice about coming here. We want to restrict their ability to move. That would send out a powerful message that the UK is not a soft touch when it comes to dodgy financial dealings, which I think we can all agree would be a good thing.
The current threshold at which a UWO can be served under the Bill is £100,000, but what if a criminal or suspected criminal has property of £50,000 here in the UK and has moved £50,000 of property elsewhere? Our enforcement agencies have concluded that, on the balance of probability, both combined are beyond the means of the person in question. I would like to think that the Bill already covers that, but we have tabled this probing amendment to confirm it. We are talking about portable wealth, which extends to jewellery and paintings, which have ultimate portability, because someone could leg it to a foreign country with them. My conclusion is that we would be unable to issue an unexplained wealth order if property is split between two places. I suspect I am right but am happy to be proved wrong.
The scenario I mentioned raises another question. If an individual acquires property of a value that reaches the unexplained wealth order threshold of £100,000 and manages to transfer it out of the UK, it is only after they have done so that our enforcement agencies become aware of it. Does that mean that an unexplained wealth order cannot be issued to that person because the property is now outside the UK? I want some clarification from the Minister on those things. I imagine that the answer is “Yes, we cannot do that”, but if the answer is, “No, we can do it”, it would be even better, because Opposition Members want unexplained wealth orders to be a success.
Finally, the amendment would introduce an element of operational efficacy. If all our enforcement agencies were aware that they were able to factor in stuff that is located outside the UK properly from the beginning of their investigations, it could contribute to our agencies being quicker off the mark. They could sound a warning alarm bell. They would be oriented from the get-go to cast their net as widely as they can to hold criminals to account. That is largely what we seek to do through the amendment.
The Minister for Security (Mr Ben Wallace)
It is a pleasure to serve under your chairmanship, Sir Alan. As we begin the line-by-line scrutiny, it might be useful if I give the Committee a brief outline of how unexplained wealth orders will work.
In short, an unexplained wealth order is a civil investigatory tool. It is a court order that requires a person to provide information that shows they obtained identified property legitimately. If the person provides information and responds to an unexplained wealth order, the enforcement authority can then decide whether to investigate further, take recovery action under the Proceeds of Crime Act 2002 or take no further action. If the person does not comply with an unexplained wealth order, either by not responding or not responding fully to the terms of the order, the property identified in the order is presumed to be recoverable under any subsequent civil recovery proceedings. It is important to note that the unexplained wealth order does not in itself lead directly to recovery action. It is designed to be an investigatory power and a precursor to civil recovery action.
An unexplained wealth order is an order made against a person, requiring them to provide information to explain how they obtained the property. It is important for all of us to understand this crucial factor: the unexplained wealth order is made against a person, not against property, and does not itself result in the recovery of that property. That is the vital point in relation to amendment 1.
In the Proceeds of Crime Act, it is clear that, if an order is to be made against a person or a property overseas, it must be explicitly stated on the face of the legislation. For example, section 282A of POCA provides that a civil recovery order can be made against property overseas if there is a connection with the UK. Section 375A of POCA also provides that an evidential request can be made overseas in constructing a case for civil recovery.
The same is already the case with unexplained wealth orders. New section 262A(2)(b) in clause 1 of the Bill provides that the person on whom the order will be served must be named, and it expressly provides that
“the person specified may include a person outside the United Kingdom”.
The unexplained wealth order therefore has global effect. The definition of “property” in the POCA already encompasses all property, whether it is situated at home or abroad. An unexplained wealth order can therefore list any property, wherever it is in the world. The court has an associated power to make an interim freezing order in respect of that property.
Clause 3 inserts a provision into POCA that an enforcement authority can request assistance from an overseas state concerning the freezing of property overseas that is subject to an unexplained wealth order. I therefore assure the hon. Lady that unexplained wealth orders will be effective against property anywhere in the world. Accordingly, I invite her to withdraw her amendment.
Dr Huq
I beg to move amendment 2, in clause 1, page 2, line 31, at end insert—
“(8) Persons who are members of an enforcement authority must co-operate with other persons who are members of other enforcement authorities for the purposes of making application to the High Court for an unexplained wealth order.
(9) In particular, the duty imposed on a person by subsection (8) requires a person—
(a) to engage constructively, actively and on an ongoing basis in any process leading to an application being made for an unexplained wealth order, and
(b) to have regard to activities of a person within subsection (8) so far as they are relevant to the making of an application for an unexplained wealth order.”
This amendment would require enforcement authorities to co-operate when making applications for unexplained wealth orders.
The Chair
With this it will be convenient to discuss new clause 12—Unexplained wealth orders: duty to prevent corruption—
“In Chapter 1 of Part 8 of the Proceeds of Crime Act 2002 (investigations: introduction), after section 342, insert the following—
‘342A Unexplained wealth orders: duty to prevent corruption
(1) A relevant authority must exercise its functions in relation to unexplained wealth orders in the way which it considers is best calculated to contribute to the prevention of corruption.
(2) For the purposes of this section it is immaterial whether corruption is being prevented in the United Kingdom or elsewhere.
(3) In considering under subsection (1) the way which is best calculated to contribute to the prevention of corruption a relevant authority must have regard to any guidance given to it by—
(a) in the case of the National Crime Agency, the Secretary of State,
(b) in the case of the Director of Public Prosecutions or the Director of the Serious Fraud Office, the Attorney General,
(c) in the case of Her Majesty’s Revenue and Customs or the Financial Conduct Authority, the Chancellor of the Exchequer, and
(d) in the case of the Director of Public Prosecutions for Northern Ireland, the Advocate General for Northern Ireland.’”
Dr Huq
We heard in the evidence session on Tuesday from many different bodies, including Her Majesty’s Revenue and Customs, the Serious Fraud Office, and the National Crime Agency. One problem with the existing confiscation orders is that the buck seems to be passed between many of them, and there is confusion about who the lead investigator is. The amendment would introduce a duty on all those agencies to co-operate, even before it got as far as the Crown Prosecution Service and Her Majesty’s Courts and Tribunals Service. Those people feel stymied, and they cannot investigate—it does not get that far because of squabbling over where the buck stops. The amendment seeks to address the lack of co-operation among UK law enforcement agencies that devolve responsibility for investigating cases.
There is an example that people may know about. It is the quite famous case of Sergei Magnitsky, the Russian who was murdered, and who uncovered what had been going on at Hermitage Capital Management. Bill Browder, an American, has spoken to an all-party parliamentary group here and is quite vocal on these issues. The murdered chap blew the whistle on $230 million in Russian Government frauds. Hermitage Capital Management discovered that, and there is a timeline on which it sought every possible avenue to open a money laundering investigation in the UK. Every single UK enforcement agency refused to open an investigation, stating that it was not its responsibility to investigate.
In 2010, Hermitage filed a complaint with the Metropolitan Police Service, highlighting the UK nexus of criminal activity. The MPS replied that the responsibility for investigating the fraud did not lie with the MPS. Hermitage then attempted to take legal action through the Serious Organised Crime Agency, requesting that an investigation begin in connection with the $230 million in fraud. SOCA replied that it was not the appropriate body for the job. In 2012, Hermitage filed another complaint with the Serious Fraud Office, which gave evidence to us on Tuesday, to highlight those financial crimes, which occurred in a UK jurisdiction. The SFO refused to do anything. In its words,
“matters do not fall within the offences that the SFO is permitted to investigate.”
In 2013, Hermitage filed a complaint with HMRC seeking a review of the company formation agent that facilitated the money laundering in the UK. HMRC answered that confidentiality precluded an investigation. In 2015, Hermitage filed a complaint with the NCA, which also gave evidence to us on Tuesday, outlining the flow of money—the fraudulent $230 million—to the UK. The NCA replied that it was a domestic criminal investigation relating to money laundering in the UK and therefore that the NCA was not the most effective way forward.
The amendment would create a duty for UK authorities to co-operate and take constructive action. We used to talk about joined-up thinking. That is essentially what the amendment is with regard to unexplained wealth orders. It would strengthen the Bill and ensure that provisions are not rendered ineffective because everyone says, “It is not my responsibility.”
Tristram Hunt (Stoke-on-Trent Central) (Lab)
New clause 12 seeks to add to amendment 2 and put a duty to prevent corruption in the Bill, to strengthen the hand of the Minister and the agencies involved. As we have heard, the UK is still considered a global haven for money laundering.
According to a Home Affairs Committee report on the proceeds of crime, it is estimated that more than £100 billion is laundered through London’s financial systems every year. Despite more than 380,000 suspicious activity reports being filed each year, the National Crime Agency currently has only 27 investigations open, with approximately £170 million frozen. By contrast, in Switzerland, some £5 billion-worth of Swiss francs are currently frozen.
The new clause seeks to ramp up the responsibilities on the National Crime Agency, public prosecutions and HMRC to make it a duty to prevent corruption, to ensure that we protect London’s reputation and that our financial, legal and accountancy services remain among the best in the world.
Mr Wallace
We are all in agreement that law enforcement agencies should do more to co-operate and talk to each other before embarking on action against a person or property, and that they should ensure that they are acting to combat corruption in all its forms. In that sense, the implication of the amendments is entirely sensible.
As the hon. Lady set out, amendment 2 would impose a duty on operational agencies to co-operate prior to applying an unexplained wealth order. Such co-operation would have several benefits. Most obviously, it would avoid duplication of the same effort against an individual and their property. It would avoid one agency trampling over another that had embarked on a similar line of inquiry. Indeed, another agency may well have an explanation of the wealth. An obvious example is that HMRC can be aware of complex legal tax arrangements that an individual may have.
I am entirely supportive of the spirit of the hon. Lady’s amendment. I would go further and say that liaison should not be limited to those bodies that can apply for unexplained wealth orders and take civil recovery action; it should happen between all law enforcement agencies and prosecution authorities. I am pleased to reassure her that that already happens. Law enforcement agencies, as a matter of course, check various law enforcement databases to see whether there is a flag against a particular person or property that is of interest to them. They can then liaise accordingly. In addition, unexplained wealth orders will be subject to the Proceeds of Crime Act investigation code of practice, which will be amended and subject to debate in both Houses before coming into force. I can assure the Committee that this issue will be addressed in that code.
The Proceeds of Crime Act is not the only legislation where a conflict between law enforcement agencies could occur relating to the same person or property. Several police forces may have an interest in the same criminal. Those conflicts can be resolved without the need for primary legislation. This is a matter for internal discussion on tasking and co-ordinating, which the code of practice will achieve.
New clause 12 would impose a duty on agencies to prevent corruption when considering the use of unexplained wealth orders. It is my hope that the mere existence of these orders in UK law will in itself create a deterrent to those who seek to place their corrupt wealth in the UK.
We continue our efforts to tackle corruption in all its forms. This year, we hosted the London anti-corruption summit, bringing together world leaders, business and civil society to agree a historic package of actions to expose, punish and drive out corruption in all walks of life. We will continue to implement UK commitments from the summit and encourage others to do likewise.
Indeed, the limb of unexplained wealth orders that allows their application to non-EEA foreign officials and politicians reflects the real concerns about those involved in corruption overseas who then launder the proceeds of their criminality in the UK. I hope the hon. Member for Stoke-on-Trent Central can see that the power will be used to tackle corruption, but unexplained wealth orders go further: they will also apply to cases in which there is a suspicion of involvement in serious crime, not necessarily corruption. The proposed duty could risk the deprioritisation of other crime types, which we agree that the NCA, the Crown Prosecution Service, HMRC and the Financial Conduct Authority could be tackling. They will of course pursue those guilty of corruption, but I hope we agree that our law enforcement agencies are best placed to prioritise their resources to pursue a whole range of criminals.
The Secretary of State and Attorney General already issue statutory guidance on the use of powers under POCA, including the use of civil recovery powers. That guidance will be extended to the new bodies granted civil recovery powers in the Bill. HMRC and the FCA intend to reissue the guidance next year, when we will be able to address both issues. I hope that the hon. Members for Ealing Central and Acton and for Stoke-on-Trent Central are reassured that the issues are already accounted for. I invite her to withdraw the amendment.
Tristram Hunt
I am happy for the amendment to be withdrawn, but it would be nice to hear something more on Report. I take the point about the precision of focusing on corruption when other serious criminal activities are involved, but some language on a duty to prevent corruption would be good. The important element is the duty; I hope that the wording on corruption and other serious criminal activity might be added to that.
Dr Huq
If I understood correctly, the Minister said that no primary legislation is required to do what the amendment would do, and that there are already flags and a joined-up process. Are we confident that something like the Magnitsky case, with all the stuff that happened—everyone closing the door to Bill Browder, year upon year—would not happen again with unexplained wealth orders?
Mr Wallace
On the Magnitsky case, it would be inappropriate to comment on a case that could be under continuing investigation. The main point is that our law enforcement agencies have operational independence. It is for them to decide the priorities for how they spend their resource and work together. We do an awful lot, without primary legislation, to ensure that they work together. They liaise through regional bodies such as the regional organised crime units, and through the national co-ordinators and everything else.
Our view is that primary legislation is unnecessary because, whether it is through the code of practice, which will be published alongside the Bill, or in the operational day-to-day running of the organisations, joint working is part of their remit and, effectively, their duty. We do not think it is necessary to put anything in the Bill because we fear that that could pervert their priorities and interfere with their operational independence.
Tristram Hunt
I beg to move amendment 59, in clause 1, page 3, leave out line 28.
This amendment would allow unexplained wealth orders to be issued to politically exposed persons in the United Kingdom and EEA States.
The Chair
With this it will be convenient to discuss amendment 60, in clause 4, page 15, leave out line 25.
This amendment has the same effect as amendment 59 but applies to unexplained wealth orders issued in Scotland.
Tristram Hunt
The amendment is explained by the explanatory statement. You will know, Sir Alan, that in 2014 Slovenia’s former Prime Minister, Janez Janša, was found guilty of taking bribes during the course of a €278 million arms deal with a Finnish state-owned contractor. Politically exposed persons were also among the 12 people referred to a criminal court in Cyprus earlier this year to stand trial for corruption and bribery charges in connection with a waste overcharging scam that is thought to have involved more than €30 million.
Although it may be reasonable to expect that European economic area countries would be able to undertake criminal investigations against politically exposed persons in their countries if there were sufficient evidence to suggest that they had been involved in corruption, that might not necessarily be the case. For example, there is still blanket immunity from criminal prosecution for parliamentarians in Hungary, despite it being an EEA country. The amendment would extend the Government’s welcome reform of unexplained wealth orders for those outside EEA states to include those within EEA states. We know that what we are dealing with does not simply stop at the continent of Europe or the EEA states. The amendment seeks to apply some degree of equality of this legislation to the EEA states.
Amendment 60 would have the same effect as amendment 59, but would apply to unexplained wealth orders issued in Scotland as well.
Mr Wallace
I thank the hon. Gentleman for his comments. We had a useful meeting yesterday about some of these issues. He will know that we welcome these amendments as they give us the opportunity to discuss why we have effectively a different regime between politically exposed persons outside the EEA and ourselves. The amendment would cover us sitting in this room—all PEPs in the EEA. That is important because, if any of us were to face an unexplained wealth order, we would want to know that it had been issued on the basis of evidence linking us to serious crime; we would not want to give our authorities the ability just to slap one on without any evidential threshold.
We have confidence that, within the EEA—the hon. Gentleman used the example of a country prosecuting its own former Prime Minister—there are the tools to find the evidence and the ability to work with fellow law enforcement agencies around Europe to meet the evidential threshold. We cannot discriminate within the EEA; we cannot say, “This applies to Slovenia but it doesn’t apply to France”. Once we go into that area, we cannot discriminate between the different states. He picked out Hungary, where there is immunity for parliamentarians. I think there are other countries—even Italy; I do not know. If I remember my Berlusconi history, I think there were lots of issues about immunity in that country. That is the real issue. We have confidence in our neighbours and friends in Europe that they have the capacity to build the evidence and therefore to build a case for an unexplained wealth order.
Charlie Elphicke (Dover) (Con)
My hon. Friend is making a powerful argument. Is he aware how many Members of Parliament have problems just opening a bank account because of over-eager regulators using the PEPs regulations? With this amendment, would there not be a risk that over-eager agencies would be interested in issuing these things to MPs, which is not an ideal situation? We ought to have the evidential threshold set out in clause 1(4)(b).
Mr Wallace
I am grateful to my hon. Friend for his intervention. He makes the clear point that we want to be confident that, when we are held to account, it is based on evidence gathered by our resourced law enforcement agencies. The decision on PEPs outside the EEA reflects real operational challenges that we and organisations such as the National Crime Agency have had in gathering evidence against people in some countries where there may be no properly functioning Government or, indeed, where the Government are entirely corrupt and it is very difficult to gather that evidence.
That is the reason we have had to plug that gap in that way. I hope that the hon. Member for Stoke-on-Trent Central understands that that is why we have a different approach. I urge him not to push his amendment to a vote.
Tristram Hunt
I thank the Minister for his comprehensive response, including on the evidential threshold, and the hon. Member for Dover for his point concerning the energy with which some financial institutions in the UK have approached PEPs, even—dare I say it?—on car insurance.
On the basis of the Minister’s argument, I am willing to withdraw the amendment, but I fear that this may be returned to in the aftermath of our exiting the European Union.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The Chair
With this, it will be convenient to discuss the following:
New Clause 11—Unexplained wealth orders: reporting requirements—
“In Chapter 2 of Part 8 of the Proceeds of Crime Act 2002, after section 362H insert—
‘362HA Unexplained wealth orders: reporting requirements
(1) The Secretary of State must make an annual report to Parliament setting out the number of unexplained wealth orders applied for by enforcement agencies under section 362A of this Act (and by Scottish Ministers under section 396A of this Act) during the previous 12 month period.
(2) The report must also provide information in respect of each unexplained wealth order about—
(a) the value of property subject to the order,
(b) whether the respondent was—
(i) a politically exposed person,
(ii) a person involved in serious crime (whether in a part of the United Kingdom or elsewhere)
(c) whether the order was granted,
(d) the value of the property reclaimed as a result of the order.
(3) For the purposes of this section “enforcement agencies” has the same meaning as in subsection 362A(7).’”
This new clause would require the Secretary of State to make an annual report to Parliament about the number of unexplained wealth orders made each year.
New Clause 13—Unexplained wealth orders: award of costs—
“In Chapter 2 of Part 8 of the Proceeds of Crime Act 2002, after section 362H insert—
‘362HB Unexplained wealth orders: award of cost
(1) Part 44 of the Civil Procedure Rules (General Rules about Costs) shall not apply to applications made by enforcement authorities for—
(a) unexplained wealth orders under section 362A of this Act,
(b) interim freezing orders under section 262I of this Act.
(2) The High Court shall not have power to make awards for costs against enforcement authorities who bring an unsuccessful application for—
(a) unexplained wealth orders under section 362A of this Act,
(b) interim freezing orders under section 262I of this Act.
(3) For the purposes of this section ‘enforcement agencies’ has the same meaning as in subsection 362A(7).’”
This new clause would prevent the courts from awarding costs against enforcement agencies where they have brought unsuccessful applications for unexplained wealth orders or interim freezing orders.
Mr Wallace
The previous debates have given us the opportunity to begin considering clause 1, which provides for the creation of unexplained wealth orders. Those are powerful new tools, and I welcome the cross-party support for them as well as the strong endorsement of those in civil society from whom we heard earlier this week.
The London anti-corruption summit in May galvanised the international response to corruption. Domestically, we must tackle grand corruption and protect the integrity of the UK’s financial sector. Unexplained wealth orders will help us to do that. As we have discussed, unexplained wealth orders are essentially an investigatory tool that will help to enable civil recovery of the proceeds of crime under existing powers in the Proceeds of Crime Act 2002. Civil recovery is a powerful tool, because it can be used where criminal prosecution followed by a confiscation order is impossible, perhaps because a person is abroad and cannot be extradited or there is not specific evidence linking an individual to a crime, but there is enough evidence to show that property is linked to the wealth generated from a crime.
Between April 2015 and March 2016, £6.5 million was recovered under those powers, but there is still a gap where law enforcement agencies cannot satisfy the necessary evidential burden. Unexplained wealth orders will flush out evidence to enable enforcement agencies to take forward recovery action under POCA. Such an order will require a person to provide information that shows that they obtained identified property legitimately. If they do so, agencies can then decide whether to investigate further, take civil recovery action or take no further action. If the person does not comply with the order, the property identified in the order is presumed to be recoverable under any subsequent civil recovery proceedings.
I stress that the unexplained wealth order is designed to be an investigative power and a precursor to civil action, not an end in itself. I accept that there is significant interest in the way that such orders will operate, because they involve the reversal of the burden of proof. That is why they are subject to stringent safeguards. The value of the property subject to an unexplained wealth order must be greater than £100,000, a much higher threshold than for normal civil recovery, where action cannot be taken against property worth less than £10,000.
Nic Dakin (Scunthorpe) (Lab)
I thank the Minister for being so complete in his arguments. Can he explain why £100,000 was chosen? I note from the evidence that we have received that no one had any objection to that figure, but I am interested in why it was chosen.
Mr Wallace
The hon. Gentleman poses an interesting question. Unexplained wealth orders are linked to serious and organised crime. Although, inevitably, some serious criminals make below £100,000, that was thought to be a useful threshold, and that is where we should look as a starting point. There will be concerns among Members that Aunt Bessie’s £25,000 appearing in someone’s bank account may trigger something like an unexplained wealth order, and we wanted the wealth threshold to be significant enough to ensure that there was a link between serious crime and the recovery of assets being triggered. I know that some people wanted that threshold to be higher than £100,000 and some people wanted it to be lower. As the Minister, my job is to try to get it in the right place, but I would welcome his suggestions on whether it should be, say, £59,000 or £105,000. It could be like “Bullseye”.
Carolyn Harris (Swansea East) (Lab)
It is a pleasure to serve under your chairmanship, Sir Alan. Is there a mechanism for recognising regular, ongoing transactions that are close to but always under £100,000? Will that trigger any red flashing warning lights that there may be illegal activity?
Mr Wallace
The cumulative wealth would of course build up. I am happy to be persuaded by the Committee about the threshold. The reality is that, given the vast number of people involved with organised crime groups across the threat picture and the staggering wealth of some of them, we will be lucky to get to £100,000. We will be going for people worth £20 million, £30 million or £40 million and all the way down. It would chill people’s bones to realise how some of the people who live among us make their money out of crime and launder that money. The bottom line is the number of those individuals. That is why we chose £100,000, but hon. Members may want to make a persuasive argument otherwise. Cumulative wealth is certainly an issue. I was in the north-east of England the other day and met an individual who is unemployed but has well over £400,000 in their bank account. I am looking forward to knocking on that person’s door.
Tristram Hunt
I had a terrible fear about the rule of law for a minute there.
We tabled new clause 11 to help the Minister. It would require the Secretary of State to make an annual report to Parliament about the number of unexplained wealth orders made each year. It is really about helping to drive culture change through the Government, the Departments and the agencies involved in this excellent set of reforms, and ensuring that Parliament is kept up to date with how the agencies and Ministers are approaching it. There is nothing quite like a presentation to Parliament —a ministerial statement, written or oral—to concentrate attention in Departments on the importance and significance of a particular piece of legislation. The new clause would ensure that the Bill had the bureaucracy and political support behind it.
Similarly, new clause 13 would help to get the wheels in motion for unexplained wealth orders and investigatory powers under the Proceeds of Crime Act 2002. It seeks to prevent the courts from awarding costs against enforcement agencies if their applications for unexplained wealth orders or interim freezing orders are unsuccessful. It is about ensuring that a culture of risk-aversion does not develop in our agencies. They are often fearful, in these straitened budgetary circumstances and under the full glare of the press, about pursuing the kind of individuals the Minister spoke about, for fear of the financial implications if they are unsuccessful and taken to court. Colleagues will remember that the Serious Fraud Office’s botched case against the entrepreneur Vincent Tchenguiz will settle for £3 million plus costs, which is a fraction of what his lawyer originally demanded, so these can be quite costly enterprises.
We would not want to hand down these new powers in statute to those who direct our investigatory agencies, only for a culture of not pursuing those individuals to develop in those organisations. New clause 11 would ensure that Parliament had a voice and oversight over the process, and new clause 13 would ensure that a culture of risk-aversion does not develop in the agencies that are to be granted these new powers.
Mr Wallace
I will start with the good news: I support the spirit of new clause 11, which I discussed with the hon. Gentleman yesterday. It is important that we have a measure to ensure the transparency of the operation of unexplained wealth orders. In my recent responses to the reports of the Public Accounts Committee and the Home Affairs Committee on asset recovery—both reports were excellent, I have to say—I committed to publishing annual statistics on annual recovery performance. After our meeting, I instructed my officials to ensure that those statistics include unexplained wealth orders. I therefore hope there is no need for the hon. Gentleman’s new clause—which would create a statutory duty in primary legislation to report—as those figures will be contained in an annual bulletin.
New clause 13 relates to the risk that potential financial liability may make law enforcement agencies reluctant to apply for unexplained wealth orders. It seeks to ensure that the authorities are not liable following an unsuccessful unexplained wealth order application. I was pleased to be able to discuss that issue with the hon. Gentleman yesterday, and I am advised that the existing civil procedure rules, which would extend to cover unexplained wealth orders, mean that by default an application for such an order would take place in private. I am happy to share those civil procedure rules with the hon. Gentleman to see whether he thinks that is enough. That is also the case for any subsequent legal stages. On that basis, if an application is unsuccessful, or if the individual was latterly able to provide the court with an acceptable explanation of their wealth, it would not generally be public knowledge. There would therefore be no undue reputational damage to the individual concerned.
More generally, whatever the peculiarities relating to unexplained wealth orders, it remains our view that any awards of costs should follow the same rules that apply in other, similar matters. The general principle that the loser pays is a well established position. Changing it could lead to unfortunate unintended consequences in relation to other powers and procedures. In any case, the judge has a general discretion to award costs that are proportionate. It is not a matter of one side producing a figure and the judge awarding that without any consideration of the case; we should maintain a consistent approach.
On that basis, although I share the concern about impinging on our agencies’ ability to pursue crimes, it is not appropriate to indemnify them in this context. If they have made a mistake and applied for an unexplained wealth order against the wrong person, risking someone’s reputation, it is in my view appropriate for them to take responsibility. If we indemnify them, a mistake will be confused with normal investigative procedure. I do not think it is the best thing to indemnify them, given that hearings can be held in private, in court procedure. I hope that hon. Members will be satisfied with that.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Interim freezing orders
Question proposed, That the clause stand part of the Bill.
Mr Wallace
Clause 2 acts in tandem with clause 1 in appropriate cases. It provides that the court can also issue an interim freezing order in relation to property that is subject to an unexplained wealth order. The interim freezing order provides that the property cannot be dealt with in any way while subject to that order. There is no point in putting an unexplained wealth order on something if it can immediately be sold, as we might lose the asset. The freezing order can be used to keep it in place.
It is important to split the obtaining of an unexplained wealth order and the freezing of property into two different matters. Although they will be done at the same hearing, they are different decisions with separate considerations. Some colleagues have asked why we are not providing that property must be frozen in every case. Freezing someone’s property is a very invasive measure and may not be necessary in every case. For example, there may be no suspicion that the property will be dissipated—perhaps it is a house that has been owned and occupied by the same person for many years—or that a civil recovery order will be frustrated in some other way.
We would not want unexplained wealth order applications to be rejected solely on the grounds of a technicality related to the freezing decision. It is also important to note that if property is frozen, the court may quite reasonably expect the case to progress at a far quicker pace than if no freezing order was in place. On that last point, I should flag up the fact that, under clause 1, if property is subject to an interim freezing order, the enforcement authority is given a deadline of 60 days to decide the next steps. The freezing order would then be discharged after a further 48 hours.
The expectation is that if an enforcement authority is to go forward with civil recovery action, it will obtain a property freezing order, with many of same provisions and safeguards, to apply immediately to the same property once the interim freezing order is lifted. The property would remain frozen.
An application can be made for the variation or discharge of the freezing order. The court can also provide that property can be released to meet affected persons’ reasonable living expenses, their need to carry on their business and their legal expenses. I hope that what I have said reassures hon. Members that the freezing order provisions are properly circumscribed.
Dr Huq
The Minister has given a full and cogent account of why interim freezing orders are being introduced. As a London MP, I know how dirty money in the property market has skewed the entire London property market, meaning that genuine people cannot get a foot on the ladder. It sounds as if sufficient safeguards are being put in place, so we will not stand in the way of the clause.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
External assistance
Mr Wallace
Clause 3 supplements clause 1, on unexplained wealth orders, and clause 2. It provides for a request to be sent to another country to freeze property there that is subject to an unexplained wealth order, which addresses the point that the hon. Member for Ealing Central and Acton made in the debate on her amendment 1 about going after property abroad.
I will make two points for the benefit of the Committee. First, an unexplained wealth order can apply to property outside of the UK. That reflects the operation of existing civil recovery powers, which can include property overseas if a sufficient connection can be shown with the United Kingdom—for example, where the suspected criminal is British, the criminality is thought to have taken place in this country or there are victims in the UK.
Secondly, there is no international law that expressly provides for the freezing of property in relation to unexplained wealth order-type powers. We will need to liaise closely with other countries in relation what existing international law may underpin such a request, as well as working on obtaining wider recognition of unexplained wealth orders. The clause primarily creates legal certainty that such a request can be made. We also encourage recognition of such requests as part of the wider fight against international crime and corruption.
Dr Huq
Once again, we have no problems with any of that, particularly as it allays some of those concerns about overseas property that were anticipated by amendment 1.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
Unexplained wealth orders: Scotland
Richard Arkless (Dumfries and Galloway) (SNP)
I beg to move amendment 57, in clause 4, page 14, line 35, leave out “£100,000” and insert “£50,000”.
This amendment reduces the threshold for the value of property that UWO may be issued for in Scotland to £50,000.
It is a pleasure to serve under your chairmanship again, Sir Alan. Essentially, we are asking for the threshold or limit for which an unexplained wealth order can be granted to be reduced, in Scotland only, from £100,000 to £50,000. I cite three main arguments for making that suggestion. We state in the explanatory notes that that would bring the threshold in line with international standards. The level in Ireland is €5,000, while the level in Australia is 100,000 Australian dollars, which equates to around £60,000.
I also refer the Minister to the drastic difference in asset valuations north and south of the border, particularly in property prices. Property prices in London average at £487,000. The unexplained wealth order threshold in England and Wales is set at £100,000, which is just less than a quarter of the average property price. Property prices in Scotland are significantly lower. In my constituency the average is £120,000, while in North Ayrshire they are less than £100,000. Applying the same rationale of a percentage of the overall property price, our threshold should be substantially lower. We suggest that a reasonable level would be £50,000.
I also draw the Minister’s attention to the point that reducing the threshold in Scotland, where there are lower asset valuations, is a no-lose situation for the Government. The threshold in itself is not the main benchmark to trigger these unexplained wealth orders; it is the test. The test for Scotland, which we agree with, is set out in proposed new subsection 396B(3) of the Proceeds of Crime Act 2002. That test must be met in every single circumstance, whether the threshold is £5, £10 or £100,000. Even if the limit was set at £500,000, that test must be met. Given the lower asset valuations in Scotland, it is a no-lose situation to bring the threshold down.
I envisage criminals perhaps acquiring properties in a lower-asset valuation jurisdiction and creeping below the £100,000 threshold. We do not want to end up with some criminals getting off the hook and us having to come back to Parliament to try to lower the threshold. We are not suggesting that the threshold is lowered in England and Wales—that is a matter for the Minister and Members for England and Wales. Clearly there are arguments, given the higher property prices, but I suggest, for the reasons I have set out, that it would be sensible to lower the threshold for Scotland. It would be a no-lose situation for the Government to agree to the amendment.
Mr Wallace
I thank the hon. Gentleman for his point. The point to note is that an unexplained wealth order is made against the person and therefore their collective assets, rather than an individual asset. Therefore, whether a successful gangster with a huge amount of money chooses to buy 10 houses where property prices are low—in any part of the United Kingdom—or one house, the order is against that person and catches all their wealth however it is stored.
I want to put the hon. Gentleman at his ease on his view that there is such a difference between Scotland and England. The threat of organised crime is exactly the same. Unfortunately for all of us, there are successful gangsters on both sides of the border who make considerable amounts of money. Therefore, the argument about the £100,000 threshold is that it will catch serious criminals on both sides of the border. We are going to go after their wealth. We must also remember that it is about the person rather than the property. I therefore urge him to withdraw his amendment. If he does so, I am happy to meet him to discuss this issue further—there are other opportunities for that, should he like to do so—and to explore the different options at the threshold.
Richard Arkless
Given that we are almost wholly persuaded by my arguments to reduce the threshold, I am tempted to press the amendment to a vote. However, taking the Minister at his word—I have no reason to disbelieve him—we will be happy to withdraw the amendment if we are assured that those further conversations could happen. We do not see any harm in that, and perhaps we can develop those conversations as we go through the stages of the Bill. Given his gracious assurance, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mr Wallace
The clause brings us for the first time to devolution and separate court systems in the United Kingdom. Clauses 4 to 6 provide for unexplained wealth orders in Scotland on effectively the same terms as clauses 1 to 3 do for England, Wales and Northern Ireland. As such, much of what we have discussed relating to the substance of unexplained wealth orders applies equally here.
The reason for separate provisions for Scotland is the different court structure and the separate existing practice and procedure that relates to civil recovery. I assure the Committee that there will be a consistent approach to unexplained wealth orders across the United Kingdom. All the safeguards and other measures will apply in Scotland as they do elsewhere in the United Kingdom.
As we are adding to the criminal law, I will specifically mention the creation of a parallel offence of knowingly or recklessly making a statement that is false or misleading, but I do not think there is anything more to concern the Committee relating to unexplained wealth orders that we have not already discussed.
Richard Arkless
I rise to reiterate our support that the clause stands part of the Bill.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Interim freezing orders
Question proposed, That the clause stand part of the Bill.
Mr Wallace
The clause supplements clause 4 in appropriate cases. It provides that the court can also issue an interim freezing order in relation to property subject to an unexplained wealth order in Scotland. It is important to note that it provides in Scotland what clause 2 provides in England, Wales and Northern Ireland. The safeguards and processes are similar. It is also closely modelled on freezing powers that already exist in civil recovery.
Richard Arkless
Although we accept the principal contents of the clause, I reiterate the concerns I made on the Floor of the House on Second Reading. The test to implement a freezing order in proposed new section 396I(2) is that the court
“considers it necessary…for the purposes of avoiding the risk of any recovery order that might subsequently be obtained being frustrated.”
Therefore, essentially the judge will have to decide whether there is reasonable suspicion that the alleged criminal will abscond with that property. We are clearly keen to avoid that situation.
How does the Minister see that paragraph being interpreted by the judiciary? Is there a danger that it is over-prohibitive or too onerous? How will it be evidenced? How on earth can a judge determine whether that person is likely to abscond with the property? The fact that they have been subject to an unexplained wealth order might reasonably suggest in itself that that would be enough to compel the profit to be frozen? We are trying to avoid an unexplained wealth order being granted, but then some pest from another jurisdiction wriggles with the freezing order and gets the property out of the country, and the unexplained wealth order will have no effect. We are keen to make sure that does not happen in Scotland or, indeed, in the rest of the UK.
Mr Wallace
The hon. Gentleman makes an interesting point and my response is “judicial discretion.” It is up to the sheriff or the judge to weigh up the evidence, and the individual or party, before him. The likelihood and ability that they may flee and so on may well come into that.
Richard Arkless
I completely understand and respect those points. The point of an unexplained wealth order is that the wealth is unexplained. We do not know the nature of the criminal. We know nothing about them. We have no idea whether they are likely to abscond. I suggest that it would be difficult for the judge to make that determination, and if he cannot do so under the Act, he will probably, as the judiciary is entitled to do, err on the side of caution and not implement the freezing order, but implement the unexplained wealth order.
Mr Wallace
The provision reflects the existing civil recovery arrangements in both Scotland and England. In other civil recovery procedures, that is how it is dealt with at the moment. That is why it is framed that way in the Bill.
I take the hon. Gentleman’s point concerning the worry about flight and so on, but if criminals are obviously residents of the UK or European economic area and there is a link to serious organised crime, those making the application cannot just turn up, but will have to present evidence, so there will be scrutiny and the judge or sheriff will be able to weigh up whether there should be a freezing order.
Richard Arkless
I accept that and am happy to support the clause. The Minister’s constructive response provides an opportunity to discuss this and to examine the legal points to ensure that criminals do not to fly with the cash before we can get our hands on it. No one wants that.
Mr Wallace
We can discuss that at length when we discuss the £50,000 threshold, which I am happy to do. As the hon. Gentleman knows, we are grateful to the Scottish Government with whom we have worked hand in hand on much of the Bill. Because we have accepted recommendations, advice and help from the Justice Minister in Scotland on some of the framing of the Bill, it is one we can agree on. We have accepted some of the guidance from the hon. Gentleman’s Government north of the border.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
External assistance Disclosure orders
Question proposed, That the clause stand part of the Bill.
Mr Wallace
The clause supplements clauses 4 and 5 and provides that a request can be sent to another country to freeze property there that is subject to an unexplained wealth order. It is a Scotland-specific provision but closely mirrors what clause 3 provides in England, Wales and Northern Ireland.
Richard Arkless
I reiterate that we will not stand in the way of clause 6 standing part of the Bill.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Disclosure orders: England and Wales and Northern Ireland
Mr Wallace
The Proceeds of Crime Act 2002, which was introduced by the last Labour Government, provides a suite of powers to be used in connection with a range of investigations, including confiscation and civil recovery. A disclosure order is one of those powerful tools and requires any person having relevant information to answer questions, provide information or produce any document that is relevant to the investigation. Disclosure orders are flexible, practical and efficient. Their use avoids the need to seek multiple orders over the course of an investigation. The changes we are making extend the power to seek disclosure orders in money laundering investigations that were previously explicitly excluded. This exclusion was primarily because of concerns over self-incrimination. However, that protection is maintained in the new provisions, ensuring that individuals who are subject to a money laundering investigation cannot be compelled to provide information that might incriminate them.
Clause 7 also changes the definition of who can apply for a disclosure order, removing the need for a prosecuting body to be responsible for its application. Significantly, this change does not lead to a reduction in the level of seniority of the person who can apply. An appropriate officer can apply for a disclosure order only on the approval of the senior appropriate officer, ensuring that the application process is safeguarded. These changes will be reflected in the statutory code of practice on the investigation tools in the Proceeds of Crime Act 2002.
Clause 8 replicates in Scotland the provisions contained in clause 7 for England and Wales that enable an application for disclosure orders in money laundering investigations, providing an essential UK-wide response.
Dr Huq
I am convinced by the Minister’s persuasive words that red tape will be removed. We can apply for disclosure orders and yet maintain vital safeguards, so we will support clause 7 and clause 8, which extends the power to Scotland.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8 ordered to stand part of the Bill.
Clause 9
Power to extend moratorium period
Mr Wallace
I beg to move amendment 8, in clause 9, page 28, line 34, at end insert “(subject to the restriction mentioned in section 336A(6))”
This amendment clarifies that the 186 day maximum period for extending the moratorium period also applies to a decision of the appeal court in Scotland.
The Chair
With this it will be convenient to discuss Government amendments 15, 50, 51, 55, 56, 52, and 53.
Mr Wallace
Clause 9 inserts in part 7 of POCA a scheme for the extension of the suspicious activity report moratorium period beyond 31 days. As the action plan for anti-money laundering and counter-terrorist finance sets out, the Government see a more robust law enforcement response as central to tackling money laundering. It might help if I briefly explain how the suspicious activity report regime works.
Where a company in the regulated sector—a bank, an accountancy firm or a legal firm—suspects that they may commit a money laundering offence, they are obliged to submit a suspicious activity report to the National Crime Agency seeking consent to proceed. The National Crime Agency then has a seven-day period to determine whether it is necessary to refuse consent to the company to proceed with the transaction. If consent is refused, the 31-day moratorium period begins. During the moratorium period, law enforcement agencies need to gather the necessary evidence to instigate civil recovery proceedings or a criminal investigation in relation to the money laundering activity. However, money laundering investigations can be multi-layered and complex. Money launderers obfuscate the financial trail to distance proceeds from their criminal source; funds are often moved overseas.
New section 336A of the Proceeds of Crime Act 2002 states that the court may not grant a further extension of the moratorium period if the effect would be to extend the period of more than 186 days in total, beginning with the day after the end of the initial 31-day moratorium period. The amendment makes that clear. Amendment 15 replicates in Scotland what clause 28(2) already does for England and Wales. Amendments 52, 53, and 56 are consequential to that.
The criminal’s property, referred to in POCA as “free property”, which may be in the form of cash, is available for consideration in confiscation unless it is already subject to a forfeiture or deprivation order. When a court considers making a confiscation order under POCA, it must not take into account certain types of property when calculating the amount of the order. This is to ensure fairness to the defendant and prevent the double counting of assets.
Clause 28 amends POCA to clarify the situation in relation to cash that has been seized and is being detained pending the decision of a forfeiture application. Cash that is detained in anticipation of the forfeiture application being made is already excluded, so this is an extension of the existing principle in section 82 of POCA. The amendment extends that to Scotland. We hope to be making an equivalent amendment in respect of Northern Ireland in due course—we are awaiting their formal agreement.
Amendments 50 and 51 will correct an error in clauses 37 and 38, which incorrectly refer to England when they should refer to England and Wales. That is merely to ensure that the text of the Bill reflects the intent of the policy, which is for the measure to extend to England and Wales. Amendment 55 will correct another typographical error.
Dr Huq
It sounds as if the amendments are tidying up some sloppy mistakes. On the whole, however, I know that the SARs extension to the moratorium period was very much welcomed by the witnesses we heard from. I have seen that some law firms do not like the policy, but I think it is a good idea. The previous period of 31 days was not long enough. Does the Minister have an inkling of how many times the maximum would be used—I think it is 200 days?
Mr Wallace
The timescale is really just a reflection of what the investigatory agencies have said to us: that some of these cases are very complex. Some of the ways in which people hide their wealth—they sometimes freeze it themselves—and who they are mean that the process will take time. We want to ensure that our agencies have time to investigate, rather than being under the sort of pressure where effectively they run out of time. Those people exploit that. That is the reason for the longer period. Hopefully it will not be used, but the very fact that it is there will give power to the elbow of the agencies trying to do the job.
Dr Huq
I thank the Minister for his response. We support the proposal, but we have a concern, which will come up in a new clause at the end, about the architecture of crime fighting. There could be better resource for all the different agencies that will be looking at these issues and particularly for the ELMER IT system. It was envisaged that that system would deal with 20,000 SARs a year, but the figure is 380,000 at the moment and will probably rise even higher after the Bill is passed. That does not relate to the clause, but I wanted to sound a word of caution.
Richard Arkless
I have a very quick point to make on amendment 9. I apologise if I missed it—I had my head buried in some papers—but could the Minister clarify why Scottish Ministers are being removed from the list of people who can apply to the sheriff?
The Chair
Order. Amendment 9 is in the next group, which we have not quite moved on to yet.
Richard Arkless
My apologies, Sir Alan. I got ahead of myself.
Amendment 8 agreed to.
Mr Wallace
I beg to move amendment 9, in clause 9, page 29, leave out line 47.
This amendment removes a reference to the Scottish Ministers from the list of persons who may make an application to the sheriff for extending the moratorium period under new section 336A of the Proceeds of Crime Act 2002.
Mr Wallace
The amendments will remove references to Scottish Ministers from the list of persons who may make applications to the sheriff for extending the moratorium period and for making a further information order under the Proceeds of Crime Act 2002 or the Terrorism Act 2000. In our ongoing dialogue with the Scottish Government and with law enforcement partners, we have clarified that Scottish Ministers do not require those powers. In Scotland, they would be used by the Crown Office and Procurator Fiscal Service, the National Crime Agency, the police and HMRC in respect of the moratorium period and by the procurator fiscal, the police and the NCA in respect of further information orders. We are acting on the advice of the Scottish Government, with whom we have consulted extensively in the development of the Bill and will continue to do so. We are making these amendments to ensure that the new measure will work effectively in Scotland.
Richard Arkless
The Minister’s explanation was comprehensive and persuasive and accords with my understanding of the Government’s position. We will not stand in the way of the clause.
Mr Wallace
Clause 9 inserts in part 7 of POCA a scheme for extending the suspicious activity report moratorium period beyond 31 days. As the action plan for anti-money laundering set out, the Government see a more robust law enforcement response as central to tackling money laundering. I have already explained the SARs regime, so we do not need to hear about that again.
As the national risk assessment set out, the UK is vulnerable to abuse by professional enablers from the legal, accountancy and finance sectors. The level of expertise involved can make it difficult to progress a money laundering investigation substantially in only 31 days. That is particularly the case when the law enforcement agency needs to obtain evidence from overseas authorities, which is another reason for an extension for a further length of time—the hon. Member for Ealing Central and Acton asked why it needed to be so long—or to undertake complex asset-tracing inquiries. Accordingly, the moratorium period may be lifted and funds dissipated before the investigation has progressed sufficiently to determine whether civil or criminal proceedings should be undertaken.
We need to provide law enforcement agencies with an appropriate amount of time to undertake investigations. This clause provides for the extension of the moratorium period by a court for periods of up to 31 days. That can be repeated up to a total of 186 days from the end of the initial 31-day moratorium period. The hon. Lady is better at adding up than me, so she produced the right figure. Providing an extension of the moratorium period enables law enforcement officers to continue investigating particularly complex transactions, such as those involving overseas grand corruption or other serious crime. The clause ensures that proceeds of crime are not dissipated when there is a suspicion that money laundering activity has taken place and when the law enforcement agency has not had the opportunity to complete its inquiries.
The Government recognise that there may be concerns about the length of time for which an individual’s property could be withheld from them. The clause does not allow unlimited extension of the moratorium period. The court must approve the application to extend the moratorium period each time an extension is sought. Law enforcement agencies must demonstrate to the court that it is reasonable in all circumstances for the moratorium period to be extended. They must satisfy the court that the investigation is being carried out diligently and expeditiously and that further time is required to progress the investigation.
An application to extend the moratorium period will be made to the Crown court, which provides a senior level of judicial authorisation. The owner of the property will be able to make representations in person before the court and is provided with the opportunity to appeal the decision to extend the moratorium period. An application may be made only by a senior officer who has a remit to undertake financial investigation. A senior officer is at the police rank of inspector or equivalent.
Money laundering is an enabler of serious and organised crime. The clause will help to stop criminals profiting from their criminal behaviour. It gives our law enforcement agencies the time to progress critical investigations into money laundering where they have genuine reasons for being unable to progress their investigation substantially in 31 days.
Dr Huq
The Minister has put it very well. All the witnesses stated that 31 days was not enough. Here we have appropriate checks and balances. A legal procedure is gone through to extend the period; it cannot be open-ended; and appeals procedures are built in. The Minister also praised my maths, which never happens normally—I am a qualitative person usually—so for that reason as well as all the other reasons, we will not stand in the way of the clause.
Question put and agreed to.
Clause 9, as amended, accordingly ordered to stand part of the Bill.
Clause 10
Sharing of information within the regulated sector
Question proposed, That the clause stand part of the Bill.
Mr Wallace
The clause introduces a new provision into the Proceeds of Crime Act 2002. As the action plan for anti-money laundering also set out—it seems to make a regular appearance—the Government see public-private partnership as central to tackling money laundering and terrorist financing. A major part of that approach is to provide support for the effective exchange of information, both within the private sector and between the public and the private sectors, to increase our collective knowledge of threats and vulnerabilities, to help the regulated sector to protect itself and to improve the quality of the UK’s financial intelligence.
Both the private sector and law enforcement agencies hold significant amounts of information that can be of great use to each other. The private sector holds data on financial transactions and related personal data; law enforcement agencies hold intelligence on money laundering and terrorist financing. When those data have been shared, there have been benefits to both sectors.
Dr Huq
I described joined-up thinking in my remarks on amendment 2. The Minister has reassured us. I have seen that some people have civil liberties concerns, but he has told us that the sharing of information will be a last resort in extreme cases, and that it will happen largely on a voluntary basis anyway.
The Government action plan on money laundering said that what is needed is a
“collaborative approach to preventing individuals becoming involved in money laundering.”
It discussed different agencies, supervisors and the public and private sectors working together. The clause does all those things, and we support it.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Further information notices and orders
Amendment made: 10, in clause 11, page 38, leave out line 2.—(Mr Wallace.)
This amendment removes a reference to the Scottish Ministers from the list of persons who may make an application to the sheriff for a further information order under new section 339ZJ of the Proceeds of Crime Act 2002.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Wallace
Clause 11 creates a new power to issue further information orders. In the anti-money laundering action plan the Government set out our commitment to improving the financial intelligence that would be available to both the law enforcement agencies and the private sector. Improving our financial intelligence is essential to allow the identification of the major risks from money laundering, and to identify where resources from both the public and private sectors should be focused.
The action plan also contained a commitment to do more to tackle money laundering internationally, through sharing information and intelligence, and working through international bodies such as the Financial Action Task Force. The suspicious activity reports regime, run by the UK Financial Intelligence Unit at the National Crime Agency, is central to the UK anti-money laundering regime, and to the development of financial intelligence. The regime took more than 380,000 reports in 2014-15 from the regulated sector, including banks, lawyers and accountants.
Clause 11 will allow the UK Financial Intelligence Unit, following the receipt of a suspicious activity report, to request further information from any member of the regulated sector, irrespective of whether that entity raised the SAR.
There are a number of reasons why the UKFIU needs such a power. First, there are occasions where the SAR does not contain all the information necessary to allow the UKFIU to determine whether action, including an investigation, should be undertaken. That is particularly important when determining how scarce resources should be allocated. The intention is to drive up the quality of SARs and to enable improved intelligence analysis for the better identification of risk and threat.
Secondly, the UKFIU can use the power when it needs information in order to develop effective intelligence to identify the major threats from money launderers. That intelligence will be used to inform the work of law enforcement agencies and can be shared with the private sector to help them put in place effective counter-measures to the threats they face from money laundering.
Thirdly, it will allow the UKFIU to seek further information on behalf of a foreign financial intelligence unit to support investigations or intelligence development in that country. That will be subject to the appropriate safeguards, and the UK will benefit from the ability to request equivalent information from foreign financial intelligence units. The provision will also ensure that the UK is compliant with the relevant Financial Action Task Force recommendations ahead of the its evaluation of the UK anti-money laundering regime in 2018.
The clause will allow the National Crime Agency to direct that further information is provided and, if it is not provided, to apply to a court for a further information order to require the person to provide the information requested. We are keen to support appropriate information sharing between financial intelligence units, and we know that FATF and its members want to do more in that area. Incidents such as the attacks in Paris, where financial intelligence was needed to support the investigation, illustrate the need to be able to share such information. However, I would like to be clear that there should be safeguards in place for international information sharing. As with a request driven by the NCA itself, a court order will be required where a regulated entity does not provide information if requested to do so by the NCA. That in itself is an important safeguard. I am, as ever, open to discussing this issue with hon. Members if it is felt that additional safeguards may be appropriate.
On a separate point, I know that the issue of privileged information is of concern to Members, and I want to be clear that the UK Financial Intelligence Unit will not be able to request the provision of privileged information as part of this measure. This is an important safeguard for those who hold such information, and we do not believe that it should be requested under this power.
Dr Huq
It appears that the clause enacts some of the recommendations of the action plan for anti-money laundering and counter-terrorist finance that the Government issued in April 2016. We will support the clause.
Question put and agreed to.
Clause 11, as amended, accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Andrew Griffiths.)
Criminal Finances Bill (Fourth sitting)
Thursday 17th November 2016
(7 years, 5 months ago)
Public Bill CommitteesRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 17 November 2016 - (17 Nov 2016)
Richard Arkless (Dumfries and Galloway) (SNP)
I beg to move amendment 58, in clause 12, page 40, line 1, and end insert—
“(g) betting slips;
(h) casino chips.”
This amendment includes betting materials that can be used to store the proceeds of criminal activity.
Richard Arkless
Amendment 58 would extend the definition of “listed asset” in proposed new section 303B of the Proceeds of Crime Act 2002 to include betting slips and casino chips. The Minister helpfully acknowledged on Second Reading that he would consider tabling an amendment to deal with those two means of retaining value, and I understand that new clause 10 has been tabled in that regard.
Although I fully commend the spirit of new clause 10, it will achieve that change not by adding to the definition of listed asset but by expanding the definition of cash to include gaming vouchers and fixed-value casino tokens. On the latter, we are in agreement: in effect, the new clause does what it says on the tin. It will extend the meaning of cash and therefore make fixed-value casino tokens catchable. Our concern is that “gaming voucher” is specifically defined in new clause 10 as
“a voucher in physical form issued by a gaming machine”.
We do not believe that that covers betting slips. Therefore, although we welcome the tone and construct of new clause 10, we feel that there is one means of retaining value that it does not cover, and that is covered in amendment 58.
The Minister for Security (Mr Ben Wallace)
I am grateful to the hon. Member for Dumfries and Galloway for his amendment, which was set out in his party’s manifesto for this year’s Scottish Parliament elections. The Government take this issue seriously, as do the Scottish Nationalist party and the Scottish Government.
As we have heard, to avoid detection, criminals use a range of means to transfer value among themselves. Law enforcement agencies and prosecutors—particularly those operating in Scotland—have made us aware of criminals’ use of gaming vouchers and casino chips to do that. There has been media coverage of drug dealers using fixed odds betting terminals to convert cash obtained from street drug dealing into vouchers issued by those machines. Those vouchers can either be converted into cash at the bookmaker, thus laundering the funds, or transferred to another person to pay the drug dealer’s debts.
The Proceeds of Crime Act contains provisions that enable law enforcement agencies to seize cash, but those provisions do not extend to the type of criminal tactic that I have just described, so clauses 12 and 13 seek to allow those agencies to freeze, seize and seek forfeiture of illicit funds held in bank accounts and other forms of criminal property used to transfer value. It has always been the Government’s intention to include gambling vouchers and casino chips in those provisions, as I made clear on Second Reading. When the Bill was introduced, we were still looking at the best way of achieving that in legislation, but I tabled new clause 10 on Monday—I apologise for doing so at the beginning of the Committee stage and not giving hon. Members more time to look at it—which will add gambling vouchers and casino chips to the definition of cash in the Proceeds of Crime Act and allow law enforcement agencies to seize those items on the same basis as they can seize cash, where their individual or aggregate value is more than £1,000.
Officers will have to demonstrate to a court that they have reasonable grounds for suspecting that vouchers or casino chips are either proceeds of crime or intended for use in unlawful conduct. That is an important safeguard that we apply to all forms of seizure. Law enforcement agencies will need to show why they seek the detention of the property, and will be able to seek administrative forfeiture of vouchers or tokens, or the agreement of a court. In all cases, an individual who believes that such vouchers or tokens are theirs legitimately will be able to challenge their detention or forfeiture.
I turn to the hon. Gentleman’s point and why we have used the term “gaming vouchers” rather than “betting slips”. In discussions with law enforcement agencies, we have identified that there is a major concern about the laundering of proceeds of crime through machines that provide a guaranteed return if they are played in a certain way. Those machines produce pay-out vouchers with a value that can then be cashed in. Betting slips, such as those used for horse racing, are used for betting with no guaranteed return and, therefore, are much more risky for use in money laundering.
However, once the points had been raised by the hon. Gentleman, I asked officials to examine whether there is potential to extend the Bill to ensure that we cover betting slips as well. As someone who likes the horses and knows his way round a losing—rather than a winning —bet, I understand that the ability to exploit that type of bet could potentially lead to such money laundering.
Carolyn Harris (Swansea East) (Lab)
The Minister may be aware that I am the Chair of the all-party group on FOBTs. I have grave concerns about bookmakers not reporting unusual and excessive activity on B2 machines by people who would not normally have that kind of disposable income. Is the Minister satisfied that leaving it up to the betting industry to self-report is adequate?
Mr Wallace
If memory serves me right, the Gambling Commission has the power to carry out a range of investigations and to impose conditions on bookmakers. I hear the hon. Lady’s point loud and clear. I have the same concern in my part of the world in the north-west about whether bookmakers are properly regulated and carrying out their obligation to report suspicious bets, as they currently do under the law. That is more a question of whether we are doing enough to enforce the law. Existing laws are quite strong, though some bookies’ shops—I suspect, as she does—have a way to go. If criminals know that we can seize their FOBT print-outs, they might be less likely to stick their money in the FOBT in the first place. We have put provisions in the Bill because they are pretty canny. When POCA came in in 2002, they realised that we could seize cash, so off they went. They are pretty good at moving the cash. No doubt, one day we will be back again, maybe saying that they have used telephone cards or whatever, and we will have to adapt the legislation in time.
The Government’s amendment chooses to put the provision into POCA, as opposed to the route chosen by the Scottish Nationalist party, because we believe that these items are better placed in cash provisions, because they have no real use other than to be turned into cash. The listed items of moveable property have an intrinsic use as well as being a store of value, and they need to be dealt with under the provisions that we have introduced into the Bill.
The listed items of moveable property clause also contains detailed provision about dealing with non-severable property and competing joint-owner claims that are not relevant to gambling vouchers. As I said, we are considering this as part of the Treasury’s review of regulation under the change to the fourth anti-money laundering directive when it comes to self-reporting of suspicious activity and fixed odds betting. That is under review by the Treasury as well, so I hope everyone will get their collar felt if they do not comply with one directive or another.
I hope hon. Members will agree that that would achieve the results they were after and, accordingly, I invite them to withdraw their amendment.
Richard Arkless
I thank the Minister for his comments and it is clear that extending the definition of cash, as the Government intend in the Bill, achieves the same outcome as we desired in extending the list of assets. I accept the Minister’s point that those assets have an intrinsic value, and perhaps the other ones are best suited to the extension of the definition of cash.
On the basis of the Minister’s commitment to examine the specific issue of betting slips and if we can agree that the evidence suggests that they are a moveable item that can store value that could be easily used by criminals, I am sure—given his tone—that we could discuss that further down the line. Given that assurance and the long list of things that we will consider as the Bill passes through its stages, I will take the Minister at his word. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mr Wallace
As a former Member of the Scottish Parliament, I might be accused of favouring one part of the United Kingdom over another with all the concessions.
Richard Arkless
Given the Minister’s time in Scotland, he might want to refer to my party as the Scottish National party, not the Scottish Nationalist party.
Mr Wallace
Well, I will not say what we used to call it when I was in the Scottish Parliament. We will call it the SNP. I never say “separatists”, obviously.
Clause 12 will create new powers to seize and forfeit moveable items of property where they are suspected to be the proceeds of crime. Criminals launder the proceeds of their crimes to benefit from their criminal activity and carry it on. They are resourceful in using any mechanism to hold and move illicit funds, and we need to ensure that we are able to respond to that threat. Criminals hold the proceeds of crime in a variety of forms, which act as a store of value and a means through which such value can be transferred. Some, such as cash, gold and diamonds, can be easily moved or concealed. In some cases, these items can be readily sold for cash or dissipated through other means.
We want to take action to prevent criminals from transferring their illicit funds however they choose to do it, and the clause should be seen as part of a framework for seizing such assets, alongside the existing cash seizure provisions in the Proceeds of Crime Act and the new provisions in clause 13 for the freezing and forfeiture of funds held in bank accounts.
The cash seizure and administrative forfeiture procedures in POCA were designed to prevent cash from being moved or dissipated in the time that it would take to seek a restraint order. Cash seizure is widely used, both inland and at the UK border. The existing legislation does not allow law enforcement agencies to take the same action in the case of other highly mobile stores of value. Evidence suggests that those items are being used to move value both domestically and across international borders.
The clause will give law enforcement agencies new powers to seize and forfeit certain listed items, such as precious metals and stones, where they have reasonable grounds to suspect that those items are the proceeds of crime or are intended for use in unlawful conduct. The clause will strengthen law enforcement agencies’ ability to disrupt criminal funding by preventing value from being transferred and enable the recovery of criminal property.
The Bill sets out the list of items that can be seized by agencies. The list has been drawn from discussions with law enforcement agencies and from reviewing the approach taken by other states. We have set the minimum value level for the seizure of listed items at £1,000, which is the same as for cash. There will be no upper limit, again mirroring the existing cash provisions. We have set no higher limit, as we believe there are potential circumstances where the value of the item is likely to be significant, and law enforcement agencies need the power to seize the item if there is reasonable suspicion that it is the proceeds of crime. There is evidence of that, particularly in relation to works of art being used to store illicit value and then transferred internationally. Some Members might have heard last week that a French impressionist painting was discovered in a mafia house. Should we discover one of those in the United Kingdom, I do not think we would like to cap what we could seize. I want to be clear that we do not intend that this power should be used indiscriminately. That is why the power can be used only in respect of certain listed items and is subject to oversight by a court.
We have also introduced two additional safeguards. First, within six hours of the seizure, a senior officer must review the seizure and authorise the continued detention. Secondly, we are not, in these cases, permitting administrative forfeiture. That procedure is available in the existing cash forfeiture system and allows a law enforcement agency to forfeit cash without obtaining a court order, in circumstances where the owner does not object. Owing to the possibility of greater complexity of the cases, such as property being jointly owned and difficult to sever, administrative forfeiture is not appropriate. We want to ensure that law enforcement agencies have the powers they need to seize such items. At present, there is a short list, but we intend that it will be amended over time to reflect changes in criminal behaviour.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
Amendment 58 looks quite attractive. The hon. Member for Dumfries and Galloway and I served together on the Select Committee on Justice and went to America. I was quite tempted by his amendment, but I am now reassured by the Minister that Government new clause 10 addresses those concerns. It is added to the list for the ever longer meeting they will have.
Mr Wallace
I am not an art historian or expert. We would probably get Philip Mould from the television to come along. In reality, like with everything else, there is probably a proper valuation process held and items are disposed of that way. If they wanted my services, I would be useless.
The Chair
Order. To help the hon. Lady, I think she will find that, in the evidence produced on Tuesday, one of the witnesses from Her Majesty’s Revenue and Customs said that they recovered assets and then called in experts who valued them.
Dr Huq
Thank you, Sir Alan. I guess there is a serious point behind this: sometimes it is unclear who is the prime enforcer. We want some reassurance, which I am sure will come, that structures are in place, but we are big fans of the clause on the whole.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Clause 13
Forfeiture of money held in bank and building society accounts
Question proposed, That the clause stand part of the Bill.
Mr Wallace
The clause introduces a new provision into the Proceeds of Crime Act 2002. Criminals need to launder the proceeds of their crimes to carry on their criminal activity. As I outlined on clause 12, we need to ensure that we are able to respond to that threat.
POCA already contains provisions for the seizure of cash, but we do not have an equivalent power to take quick and effective action against funds held in bank accounts, and criminals know that. Given the use made by criminals of the banking system, we need to plug that gap. At present, it is difficult for law enforcement agencies to take action against many such accounts because their values are below the limits for civil recovery. The clause will allow the police or the National Crime Agency to seek the freezing and forfeiture of those funds.
The clause will give law enforcement agencies new powers to freeze and forfeit funds held in bank and building society accounts. The measure will have two significant effects. First, it will be easier and quicker for law enforcement agencies to seize the illicit funds held by criminals who abuse the banking system to store and transfer the proceeds of their crime. Secondly, it will also make it clear to criminals that we can take immediate and effective action against their abuse of the financial system.
The provisions we are putting in place will support the forfeiture of funds in bank accounts that have been suspended by the banks when they have serious concerns regarding the use of the accounts. The banks welcome the certainty that will bring. The provision will of course be accompanied by appropriate safeguards. An account cannot be frozen unless there are reasonable grounds to suspect that the funds in it are the proceeds of crime or will be used to fund criminal activity. The freezing of an account will be overseen by a court, which will be able to make an exclusion to allow the account to be used to support a person’s reasonable living expenses or to continue to run a legitimate business.
Forfeiture can be undertaken administratively by the law enforcement agency exercising the provision in uncontested cases. When the forfeiture application is contested, the matter will be decided by the court. The funds in the account will not be transferred to the law enforcement agency account until the forfeiture order is made. I hope that sufficiently reassures the Committee about the need for the power and how it will be used.
Dr Huq
It sounds like there will be sufficient judicial oversight in this space. We know that a lack of bank regulation previously led to some nasty incidents in our history, so we support the clause.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Serious Fraud Office
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 1 be the First schedule to the Bill.
Clauses 15 and 16 stand part.
Government amendment 11.
Government new clause 9—Immigration officers.
Mr Wallace
We come to chapter 4 of the Bill. This group concerns clauses 14 to 16, schedule 1, amendment 11 and new clause 9, which relate to provisions that grant officers of a number of agencies access to new powers under the Proceeds of Crime Act.
Clause 14 and schedule 1 amend POCA to grant officers of the Serious Fraud Office direct access to the wide range of powers under POCA without the unnecessary existing step of their having first to be accredited and monitored as accredited financial investigators by the National Crime Agency. We are also granting officers access to the new powers proposed elsewhere in the Bill, including the power to extend the moratorium period under clause 9 and the new seizure and forfeiture powers in clauses 12 and 13.
It is, of course, only right that those using the intrusive powers provided by POCA are trained and monitored to ensure that the powers are not misused. However, officers of the SFO are experienced and well trained in the use of POCA powers and have appropriate oversight arrangements.
Clauses 15 and 16 amend part 5 of POCA to grant the powers for the civil recovery of assets to both HMRC and the Financial Conduct Authority. Expanding the civil recovery powers to HMRC and the FCA will improve both the capability and capacity for civil recovery. It will ensure they have access to the full suite of investigatory powers to support them in their civil recovery investigations. The use of those powers is governed by an existing code of practice, which will be amended. The Bill will also enable the SFO, HMRC and the FCA to apply for unexplained wealth orders. As we have discussed, the civil recovery provisions in POCA are robust and powerful, and giving additional bodies access to those powers will strengthen the UK’s overall response to serious and organised crime.
Clauses 12 and 13 provide for new freezing, seizure and forfeiture powers. At present, the Bill allows the police, the National Crime Agency, the SFO and accredited financial investigators to use those powers. Amendment 11 and new clause 9 will extend the use of those important new powers to immigration officers to support their investigations into immigration offences and to take action against criminal property that is the proceeds of immigration crime, or that is being used to fund further immigration offences. Those officers will also be able to seize suspected criminal property obtained through offences unrelated to immigration if they encounter them during immigration investigations. The amendment will strengthen the UK’s ability to tackle money laundering and will allow for the seizure of more criminal assets.
Dr Huq
We will support the clause. However, the amendment will lead to an increased workload for agencies such as the SFO and others. Our new clause will be debated later, but we would like an assurance that the blockbuster funding model that they currently operate, which seems to momentarily splash cash, will be replaced with some sort of consistent funding model, because their workload is going to increase and the investigation time in the courts is increasing. That is my only caveat.
Mr Wallace
In response to the hon. Lady, some of the measures in the Bill actually make their jobs easier. Although it might give them more people to catch, the fact that they are going to have disclosure orders and that they will be able to use things such as unexplained wealth orders as an investigatory measure, and the fact that we are going to improve the subject access request data sharing regime, so that the private sector produces more quality referrals rather than just a blurb of quality, will hopefully make their jobs easier when it comes to an investigation. In one sense, all of those barriers that they have to get through at the moment will be removed, which, hopefully, will make them more productive.
I recognise the hon. Lady’s point about the funding of the SFO and other agencies. Under the comprehensive spending review and the SDSR, we found quite a lot. SFO officers are already doing this work. It is here to be—[Interruption.] My writing is appalling. One of the reasons we want to remove their need be accredited financial investigators is that that is another hurdle that will get in their way and make them less productive, so we have removed some of those issues.
Dr Huq
It is the NCA as well. Both of those big reports from the Home Affairs Committee and the Public Accounts Committee said that there should be more consistent funding, but I am not going to let that niggle get in the way right now because we have a whole clause on that coming at the end.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Schedule 1 agreed to.
Clauses 15 and 16 ordered to stand part of the Bill.
Clause 17
Search and seizure warrants: assault and obstruction offences
Question proposed, That the clause stand part of the Bill.
Mr Wallace
This clause, and those that follow, fill a gap in the general law relating to those who conduct investigations of being placed in danger of being assaulted or obstructed. It is a general offence to assault another person, but in addition to that, police officers and HMRC officers are protected by specific offences that relate to the obstruction or assault of those officers in the course of their duties.
There are two very good reasons for specific offences. Those officers, by the very nature of their actions and work, face a much higher danger and likelihood of being assaulted. For example, they often enter the residences of serious criminals. I am sure the Committee sees that that is a wholly different scenario from what is envisaged in the general offence of assault. We, as law-abiding citizens, are not actively placing ourselves in situations that put us in danger.
Although we are unaware of any prosecutions relating to the assault or obstruction of police officers or others while exercising powers under the Proceeds of Crime Act, there is wide recognition that it is an important safeguard. It is a gap in the law that under POCA, investigators of certain agencies are put in situations where they could be assaulted or obstructed, and yet there are no connected offences. Section 453A of POCA has already created assault and obstruction offences for civilian accredited financial investigators operating under the Act. The clause provides that those who can execute search and seizure warrants in civil recovery investigations have a similar protection.
Dr Huq
We have had two good debates on the Floor of the House recently about the assault of police officers. These are very good provisions, and we are happy to support them.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Assault and obstruction offence in relation to SFO officers
Question proposed, That the clause stand part of the Bill.
Mr Wallace
The clause addresses a gap in the law relating to those who conduct investigations being placed in danger of being assaulted or obstructed. Much of what I said in relation to clause 17 also applies here. We are extending powers to SFO officers elsewhere in the Bill—in clause 14 and schedule 1, as well as clauses 12 and 13. In doing so, we place them in the position of being vulnerable to being assaulted or at least obstructed.
Unlike the police, HMRC officers and others, there is no specific offence that relates to SFO officers who are assaulted or obstructed in the course of their duties in general. The Bill therefore creates one to support the more general provisions of extending powers to the SFO. SFO officers currently access the powers in POCA as accredited financial investigators, and there are offences of assault and obstruction that relate to them. As accredited financial investigators, they are therefore protected by the offences in section 453A. The clause will simply copy the same approach, to reflect the fact that they will be able to operate the powers in their own right.
Dr Huq
This appears to us an entirely logical extension of the anti-assault powers. I know that taxmen are not always the most popular people, but I think MPs and used car salesmen are the most unpopular in the rankings of professions. We thoroughly support the clause.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19
Obstruction offence in relation to immigration officers
Amendment made: 11, in clause 19, page 72, line 36, at end insert—
“( ) section 303C as so applied (powers to search for a listed asset);
( ) section 303J as so applied (powers to seize property);
() section 303K as so applied (powers to detain seized property);”—(Mr Wallace.)
This amendment is consequential on NC9.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Wallace
This clause is similar to clauses 17 and 18. It addresses the need for an offence of obstruction, in this case to apply to immigration officers. Much of what I have already said in relation to such an offence also applies here. Under section 21(1)(g) of the Immigration Act 1971, a person commits an offence if they obstruct an immigration officer who is lawfully acting in accordance with their powers under that Act. That obstruction offence does not apply to the exercise of powers under the Proceeds of Crime Act.
As immigration officers now regularly use their powers under POCA—in particular since the extension of those powers in the Crime and Courts Act 2013—it is consistent for them to have a related obstruction offence. The clause amends POCA to create such an offence. Immigration officers are already covered by a general assault offence under section 22 of the UK Borders Act 2007, so no further provision is required in relation to assault. We are also amending immigration officers’ power of arrest without warrant to include this new offence.
Dr Huq
Again, Her Majesty’s Opposition entirely support this clause in relation to obstruction of immigration officers in the line of duty.
Question put and agreed to.
Clause 19, as amended, accordingly ordered to stand part of the Bill.
Clause 20
External requests, orders and investigations
Question proposed, That the clause stand part of the Bill.
Mr Wallace
Clause 20 makes a technical change, consequential to clause 18. Under section 444 of POCA, an Order in Council can be made to set out the procedure for providing assistance to other countries in freezing and confiscating property in the UK that is related to their cases. The Order in Council can create provisions that correspond to those available in our own domestic cases. The clause ensures that any offence created relating to the assault or obstruction of an SFO officer mirrors the one that we are creating domestically under clause 18. I hope the clause stands part of the Bill.
Dr Huq
Again, we have heard that these criminals often do not respect borders and maps, so we support the move to extend the provisions to external requests.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Seized money: England and Wales
Mr Wallace
I beg to move amendment 12, in clause 21, page 73, line 17, at end insert—
“( ) In subsection (2), for paragraphs (a) and (b) substitute—
“(a) has been seized under a relevant seizure power by a constable or another person lawfully exercising the power, and
(b) is being detained in connection with a criminal investigation or prosecution or with an investigation of a kind mentioned in section 341,”.
( ) After subsection (2) insert—
“(2A) But this section applies to money only so far as the money is free property.”
( ) Omit subsection (3).
( ) In subsection (5), for “bank or building society” substitute “appropriate person”.
( ) In subsection (5A), at the beginning insert “Where this section applies to money which is held in an account maintained with a bank or building society,”.
( ) In subsection (7A), after “applies” insert “by virtue of subsection (1)”.”
This amendment broadens the circumstances under section 67 of the Proceeds of Crime Act 2002 in which a court may order detained money to be paid in satisfaction of a confiscation order, by providing that the section applies to money that has lawfully been seized by any person (rather than only by constables) under a relevant seizure power, and by removing the requirement that the money is held in an account maintained with a bank or building society.
Mr Wallace
Amendments 12, 13 and 14 are a logical extension of powers that are already within POCA. Section 67 of POCA provides the magistrates court with a power in relation to money seized by the police or HMRC under the Police and Criminal Evidence Act 1984 that has to be paid into a bank or building society account. The court can order that money be paid to the court in satisfaction of a confiscation order. The money still belongs to the criminal. Therefore, section 67 avoids the ridiculous scenario of money being paid back into the criminal bank account when there is an outstanding confiscation order to pay. The amendments do not break new ground, but extend the established logic of section 67. When the police have possession of a criminal’s money, they should be able to transfer that across in the payment of a confiscation order, rather than return it to the criminal.
The amendments do three things. First, section 67 currently applies only to police and HMRC officers. The amendments effectively extend the powers to law enforcement officers who have the power to seize money, including immigration officers and SFO investigators. Secondly, the provision will now apply to money that has been seized under any power relating to a criminal investigation or proceeding, or under the investigatory powers in POCA. Instead of being limited to money seized under the Police and Criminal Evidence Act, this removes an unnecessary restriction. Many other powers of seizure should come from this provision’s scope, such as those in the Immigration Act 2016.
Thirdly, section 67 currently applies only to money that has been paid into a bank or building society account. That is another false limitation. For example, if money has evidential value it will not be paid into an account. It may be required at a trial as evidence that it is contaminated with a trace of drugs or explosives. It would be odd that a convicted drug trafficker with an outstanding confiscation order has his money returned by the police purely because that money was used as evidence in his trial, and not paid into his bank account.
There was no provision equivalent to section 67 in Scotland. Section 67 applied in England and Wales, and was similar to section 215 for Northern Ireland. I draw the Committee’s attention to clause 23, which introduces a similar power in Scotland. In constructing clause 23, we have been made to rethink the scope of section 67. We have come to the conclusion that it should be extended in the ways I have just described. We are also looking into whether to make similar amendments to the powers being introduced in Scotland and to the existing powers in Northern Ireland, and I will update colleagues in due course. I am sure the Committee will agree that this is an entirely sensible extension of the existing power to support the enforcement of confiscation orders.
Dr Huq
We do not oppose the amendment.
Amendment 12 agreed to.
Amendments made: 13, in clause 21, page 73, line 18, leave out subsection (2) and insert—
“( ) For subsection (8) substitute—
(8) In this section—
“appropriate person” means—
(a) in a case where the money is held in an account maintained with a bank or building society, the bank or building society;
(b) in any other case, the person on whose authority the money is detained;
“bank” means an authorised deposit taker, other than a building society, that has its head office or a branch in the United Kingdom;
“building society” has the same meaning as in the Building Societies Act 1986;
“relevant seizure power” means, subject to subsection (9), a power to seize money conferred by or by virtue of—
(a) a warrant granted under any enactment or rule of law, or
(b) any enactment, or rule of law, under which the authority of a warrant is not required.
(9) A power to seize money conferred by Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 is not a “relevant seizure power” for the purposes of this section.”
This amendment defines terms used in amendment 12 and makes a consequential change to the Bill.
Amendment 14, in clause 21, page 73, line 23, leave out “subsection (8)(a)” and insert—
“the definition of “bank” in subsection (8)”.—(Mr Wallace.)
This amendment is consequential on amendment 13.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Wallace
The clause is a technical amendment to POCA, specifically to update references to the definition of “bank” in three sections. The current reference in POCA is to the Banking Act 1987, which was repealed in December 2001, before POCA was commenced. The reason for its repeal was to remove bank regulation from the Bank of England, and to make it independent. Although no universal definition of a bank was given in the Banking Act, and nor is there any such definition in the subsequent legislative changes, a bank is defined by its activity as a deposit taking institution.
The only references in POCA affected by the change are those in three sections: section 67, section 215, and paragraph 6 of schedule 3. In addition, the definition will apply for the purpose of the new powers in the Bill to freeze and forfeit funds in a bank account.
Section 67 provides that where a confiscation order is made against a person, and moneys belonging to that person are held in a bank or building society account maintained by the police or HMRC, those institutions can be ordered to pay those moneys to the court. Section 215 makes equivalent provisions for Northern Ireland, and paragraph 6 of schedule 3 to POCA refers specifically to a Scottish provision relating to the deposit of certain moneys by an administrator into an “appropriate bank or institution”.
These changes replicate, as much as possible, the previous provisions, while recognising that the legislation in the area has now changed. I hope the clause will stand part of the Bill.
Dr Huq
Once again, I am proud that the Proceeds of Crime Act was a Labour Act that we pushed through when we were in government. It is now being updated to reflect contemporary circumstances.
Question put and agreed to.
Clause 21, as amended, accordingly ordered to stand part of the Bill.
Clause 22
Seized money: Northern Ireland
Question proposed, That the clause stand part of the Bill.
Mr Wallace
Clauses 22 to 28 contain a number of minor and technical amendments that will strengthen the operational impact of POCA powers. The clauses clarify and simplify the use of powers intended to recover criminal assets, and I will very briefly expand on those particular provisions.
Clause 26 makes technical amendments to the process that accredited financial investigators follow when seeking approval to use certain POCA search and seizure powers. Accredited financial investigators are not warranted officers, but may be employed by a police force or another public body. They have access to a wide range of powers under POCA, including certain search and seizure powers. They have access to search and seizure powers to seize property that may be subject to a future confiscation order. In order to use those powers, an accredited financial investigator has to seek the prior approval of either a justice of the peace or a senior officer. Currently, POCA only allows a civilian AFI to seek the approval from a senior AFI, as opposed to a senior police officer. This is not always practical from an operational point of view and creates an additional layer of bureaucracy. This measure allows civilian accredited financial investigators to seek authorisation from a police colleague who is at least the rank of inspector and therefore of equivalent seniority, thereby creating additional flexibility.
Clause 27 provides that an investigator has full access to investigation powers in section 22 revisits. Section 22 of the Proceeds of Crime Act allows an investigation to revisit any confiscation order so that any money acquired by a defendant in the future may be confiscated and satisfy a previous order. Currently, it is open to question whether an investigator’s ability to identify money made by the defendant using the investigatory powers in POCA—for example, by monitoring bank accounts, searching property or requiring the production of evidence —is available for investigations linked to revisits. Clause 27 strengthens investigative powers, making confiscation revisits more effective and helping to make best use of the resources being put into revisiting confiscation orders.
The remaining clauses clarify process and definitions to allow for the more effective recovery of criminal assets. Although minor and technical, these amendments are important measures that allow for the proper functioning of POCA. I hope that the clauses will stand part of the Bill.
Charlie Elphicke (Dover) (Con)
It is a pleasure to serve under your chairmanship, Sir Alan, and to make my first speech before this illustrious and most distinguished Committee. I have a few queries for the Minister on these important clauses. Part of the concern about POCA in the past has been that it has not always worked quite as well as it should have; it has a slightly chequered history when it comes to making sure that the proceeds of crime are, in fact, captured for the state.
First, looking at the miscellaneous provisions relating to Scotland, we are told that clause 23 is intended to replicate in Scotland the effects of section 67 for England and Wales, and section 215 for Northern Ireland, with certain modifications. It provides for the High Court of Justiciary or the sheriff, as the case may be, to order that any realisable property in the form of money held in a bank or building society account is paid to the appropriate clerk of court in satisfaction of all or part of the confiscation order. It would be helpful if the Minister could say why exactly those provisions are needed and how they will ensure that POCA works more efficiently. I am sure that will be a matter of concern to the spokesman for the Scottish nationalist party [Hon. Members: “Scottish National party.”] Oh, Scottish National party—or is it the Scottish neverendum party? I get confused, but I have a one in three chance of being right on one of them. That deals with the concern that I had on Scotland.
We are discussing clauses 23 to 28, are we not? Clause 24 deals with recovery orders related to heritable property. The proposed measure is to remove existing jurisdictional and procedural barriers that can delay the recovery of the possession of heritable property. For those who are not fully up to speed on what heritable property is, and for the benefit of colleagues and Members of the Committee, it is a house, flat, commercial premises and like real estate. I would ask why there were jurisdictional and procedural barriers in the first place and how they would be dealt with by this provision. The clause also says that, where a recovery order is granted, the property automatically vests in the trustee for civil recovery and the previous owner-occupier loses his or her title, since the owner-occupier of the property is subject to the recovery order and has no right or title to occupy the property. The appropriate way to recover possession in those circumstances is by warrant for ejection.
I want to check that there will not be any delay in getting such a warrant and that the procedural aspects are considered likely to work efficiently and swiftly. I also want to ask what the situation would be if there are any sitting tenants in the heritable property to which a recovery order applies. Would such sitting tenants be ejected or would they be able to see out the length of their tenancy?
A house might be owned by a crook who might have let that house to some innocent people, members of the hard-working classes of modern Britain, who suddenly find that their home is seized because that crook is brought to book. They do not want to be ejected and thrown out on to the street, where it is cold and dark as the seasons change against us. I hope we can understand what will happen to sitting tenants in such a case because that is extremely important. I see that the hon. Member for Scunthorpe is following with interest and is concerned about the matter. It would no doubt be heritable property 95% made with English steel from the great steelworks in his illustrious constituency.
Clause 25 deals with money received by administrators. We are told that this is a technical amendment to paragraph 6 of schedule 3 to POCA, which deals with money received by an administrator in Scotland. That is obviously a matter of great concern to my hon. Friend from the Scottish nationalist party. It is to provide a definition of “bank” following the repeal of the provisions of the Banking Act 1987, which previously provided the definition. I want to understand why it is so important to provide a definition of bank in such circumstances and why that is not already covered by legislation. That is a minor technical point. Is it truly necessary or does it make a substantive difference?
Victoria Atkins (Louth and Horncastle) (Con)
Does my hon. Friend welcome, as I do, the fact that the Government are enabling civilians to help warranted officers in such important investigations? Civilians can bring skills from the private sector of which a warranted officer might not yet have experience. It is a useful tool in the armoury of law enforcement agencies to be able to draw on the wealth of experience in the private sector, as well as relying on the significant experience of warranted officers.
Charlie Elphicke
I thank my hon. Friend for more than fully answering my question. She has saved the Minister the trouble of having to respond to my query. She makes a powerful point. It is important that we have such expertise, understanding and skills and that the forces of law and order are able to draw on civilian skills that may not exist directly under the employ of officers of the Crown. That is extremely helpful, and I thank her very much.
The Chair
Minister, having caught such a rare fish, I presume you want to deal with it now rather than later.
Mr Wallace
I am touched by the love of Scotland expressed by my hon. Friend the Member for Dover—although his constituency is closer to France than Scotland. I might be able to help him on some of his technical questions.
My hon. Friend’s first question was about why the miscellaneous provisions relate to Scotland, how they are processed and why they are different. Sections 67 and 215 of the 2002 Act provide that a magistrates court can require a bank or building society to pay a sum of up to £5,000 if it fails to comply with an order. However, there is no precedent for such a provision in Scottish law. Also, the equivalent orders in Scotland will apply to law enforcement authorities, as well as to banks and building societies. It was therefore considered more appropriate for any, hopefully rare, wilful non-compliance with an order in Scotland to be dealt with as contempt of court.
Clause 24 addresses recovery orders relating to heritable property. Although it is Scottish Ministers, as the enforcement authority, who apply for a recovery order, once granted it is for the trustee for civil recovery to recover possession of any heritable property to which the recovery order applies. That is because the effect of a recovery order is to vest the property in the trustee for civil recovery. Under existing law, however, a trustee for civil recovery is unable to seek recovery of possessions directly in the Court of Session so must raise a separate action in a lower court, namely the appropriate sheriff court. That can lead to defenders rehashing arguments that were unsuccessful before the Court of Session and incurring costs for those days, which ultimately compromises the amount recovered. Such delays also permit those involved in criminality to continue occupying a property despite the Court of Session having determined that the property was obtained through unlawful conduct and should therefore be recovered.
My hon. Friend is rightly concerned about sitting tenants whose house is owned by a crook and who suddenly find that it is forfeited or frozen. The primary policy obligation is the effective recovery of the proceeds of crime, which is generally best served by recovering the heritable property concerned and selling it so that proceeds from the sale can be added to the public purse. A primary function of the trustee for civil recovery is to realise the value of the property for the benefit of the enforcement authority, which, in Scotland, is the Scottish Ministers. It was never intended that the trustee should take on the functions of a landlord in relation to any sitting tenants.
However, we are considering introducing amendments to other legislation in consequence of the clause, as was well pointed out by my hon. Friend the Member for Dover, with a view to ensuring that any legitimate tenant receives fair notice that a recovery order is being sought in respect of the property concerned and that, if granted, they will have to vacate the property within a certain period of time, and that adequate support is put in place to safeguard against homelessness.
Let me move on to the fourth point, relating to the definition of “bank”—I remember this being a particularly gripping part of the Bill when I was reviewing the legislation. The Banking Act 1987 provided a definition of a bank; these amendments simply update the definition to ensure that it is current, as the Banking Act has been repealed.
Dr Huq
I am reassured to hear that tenants’ rights, which are often under-regulated in this country, will be dealt with in the legislation.
I have a question about clause 26, which is on accredited financial investigators. We have had those in this country since 2009. Even though I do not have the exact figures—my iPad is not getting wi-fi—there is evidence that we have not hung on to all of them. People have been trained as specialist investigators out of the public purse. We live in an age where we should justify every pound of public money, and we seem to have lost those people to the private sector. A lot of them have been poached.
Charlie Elphicke
This was exactly my concern as I studied the Bill in great detail. However, I feel that my hon. Friend the Member for Louth and Horncastle, who is extraordinarily able and learned in these matters, answered that question by saying that one should be able to draw on skills across the whole nation by contracting them in. I thought that was quite a powerful point.
Dr Huq
It was a powerful point. As I was going to say if the hon. Gentleman had allowed me to finish the sentence I had embarked on, this issue will be addressed at the end in one of our new clauses. Perhaps we could build in some way of, if not exactly giving them golden handcuffs, then retaining them or even getting the cost of the training repaid, whatever that is. We see the same happening across other sectors. We hear of junior doctors being lost to Australia. It would be a tragedy if we trained these people up and then off they went, poached by the private sector. We have heard of examples where they have gone to the gambling industry, which my hon. Friend the Member for Swansea East has experience of in her role on the all-party group on fixed odds betting terminals. I flag that issue up now, but we will come back to it later in a new clause.
Mr Wallace
I have heard the hon. Lady’s sentiment. We will discuss the new clause later. I understand the point that we invest in people and we as the taxpayer should extract that investment back. We will no doubt discuss that further.
On the final concern raised by my hon. Friend the Member for Dover about the governance of accredited financial investigators, the use of the power in the clause is covered by a code of practice that will be amended. That mirrors the application processes elsewhere in POCA whereby civilians authorise applications. I am happy to provide those codes of practice for my hon. Friend to look at.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clauses 23 to 27 ordered to stand part of the Bill.
Clause 28
Confiscation orders and civil recovery: minor amendments
Amendment made: 15, in clause 28, page 78, line 33, at end insert—
‘(2A) In section 148 (free property: Scotland), in subsection (3)(b) for “or 297D” substitute “, 297D or 298(4)”.” —(Mr Wallace.)
Clause 28(2) amends section 82 of the Proceeds of Crime Act 2002, which determines what constitutes “free property” in relation to confiscation proceedings in England and Wales, by providing that property detained under section 298(4) of the 2002 Act is not free property. This amendment provides for a corresponding change to be made to section 148, which applies in the case of confiscation proceedings in Scotland.
Clause 28, as amended, ordered to stand part of the Bill.
Clause 29
Disclosure orders
Question proposed, That the clause stand part of the Bill.
Mr Wallace
We now move on to part 2 of the Bill, relating to terrorist property. In our discussions so far we have focused on clauses that are about ensuring we take the profit out of serious and organised criminality. Terrorism finance is different. Individuals who raise and move funds for the purpose of terrorism are not concerned with profit, but with causing the loss of life. It is essential that the tools available for terrorist finance investigations and the powers available to seize terrorist cash and property are as comprehensive as those available for dealing with other financial crime or, in some cases, more robust. Part 2 of the Bill is included for that purpose.
The relevant clauses therefore largely reflect the existing provisions relating to financial crime, but have been adapted as needed to respond to what is a different type of threat. As I explained earlier, disclosure orders are available for confiscations, civil recovery and exploitation proceeds investigations. Clause 29 and schedule 2, which it introduces, are very similar to clauses 7 and 8, and extend disclosure orders to money laundering investigations, but do so for terrorist finance investigations. The clause will make disclosure orders available for terrorist finance investigations, which will give law enforcement agencies the means to obtain information that is significant for investigating suspected terrorist finance offences or for identifying terrorist property.
The clause makes it possible for the police to apply to the court for an order to compel an individual to answer questions, to provide information or to produce documentation that is assessed to be relevant to progressing a terrorist finance investigation. It will be an offence to fail to comply with such an order without reasonable excuse, and to make a false or misleading statement in response to such an order. Either offence is punishable by a possible term of imprisonment of up to two years.
This is a robust measure, which is appropriate when we consider the type of threat with which we are concerned. However, it will operate with a number of safeguards: the application for an order must be made by a senior police officer, at least a superintendent, or authorised by such an officer; and the court must be satisfied that the information sought will be of substantial value, and that it is in the public interest for it to be provided, before making an order.
The action plan for money laundering and counter-terrorism finance, to which I have referred on numerous occasions, identified the need for a more robust law enforcement response to tackle money laundering and terrorist finance in all its forms. The measure is part of that response.
Dr Huq
The Minister is absolutely correct that the Government’s action plan of April 2016 identified this as a crucial area in need of examination. Terrorism is the threat of our modern age, along with climate change, so we go along with the clause.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Schedule 2
Disclosure orders
Mr Wallace
I beg to move amendment 16 in schedule 2, page 109, line 9, leave out “designated” and insert “counter-terrorism”.
This amendment, and amendments 18, 20, 21 to 25, 27 to 49 and 54, are consequential on amendment 26.
The Chair
With this it will be convenient to discuss Government amendments 18, 20 to 49 and 54.
Mr Wallace
We come to a large number of Government amendments, but I am pleased to inform the Committee that they are all connected to the same issue. Legislation must keep pace with changes to the police workforce. Civilian financial investigators accredited to the National Crime Agency under the Proceeds of Crime Act 2002 can already exercise many of the equivalent investigatory powers available under the legislation for a variety of investigations into money laundering and other serious crime.
Clause 34, which we will reach consideration of in due course, will allow civilian members of police staff, who will be referred to as counter-terrorism financial investigators, likewise to exercise certain investigatory powers in connection with terrorist investigations. The powers include applying to a court for a production order in relation to terrorist property, a financial information order or an account monitoring order. Clause 34 will also amend schedule 1 to the Anti-terrorism, Crime and Security Act 2001 to allow financial investigators to seize terrorist cash. Clause 32 will enable them to seize certain personal movable items.
At a time when counter-terrorism policing has been given additional investment in recognition of the threat levels facing the UK and the vital function it provides, I hope the Committee will agree that it is entirely sensible to provide greater flexibility in legislation for how the police may use their workforce. That does not mean that the exercise of those powers by a wider pool of people should be without safeguards. After further discussion with the police and the National Crime Agency, we have identified that a discrete accreditation process is appropriate for counter-terrorism financial investigators, rather than the training system for financial investigators set out in the Proceeds of Crime Act 2002.
Nic Dakin (Scunthorpe) (Lab)
The Minister is explaining the need for the amendments. Will he explain exactly what difference the proposed changes will make to the accreditation? How will it compare with what it would otherwise have been?
Mr Wallace
As I said earlier, terrorist financing often happens much more in real time. It is not about someone banking their asset to enrich themselves; it is about funding an operation. There will therefore be different requirements for these financial investigators. They will almost be chasing the money as they go, often to stop an operation that is about to happen—someone may be about to book a plane ticket and we may need that stopped—so they will need a different skill set from a normal accredited financial investigator. That is one fundamental difference; another relates to the different approaches that the Bill takes to terrorist financing and to criminal financing. There is a difference between enriching oneself and funding an act of terror.
Amendment 16 agreed to.
Mr Wallace
I beg to move amendment 17, page 114, line 30, leave out “6” and insert “12”.
This amendment increases the maximum period of imprisonment from 6 to 12 months (in line with other provisions in the Bill) in the case of an offence in Scotland of making false etc. statements in response to a disclosure order under the new provisions inserted into Schedule 5A to the Terrorism Act 2000.
The amendment will increase the maximum sentence for making false or misleading statements in response to a disclosure order to 12 months’ imprisonment, following a summary conviction in Scotland. The maximum penalty for the offence following a conviction on indictment will remain two years’ imprisonment. In our ongoing discussions with the Scottish Government, I have been advised that the summary courts in Scotland have general powers to impose sentences of up to 12 months and that this is therefore the correct approach for offences that can be tried summarily or on indictment. It will help to ensure the best use of the sheriff courts in Scotland.
Richard Arkless
That is a fair assessment of the position in Scots law. A sentence of 12 months is more consistent with the rest of the Bill and with the summary powers of sheriff courts in Scotland. Also, we have a presumption against lower sentences in Scotland and I would not like a lower sentence of less than six months to be caught by that presumption unintentionally. We support the amendment.
Mr Wallace
Collaboration between law enforcement and the private sector is incredibly important for countering terrorism, as it is for combating serious and organised crime. The importance of such close collaboration will be a key theme that features prominently in the forthcoming revised Contest counter-terrorism strategy.
Clauses 30 and 31 mirror the provisions in clauses 10 and 11, but for terrorist finance investigations.
As I have outlined to the Committee in relation to part 1 of the Bill, the Government are committed to improving public-private partnerships. We must support the regulated sector to come together to share expertise and information to help it protect legitimate businesses from being exploited for criminal or terrorist intent. In some cases, the detailed picture held by the regulated sector might be key to understanding particular threats. Closer working with the regulated sector can only enhance our understanding of terrorism and provide opportunities to protect against it or disrupt it. Clearly, the financial sector in particular can play a vital part in terrorist finance investigations and tracking terrorist property.
Clause 30, like clause 10 on money laundering, will enable firm-to-firm information sharing through a legal gateway, which will provide immunity from civil liability, encouraging the reporting sector to share information to detect and prevent money laundering and terrorist financing. The joint money laundering intelligence taskforce has demonstrated that there is potential for information sharing in relation to terrorist financing to support effective law enforcement action and disrupt threats to our national security. The clause is an important measure that enables us to take forward that agenda. Although obligations to protect customers’ personal data remain important and must be respected, where it is possible to overcome barriers to the effective sharing of information to progress an investigation, the Government will do what we can to allow it.
Clause 31 will allow the National Crime Agency or the police, following receipt of a report under section 21(2)(a) of the Terrorism Act 2000, to request further information from any member of the regulated sector, irrespective of whether that entity raised the original suspicious activity report. It will also allow the National Crime Agency to seek further information on behalf of a foreign authority. Just as in clause 11, in the event that a member of the regulated sector does not comply with a request for more information, the provision will also allow the NCA or the police to obtain a court order to ensure that it is provided.
The two clauses will allow better information flows within the regulated sector and between the regulated sector and law enforcement agencies, generating better intelligence for law enforcement agencies and helping firms better protect themselves. I commend the clauses to the Committee.
Dr Huq
Clauses 30 and 31 revisit the information sharing themes that we have been discussing all day. We thoroughly commend them. They build on another good piece of Labour legislation, the Terrorism Act 2000. Unfortunately, terrorists have become ever more ingenious in the evil schemes that they dream up in the 16 years since, which is why the clauses are necessary.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31
Further information notices and orders
Amendments made: 18, in clause 31, page 86, line 1, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 19, in clause 31, page 86, leave out line 3. —(Mr Wallace.)
This amendment removes a reference to the Scottish Ministers from the list of persons who may give a further information notice under new section 22B of the Terrorism Act 2000.
Question put and agreed to.
Clause 31, as amended, ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Andrew Griffiths.)
Criminal Finances Bill (Fifth sitting)
Tuesday 22nd November 2016
(7 years, 5 months ago)
Public Bill CommitteesRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 22 November 2016 - (22 Nov 2016)
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Chair
With this it will be convenient to discuss the following:
Government amendments 61 to 72.
That schedule 3 be the Third schedule to the Bill.
Clause 33 stand part.
That schedule 4 be the Fourth schedule to the Bill.
Government new clause 18—Forfeiture of terrorist cash.
Government amendments 73 to 75.
The Minister for Security (Mr Ben Wallace)
Good morning, Mrs Main. I am delighted to serve under your chairmanship. This group deals with the provisions in the Bill that allow for the seizure and forfeiture of terrorist property. I suggest that we covered some of this ground in our debates last week on clauses 12 and 13, which will do likewise for proceeds of crime, and I will seek to avoid repeating all the same points.
Clause 32 and schedule 3 cover the seizure and forfeiture of moveable personal items such as precious metals and gemstones where they are earmarked for terrorism, are the resources of a proscribed organisation or are intended for use in terrorism. Clause 33 and schedule 4 give law enforcement agencies new powers to freeze funds held in bank or building society accounts that are suspected to be terrorist money, and provide for such funds to be forfeited if law enforcement agencies or the courts are satisfied that that is the case. Hon. Members will know that the threat from terrorism is constantly evolving. In the same way that we should have a mechanism to deal with criminals who launder money to evade disruption, we should have the ability to seize items that represent terrorist property.
Although this is a powerful new measure, several safeguards are built into the Bill to ensure that the interference with individuals’ rights to enjoy private property is managed in a way that is proportionate and guards against innocent parties being disadvantaged. Seized property may initially be detained for only 48 hours before an application must be made to a magistrates court in England, Wales or Northern Ireland, or to the sheriff in Scotland, for further detention for up to two years. There is therefore judicial oversight of this provision. Individuals who are joint owners of property will be able to claim back the value of their share.
Denying access to funding is already a key part of our counter-terrorism strategy, but the current powers in the Terrorist Asset-Freezing etc. Act 2010 may not always be the most appropriate operational route for combating the financing of terrorism, as they are designed to freeze the entirety of someone’s economic assets, carry a relatively high threshold for use and do not include forfeiture powers. That is why we have tabled several amendments to this part of the Bill.
New clause 18 will ensure that UK law enforcement agencies have the ability to seek forfeiture of terrorist cash without requiring a court order. An administrative forfeiture power is already provided for in the Proceeds of Crime Act 2002, as amended by the Policing and Crime Act 2009. However, the terrorist cash provisions in the Anti-terrorism, Crime and Security Act 2001 were not amended at that time, and we seek to address that anomaly. The new clause will ensure that the best use is made of both the courts’ and the police’s time and resources by providing that there is no need for law enforcement bodies to involve the courts where forfeiture is uncontested.
However, these provisions are not without oversight. Where terrorist cash is seized, extended detention beyond an initial 48-hour period is already subject to oversight by a magistrates court, or the sheriff in Scotland. There is therefore early judicial involvement in the detention and forfeiture process. In addition, the administrative forfeiture of cash will be exercisable only by a senior officer who is a police officer of at least the rank of superintendent.
The other amendments in this group make several technical and consequential changes to complement those provisions. In particular, they address inconsistencies in the definition of “senior officer” in the Anti-terrorism, Crime and Security Act 2001 and the Terrorism Act 2000 to ensure that such a person is at least the rank of superintendent. The amendments will also ensure that a court can order that property be detained under the powers in ACSA for up to six months per application, with an overall cap of two years, which is consistent with the Proceeds of Crime Act, and that these administrative forfeiture powers can be applied for and implemented in Scotland. Taken together, these measures will strengthen law enforcement agencies’ ability to disrupt terrorist financing in a proportionate and effective way.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
I apologise for being slightly late, Mrs Main. Her Majesty’s Opposition support the amendments.
Question put and agreed to.
Clause 32 accordingly ordered to stand part of the Bill.
Schedule 3
Forfeiture of certain personal (or moveable) property
Amendments made: 61, in schedule 3, page 117, line 36, leave out “3” and insert “6”.
This amendment has the effect that an order for the detention of seized property under new Part 4A of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 may be made for a period of up to 6 months, rather than 3 months. This is in line with the provision made by Part 5 of the Proceeds of Crime Act 2002.
Amendment 20, in schedule 3, page 122, line 28, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 62, in schedule 3, page 122, line 38, leave out “inspector” and insert “superintendent”.
This amendment has the effect that a police officer must be of at least the rank of superintendent, rather than inspector, in order to be a senior police officer for the purposes of new Part 4A of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001.
Amendment 63, in schedule 3, page 126, line 33, at end insert—
“(5) If sub-paragraph (6) applies, the court or sheriff may order the property to which the application relates to be released to the applicant or to the person from whom it was seized.
(6) This sub-paragraph applies where—
(a) the applicant is not the person from whom the property to which the application relates was seized,
(b) it appears to the court or sheriff that the property belongs to the applicant,
(c) the court or sheriff is satisfied that the release condition is met in relation to the property, and
(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom the property was seized.
(7) The release condition is met—
(a) in relation to property detained under paragraph 10C or 10D, if the conditions in paragraph 10C or (as the case may be) 10D for the detention of the property are no longer met, and
(b) in relation to property detained under paragraph 10G, if the court or sheriff decides not to make an order under that paragraph in relation to the property.”
This amendment adds to new paragraph 10O of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001, which concerns the release of property seized under new Part 4A of that Schedule, provision which is equivalent to section 301(4) and (5) of the Proceeds of Crime Act 2002.
Amendment 21, in schedule 3, page 127, line 18, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 22, in schedule 3, page 127, line 20, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 23, in schedule 3, page 127, line 28, leave out “designated” and insert “counter-terrorism”.— (Mr Wallace.)
See the explanatory statement to amendment 16.
Schedule 3, as amended, agreed to.
Clause 33 ordered to stand part of the Bill.
Schedule 4
Forfeiture of money held in bank and building society accounts
Amendments made: 24, in schedule 4, page 129, line 1, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 64, in schedule 4, page 129, line 7, leave out “inspector” and insert “superintendent”.
This amendment has the effect that a police officer must be of at least the rank of superintendent, rather than inspector, in order to be a senior officer for the purposes of new Part 4B of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001.
Amendment 65, in schedule 4, page 131, line 37, leave out “: England and Wales and Northern Ireland”.
This amendment is consequential on amendment 66.
Amendment 66, in schedule 4, page 131, line 38, leave out “made by a magistrates’ court”.
This amendment has the effect of extending the application of the provision in new Part 4B of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 about the administrative forfeiture of terrorist money held in bank and building society accounts from England and Wales and Northern Ireland to the whole of the UK.
Amendment 67, in schedule 4, page 134, line 11, leave out “a magistrates’” and insert “the relevant”.
This amendment is consequential on amendment 66.
Amendment 68, in schedule 4, page 134, line 16, after “the”, insert “relevant”.
This amendment is consequential on amendment 66.
Amendment 69, in schedule 4, page 134, line 22, after “the”, insert “relevant”.
This amendment is consequential on amendment 66.
Amendment 70, in schedule 4, page 134, line 26, after first “the”, insert “relevant”.
This amendment is consequential on amendment 66.
Amendment 71, in schedule 4, page 134, line 29, after first “the”, insert “relevant”.
This amendment is consequential on amendment 66.
Amendment 72, in schedule 4, page 134, line 35, leave out “, is to be paid into the Consolidated Fund.” and insert—
“—
(a) if, before being forfeited, the money was held in an account in relation to which an account freezing order made by a magistrates’ court had effect, is to be paid into the Consolidated Fund;
(b) if, before being forfeited, the money was held in an account in relation to which an account freezing order made by the sheriff had effect, is to be paid into the Scottish Consolidated Fund.”
This amendment is consequential on amendment 66.
Amendment 25, in schedule 4, page 138, line 15, leave out “designated” and insert “counter-terrorism”.— (Mr Wallace.)
See the explanatory statement to amendment 16.
Schedule 4, as amended, agreed to.
Clause 34
Extension of powers to accredited financial investigators
Amendments made: 26, in clause 34, page 90, line 28, leave out from beginning to end of line 17 on page 91 and insert—
“Counter-terrorism financial investigators
63F Counter-terrorism financial investigators
(1) The metropolitan police force must provide a system for the accreditation of financial investigators (“counter-terrorism financial investigators”).
(2) The system of accreditation must include provision for—
(a) the monitoring of the performance of counter-terrorism financial investigators,
(b) the withdrawal of accreditation from any person who contravenes or fails to comply with any condition subject to which he or she was accredited, and
(c) securing that decisions under that system which concern—
(i) the grant or withdrawal of accreditations, or
(ii) the monitoring of the performance of counter-terrorism financial investigators,
are taken without regard to their effect on operations by the metropolitan police force or any other person.
(3) A person may be accredited if he or she is—
(a) a member of civilian staff of a police force in England and Wales (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2001;
(b) a member of staff of the City of London police force;
(c) a member of staff of the Police Service of Northern Ireland.
(4) A person may be accredited—
(a) in relation to this Act;
(b) in relation to the Anti-terrorism, Crime and Security Act 2001;
(c) in relation to particular provisions of this Act or of the Anti-terrorism, Crime and Security Act 2001.
(5) But the accreditation may be limited to specified purposes.
(6) A reference in this Act or in the Anti-terrorism, Crime and Security Act 2001 to a counter-terrorism financial investigator is to be construed accordingly.
(7) The metropolitan police force must make provision for the training of persons in—
(a) financial investigation,
(b) the operation of this Act, and
(c) the operation of the Anti-terrorism, Crime and Security Act 2001.”
This amendment provides for a new system of accreditation and training of financial investigators for the purposes of exercising certain powers under the Terrorism Act 2000 and the Anti-terrorism, Crime and Security Act 2001.
Amendment 27, in clause 34, page 91, line 24, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 28, in clause 34, page 91, line 36, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 29, in clause 34, page 91, line 38, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 30, in clause 34, page 91, line 45, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 31, in clause 34, page 92, line 2, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 32, in clause 34, page 92, line 5, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 33, in clause 34, page 92, line 7, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 34, in clause 34, page 92, line 11, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 35, in clause 34, page 92, line 14, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 36, in clause 34, page 92, line 16, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 37, in clause 34, page 92, line 20, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 38, in clause 34, page 92, line 22, leave out “designated accredited” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 39, in clause 34, page 92, line 26, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 40, in clause 34, page 92, line 28, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 41, in clause 34, page 92, line 36, leave out “designated” substitute “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 42, in clause 34, page 92, line 42, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 43, in clause 34, page 92, line 44, leave out “designated” and insert “counter-terrorism”.— (Mr Wallace.)
See the explanatory statement to amendment 16.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Wallace
Across UK policing, more use is being made of skilled individuals who are not warranted police officers to support the full range of police work, allowing warranted officers to focus on the activities that need their specific training and experience. The financial aspects of terrorism investigations are unlike proceeds of crime investigations—this is not about identifying illicit wealth and taking the profit out of crime. For terrorism, financial investigation allows the police to disrupt terrorist activity by removing access to funds, and to make links in terrorist investigations.
As I set out last week, clause 34 provides for the creation of a new category of civilian financial investigator, to be known as a counter-terrorism financial investigator, which will exercise certain existing investigatory powers, including applying to a court for production orders, financial information orders or account monitoring orders, and to seize terrorist cash or moveable stores of value. The investigator will also be able to use new disclosure order powers being created under the Terrorism Act 2000 and the new bank account seizure and forfeiture powers in the Anti-terrorism, Crime and Security Act 2001.
The new provisions do not confer on counter-terrorism financial investigators any of the search powers available in the legislation for terrorist investigations, and the Government amendments we debated last week will ensure that the investigators will be subject to training and monitoring by the Metropolitan Police Service. The changes are entirely consistent with the changes currently being brought in through the Policing and Crime Bill, which will give chief officers a greater ability to designate civilians with the powers of constables.
Finally, clause 35 introduces offences of obstructing or assaulting the investigators. It is important that a civilian performing the functions of, and exercising the same powers as, a police officer is afforded the same legal protections from assault or wilful obstruction as their police counterparts. That is consistent with the approach taken in the Proceeds of Crime Act 2002 and elsewhere in the Bill. I hope the clauses stand part of the Bill.
Dr Huq
We support the clauses but we also have tabled a forthcoming new clause that questions a couple of things. If we are looking at increasing workload, we like the idea of the extension of powers of the accredited financial investigators, but we would like to see some commensurate resources. On the other stuff, public servants should never be assaulted in the line of duty, so we wholeheartedly support that provision.
Question put and agreed to.
Clause 34, as amended, accordingly ordered to stand part of the Bill.
Clause 35
Offences in relation to accredited financial investigators
Amendments made: 44, in clause 35, page 93, line 3, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 45, in clause 35, page 93, line 4, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 46, in clause 35, page 93, line 7, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 47, in clause 35, page 93, line 36, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 48, in clause 35, page 93, line 37, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 49, in clause 35, page 93, line 41, leave out “designated” and insert “counter-terrorism”.—(Mr Wallace.)
See the explanatory statement to amendment 16.
Clause 35, as amended, ordered to stand part of the Bill.
Clause 36
Meaning of relevant body and acting in the capacity of an associated person
Question proposed, That the clause stand part of the Bill.
Mr Wallace
Mrs Main, this is like an auction—the speed at which you are dealing with matters. The only person who can understand these things is the auctioneer.
Clause 36 defines essential terms that establish the scope of the new corporate offences of domestic and foreign failure to prevent tax evasion. It defines those entities that can be liable under the new offences, and those persons for whom a corporation can be liable if it fails to prevent them from facilitating tax evasion. The relevant bodies that can be liable under the new offences are defined as bodies incorporated and partnerships, not individual men or women, reflecting the responses to HMRC’s consultation on the provisions. The new offences can therefore be committed by companies, whether established to make a profit or for charitable purposes; partnerships; and similar entities established under foreign law. Indeed, the not-for-profit sector publically welcomed the offence applying to its sector, recognising that charities can be misused to facilitate tax evasion. Individuals involved in facilitating tax evasion will of course continue to face prosecution under existing tax evasion offences.
We will go on to debate the provisions in greater depth, but for now it is important to stress that part 3 of the Bill creates offences of corporate failure to prevent the criminal facilitation of tax evasion. They are not offences of corporate failure to prevent tax evasion itself and do not create a legal obligation for corporations to prevent their client’s tax evasion.
The clause also defines broadly the persons who could attract liability for a relevant body. Those include an employee, an agent and any other person who provides services for, or on behalf of, the relevant body. That mirrors the similar offence of corporate failure to prevent bribery in the Bribery Act 2010. That is important because we have seen in the past that corporations structure their affairs to try to insulate themselves from liability by deliberately contracting out the most risky services, typically to persons based in the most secretive jurisdictions. The definition of associated persons in the clause addresses that and closes that potential loophole.
However, it is important to appreciate that not every act of, say, an employee will give rise to criminal liability for the relevant body. For example, where an employee who has gone home from work and is acting in their private capacity criminally facilitates a tax evasion offence by their partner, that will not give rise to any liability for the employing relevant body because the criminal facilitating act was not done in the capacity of employee. I hope that that explanation provides a useful introduction to how the subsequent clauses will function.
Dr Huq
We support the clause. The Minister mentioned the Bribery Act 2010, from which there has been an unusually small number of successful convictions. Does he have any thoughts as to whether there will be a beefed-up number from this legislation? That is largely what I wanted to ask about it. Many big companies have been blogging that it is a bad idea, which makes me think that it must be a good one.
Mr Wallace
In response to what has been said by the Opposition spokeswoman, it is important to note that the Bribery Act has two effects: prosecution, but also change of behaviour. If one goes out to many parts of the world where British companies are engaged in export or trying to win orders, it is clear that the message has gone out loud and clear not to bribe them and not to be involved in bribery. I was in Kenya a couple of weeks ago, and it is clear that British businesses there—people wishing to do business—do not even ask. That is a cultural change so, as I said, the effect is twofold. One thing that can be said about the Bribery Act is that it certainly went to the heart of things. There were no favours drawn: the first person convicted under the Bribery Act was an employee of the Ministry of Justice, and was convicted quite soon after the introduction of the legislation, so we all work under it, whether we are a civil servant or a business.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clause 37
Failure to prevent facilitation of UK tax evasion offences
Amendment made: 50, in clause 37, page 95, line 40, after “England” insert “and Wales”.—(Mr Wallace.)
This amendment corrects an omission in clause 37(8)(b).
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Wallace
Clause 37 creates a new offence that will apply to relevant bodies who fail to prevent persons acting in the capacity of persons associated with it from criminally facilitating a UK tax evasion offence. It also provides a defence for the relevant body of proving that it had in place reasonable procedures designed to prevent persons associated with it from criminally facilitating tax evasion, or that it was not reasonable in the circumstances to expect them to have such procedures.
The offence will apply to any legal person, based anywhere in the world. It does not matter where in the world a relevant body is based. If people are criminally facilitating UK tax fraud, that body can commit the offence and be tried by the UK courts. The offence was first announced in March 2015 and has been subject to two public consultations, including one on draft clauses and guidance. A succession of high-profile data leaks has shown the lengths to which some people will go to hide their taxable income and gains from HMRC, and that there are professionals willing to help them to perpetrate that fraud. There has been unprecedented international action to increase tax transparency around the globe, but that must be coupled with action to tackle those professionals and corporations who are complicit in tax crime.
The existing criminal law already makes it an offence to evade tax. When an individual taxpayer evades their tax, they can be prosecuted. When a professional such as a banker or an accountant is complicit in the fraud, that individual can also be prosecuted. However, for the relevant criminal acts to be attributed to the corporation itself, the existing law on corporate criminal liability requires the most senior members of a corporation to be involved in and aware of those acts. At present, they can simply say, “I did not commit the crime” and blame the individual employee for the offence. That current approach to corporate criminal liability simply does not reflect the decentralised way in which decisions are made in large multinational organisations, and it can leave them beyond the reach of the criminal law.
The new offence will change that. By moving beyond seeking to attribute specific criminal acts to the relevant body, and by focusing instead on its failure to prevent those who act in its name from breaking the criminal law, we can better ensure that relevant bodies take reasonable steps to ensure that crimes are not committed when services are being provided on their behalf. The improved approach to criminal corporate liability has already been adopted with success in relation to the Bribery Act 2010. Businesses are already accustomed to the offence of corporate failure to prevent bribery and much of the new offence will be familiar. I know that hon. Members would like the approach that we are taking to go further still, to cover fraud more generally, money laundering and false accounting. That is an issue to which we will come later, in the debate on new clause 6, which has been tabled by the hon. Member for Ealing Central and Acton.
It is important to note that the offence we are considering is one of tax fraud—tax crime. It is not about tax non-compliance that falls short of being criminal, such as accidental non-payment of taxes. There has been much discussion about how the offence will operate in relation to tax avoidance. Tax avoidance, and even aggressive avoidance, is not a crime and falls outside the scope of this measure. The Bill is, after all, about criminal finances. However, it is right that we distinguish between actions that are within the letter if not the spirit of the law, and fraudulent acts dressed up and marketed as tax planning. We must robustly challenge those who mislabel their criminal behaviour as avoidance or planning; and the Act will address such behaviour.
The clause is not intended to criminalise conduct that is not currently against the criminal law. It is not primarily about what is a crime, but rather about who is held to account before the criminal courts. It seeks to ensure that when crimes are committed in the name of a relevant body, that relevant body can be placed in the dock, alongside the taxpayer evading their tax and the professional enabler criminally facilitating that offence.
I stress that reasonable prevention procedures are needed for the defence to be available. “Reasonable” does not mean excessively burdensome, unduly expensive, disproportionate or foolproof; nor does it demand the impossible. It means taking a risk-based and proportionate approach. Under clause 39, the Government will issue guidance to help business to assess its risks and put prevention procedures in place.
As is the case for the individual accountant, it will not matter where the relevant body is based. British businesses have welcomed the global reach of the new offence as it requires businesses providing services to UK taxpayers, regardless of where in the world those businesses are based, to operate to the same high standards as British businesses. I welcome the cross-party support, and support from the NGOs that I have met, that has been expressed for the measure.
Dr Huq
We support the clause, its global reach and the idea of weeding out corporate bad apples, if that is not mixing too many metaphors—weeds and apples at the same time. The Minister is correct; we think the clause could go further. We have tabled amendments to the next clause.
Richard Arkless (Dumfries and Galloway) (SNP)
We support the clause and, like the Opposition spokesperson, we commend its international reach. We look forward to discussions, perhaps this afternoon, on new clause 6, but instinctively, like Opposition Members, we are minded to take the clause further.
As time goes on, we ought to monitor the issue of designing processes that demonstrate that reasonable measures have been taken not to facilitate tax evasion. As a consumer finance lawyer, I have seen large multinational organisations roll out various folders of processes, procedures and protocols, but we were not always convinced that those had been followed to the letter. Some sort of monitoring mechanism would be most helpful.
We ask the Government to take note of the evidence we heard last week that these measures could disproportionately impact smaller organisations; larger organisations may be more suited to gathering this information in order to set out processes and procedures. We should keep an eye on those two things. We look forward to discussions on new clause 6 and support the clause.
Mr Wallace
To clarify, I think that statutory guidance is first published in draft. Given the hon. Gentleman’s experience, I would welcome his input on whether that guidance is appropriate. We did that with the Bribery Act; I remember when that came out. Statutory guidance is an important tool for small businesses, because big businesses have big compliance departments and can do all the work even without the statutory guidance, but for small or medium-sized businesses, the statutory guidance is a good starting point. It is really important both that we get it right, and that we get it written in plain English.
I reiterate the offence created by the clause: if someone in a Crown dependency or overseas territory—I know that hon. Members are interested in those—is advising UK citizens to evade UK tax, it does not matter that they have no nexus here; they are criminally at risk. As regards trying to change the behaviour of overseas territories or tax havens, this offence will allow us to prosecute people anywhere in the world who are encouraging people to evade UK tax. That is a major and significant step. If someone on a Caribbean island calls themselves a tax consultant and encourages British people to evade tax, we will come after them. That is a major change that goes beyond the shores of the United Kingdom. I hope that the action that we have taken to stop that will go some way to alleviating colleagues’ concerns about the behaviour of some tax havens around the world.
Question put and agreed to.
Clause 37, as amended, accordingly ordered to stand part of the Bill.
Clause 38
Failure to prevent facilitation of foreign tax evasion offences
Dr Huq
I beg to move amendment 5, in clause 38, page 96, line 6, after “United Kingdom” insert—
“Crown dependency or British overseas territory”.
This amendment would extend the offence of failure to prevent facilitation of foreign tax evasion offences to companies incorporated in a British Overseas Territory or Crown Dependency.
The Chair
With this it will be convenient to discuss the following:
Amendment 6, in clause 38, page 96, line 7, after “United Kingdom” insert—
“Crown dependency or British overseas territory”.
This amendment would extend the offence of failure to prevent facilitation of foreign tax evasion offences to companies doing business in a British Overseas Territory or Crown Dependency.
Amendment 7, in clause 38, page 96, line 9, after “United Kingdom” insert—
“Crown dependency or British overseas territory”.
This amendment would extend the offence of failure to prevent facilitation of foreign tax evasion offences to conduct conducted in a British Overseas Territory or Crown Dependency.
Dr Huq
These amendments in my name and those of my hon. Friends the Members for Swansea East, and for Bootle, seek to extend the offences of failure to prevent facilitation of foreign tax evasion, and all the other good work described in clause 37, for which the Scottish National party and ourselves praised the Minister, to companies incorporated in a UK overseas territory or Crown dependency. I stress how much we welcome the new offences on failing to prevent tax evasion, and the fact that they can apply anywhere in the world, as the Minister pointed out. However, we wish that they related to all economic crime, rather than just tax evasion, and that they covered companies doing business in overseas territories and Crown dependencies, and offences committed there.
This is quite a chunky Bill that is broad in scope, but this seems to be the gaping hole—the elephant in the room. Almost all those who gave evidence, and all the speeches on Second Reading, including those from respected Members on both sides of the House, such as the right hon. and learned Member for Harborough (Sir Edward Garnier), mentioned that this was a bit of an oversight. There is no mention of the issue at all in the Bill, and that is why we tabled these probing amendments to help the Committee better understand exactly how the new offences relate to the UK’s tax havens, as the Minister termed them; that is how they are perceived all around the world.
I raise the issue because we all know that the UK may well be facilitating tax evasion through its overseas territories. It is worth pointing out that the Foreign and Commonwealth Office appoints a Governor in each of these jurisdictions. The opaqueness and lack of transparency in these places makes it difficult to know the scale of the problem, but we know that developing countries are losing out massively. This legislation rightly seeks to hold directors of companies in the UK accountable for their business’s actions, but why does it not also apply to the UK’s overseas territories? The lack of accountability of directors there is dangerous.
Let us take the example of the British Virgin Islands, the jurisdiction that received the most mentions in the Panama papers, I believe, which is nothing to be proud of. Given its role in the Panama papers, is it not reasonable to talk about having more oversight of this UK-governed territory? It has more than 450,000 companies; nobody quite knows the exact number. That is at least 15 companies for every person—an unusually large number of companies. Every person would need to have 13 board meetings every day to get through all of them in a year.
It sounds like a bold suggestion, but we think that more action is needed. I have five questions for the Minister. When the UK receives information on the beneficial owners of companies registered in the British Virgin Islands, will it use it and look for potential tax evasion? Is there an active duty on the part of the Government? What action will they take if they find any tax evasion? How will owners of British Virgin Islands companies be held to account for their actions? What discussions has the Minister had with leaders of overseas territories and Crown dependencies about these excellent new offences? Are any of them minded to consider introducing something similar on a voluntary basis? We do not want to look like neo-imperialists, going into countries and making them do stuff, so what are they doing of their own volition? If offences are committed in UK-governed overseas territories, under what circumstances would prosecutions be possible under this new legislation?
The last question is the most important one, and the one that would help me to understand this: does the Minister concede that, as clause 40(1) refers to clause 38(2), his Bill effectively allows places such as the British Virgin Islands and the Cayman Islands to facilitate tax evasion on an industrial scale, provided that the companies have no business dealings in the UK? There has to be that link first; they have to have an office, or be somehow incorporated, in the UK. Sham businesses go to those territories only because they are implicitly backed by UK law. Historically, overseas territories and Crown dependencies have been able to market the attractiveness of their financial services by highlighting the fact that the UK rule of law underpins their systems; thus the situation is perpetuated. The fact that people can stash their dirty cash there is part of the unique selling point of these places. I am curious about how the provisions would apply to overseas territories and Crown dependencies if that UK link was not there.
Richard Arkless
We are interested in hearing what the Minister has to say on the clause before we make any submissions. We take the point about the link to a UK company, but we are also concerned about this House’s authority to legislate—or be seen to be legislating—over Crown dependencies.
Mr Wallace
I understand the importance that Members attach to the amendments, and what they are trying to do. They allow us to begin the debate on the response of the British overseas territories and Crown dependencies to tax evasion, and fraud and corruption more broadly. I am sure that that debate will continue as we consider other amendments later today.
The Opposition’s amendments 5, 6 and 7 are designed to give the foreign tax evasion offence a broad scope, and to ensure that corporate complicity in tax evasion is tackled effectively. On that objective, I share the intentions of the hon. Member for Ealing Central and Acton. Before addressing the amendments specifically, I want to clarify that the foreign tax evasion offence in clause 38 would, as drafted, apply to a relevant body that is incorporated under the law of the UK, or carrying out part of a business activity from the UK, and where a person acting in the capacity of an associated person of the relevant body criminally facilitates tax evasion from within the UK, regardless of where the relevant body is based. The offence would, therefore, require there to be some nexus with the UK for our authorities to exercise jurisdiction; that would include a bank that is based or doing business in the overseas territories and Crown dependencies also doing business in the UK.
However, the hon. Lady’s amendments would criminalise, under the UK law, a situation where there is no link to the UK. For example, if a Norwegian were to set up a business in a tax haven, and that business were to advise an American citizen on how to evade tax, and it had nothing to do with the UK at all—we had no loss of revenue and no business with either the Norwegian or the American—the hon. Lady would be asking us to criminalise that person, and effectively to become the world’s policeman on that issue. We would have no nexus whatsoever to go after that individual; neither they nor the company helping them to evade tax would be British. We would perhaps have some ability, in some instances, to help our neighbour’s tax authorities, as we share data under agreements reached over the last year or so. For example, if we find out that someone is helping the French to evade tax, our law enforcement agencies do share information.
The amendment seeks to force Crown dependencies and overseas territories to change their law. It seeks to use neo-imperialism, to use the hon. Lady’s term, to force our will on territories with those statuses. That is a major step to take. As I said earlier, we have come a long way—90% of the way—with the establishment next year of automatic sharing of data via beneficial registers of ownership. Yes, that is not public, and I know that we will come on to that later in the Bill, but we have come a considerable way, and we should remember that.
We should also remember that because of the City of London, there will not be many financial organisations that do not have a nexus in this country. I am not going to finger a particular country, but the bank of a fictitious country with tax haven status would not be much of a bank if it did not have an operation in the UK. If that bank was encouraging people to evade tax, even if they were not British citizens or were not evading UK tax, we could deal with it, because it would have a branch here. If those concerned were convicted, they would most likely lose their banking licence. A bank that cannot trade in one of the major financial institutions of the United Kingdom is effectively a dud. In a sense, we could take quite considerable action. The fundamental difference is that we think there has to be a link. The alternative is to impose our will directly on these Crown dependencies and overseas territories.
I would like to correct the hon. Lady on two things. They are not “our” territories; we do not own them. The Crown dependencies have never been ours. They have never been part of the British Empire—well, they have never been part of our colonies. We do not even own the overseas territories. We have a governing oversight, but they have Parliaments and elections of their own, and they make their own decisions.
I think the direction of travel—my officials have been directly in touch with the Crown dependencies and the overseas territories—has been right. We are going some considerable way from where we were three or four years ago. Those places have smelt the coffee, and the world is moving forward.
Richard Arkless
We agree with that summary from the Government. The Minister describing the amendment as “neo-imperialism” put the seal on my view of it. The Scottish National party is reluctant to legislate on areas where there is no locus and no nexus and we fully accept that that is the position of the Crown dependencies. We accept the Minister is keen to see that direction of travel continue. In that vein, we have held meetings with representatives of the Crown dependencies over the last few weeks and have been assured that their co-operation in providing information for the register of beneficial ownership is groundbreaking. It will be co-operative and give the authorities in the UK the armoury they need to tackle financial criminality.
I agree it is very likely, if not probable, that organisations facilitating tax evasion, whether in the Crown dependencies or overseas territories, will have a link to the UK and are more likely, more often than not, to have their head office in the UK. We may need to address that again once we leave the European Union, but we can discuss it.
Dr Huq
I listened carefully to what the Minister said and was slightly disappointed. I said precisely that I do not want to be neo-imperialist. I do not want to rush into these countries, which is why I asked what was happening already and whether there is any way those people can do things on their own. I did not say that we own those places; I simply said that the UK rule of law underpins their systems.
The Prime Minister said on the steps of Downing Street that she wants an economy that works for everyone. This looks like an anomaly from all the evidence we have had from all those groups, and from all the speeches on the Floor of the House on Second Reading. However, we are not going to push the measure to a vote. It was a probing amendment. I wanted to hear more about the anomaly where there is a direct UK connection. I do not think it is sufficient to turn a blind eye while this goes on.
The Minister mentioned what has happened in some of these places and I have information that will be more relevant when we consider new clause 21. Therefore, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 51, in clause 38, page 96, line 37, after “England” insert “and Wales”.—(Mr Wallace.)
This amendment corrects an omission in clause 38(7)(b).
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 7— Corporate probation order—
‘(1) A court before which a relevant body (B) is convicted of an offence under section 37 or 38 of this Bill may make a corporate probation order in relation to B.
(2) A corporate probation order—
(a) shall require B to implement a compliance procedure or make changes to an existing compliance procedure to prevent persons acting in the capacity of a person associated with B for committing UK tax evasion facilitation offences or foreign tax evasion facilitation offences;
(b) may require B to appoint an external body to verify that compliance programme, costs of which shall be met by B.
(3) A corporate probation order may be made only on an application by the prosecution specifying the terms of the proposed order. Any such order must be on such terms (whether those proposed or others) as the court considers appropriate having regard to any representations made, and any evidence adduced, in relation to that matter by the prosecution and on behalf of B.
(4) Before making an application for a probation order the prosecution must consult such enforcement authority or authorities as it considers appropriate having regard to the nature of the relevant offending.
(5) An organisation that fails to comply with a corporate probation order is guilty of an offence, and is liable—
(a) on conviction on indictment, to a fine,
(b) on summary conviction in England and Wales, to a fine,
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(6) For the purposes of this clause “relevant body” has the same meaning as in section 36.’
This new clause would allow courts to require bodies found guilty of a UK or foreign tax evasion facilitation offence to make steps to improve their internal procedures to minimize the chance of persons working for that company committing the same offence in the future.
New clause 8—Facilitation of tax evasion offences: disqualification of directors—
‘(1) Where a body (B) has been convicted of an offence under sections 37 and 38 of this Act the Secretary of State must arrange for the relevant enforcement authorities to investigate the conduct of the directors of B.
(2) The purpose of the investigation under this subsection is to determine whether the directors of B were grossly negligent by failing to ensure that B had in place reasonable prevention procedures.
(3) In section 8 of the Company Directors Disqualification Act 1986, after sub-paragraph (ii) insert—
(iii) an investigation under section [Facilitation of tax evasion offences: disqualification of directors] of the Criminal Finance Act”
(4) For the purposes of this section—
“enforcement authorities” means one or more the bodies listed in subsection 362A(7) of the Proceeds of Crime Act 2002.
“prevention procedures” has the same meaning as in subsection 37(3) where B was convicted of an offence under section 37, or as in subsection 38(4) where B was convicted of an offence under section 38.’
This new clause would require the Secretary of State to investigate the directors of a company found guilty of a UK or foreign tax evasion offence to see whether the directors should be subject to a disqualification order for the failure to have proper procedures in place to prevent agents of that company facilitating tax evasion.
Mr Wallace
Perhaps I may clarify for the hon. Member for Ealing Central and Acton that I said she used the word “neo-imperialism”—I never implied that she wanted to be neo-imperialist, but some people could describe it as that if we were to impose our will on Parliaments in some of our overseas territories.
Clause 38 creates a new offence that will be committed by relevant bodies that fail to prevent persons associated with them from criminally facilitating evasion of taxes owed to a country other than the United Kingdom. We have seen that criminals seeking to provide services to further their clients’ tax evasion will try to operate between the gaps between the legal systems of different countries. The measure will ensure that the UK is not a safe harbour for professional facilitators or the businesses for which they work. The new overseas tax evasion offence can be committed by relevant bodies that are formed or incorporated in the UK, or which are carrying out a business activity in the UK, or where the criminal act of facilitation occurs within the UK.
There is a necessarily broad scope for the new offence. It holds corporations that carry out a business in the UK, or the representatives of which are acting in the UK, to operate to the same high standards as UK businesses. The message is clear. Tax evasion is a crime. It is wrong. It is no less wrong where the revenue loss is suffered by another country. If a body is part of UK plc, or sends people to the UK, it is not okay to allow people to criminally facilitate the evasion of taxes, wherever they are owed.
The offence requires a dual criminality. Essentially, that means that, for a relevant body to be liable, the criminal law of the country suffering the tax loss must recognise tax evasion and the facilitating of tax evasion as criminal offences in their jurisdiction, and the laws must be broadly equivalent to those in the UK.
The offence does not require relevant bodies to have a thorough understanding of the tax laws in each jurisdiction, but rather to ask itself the question, “If we were providing these services to a UK taxpayer client, would this be legal?” If the answer is yes, there is no question of criminal liability under the new overseas fraud offence.
The offence is not about the UK policing the world’s tax affairs. We envisage that a prosecution for the overseas tax evasion offence will take place only where there would otherwise be a failure of justice—for example, where the country suffering the tax loss was unwilling or unable to take action because of an inability to handle a complex international fraud trial, or was unable to investigate and prosecute because of corruption concerns. I will leave my explanation of the clause there and allow the hon. Member for Ealing Central and Acton to speak to her new clauses before I respond.
Peter Dowd (Bootle) (Lab)
It is a pleasure to serve under your stewardship, Mrs Main. The Minister referred to this as the Criminal Finances Bill and the clue is in the name. People who commit an offence and go to prison come out and go on probation. New clause 7 would create a similar thing—a sort of corporate probation order that would allow courts to require bodies found guilty of a UK or foreign tax evasion facilitation offence to take steps to improve their internal procedures and minimize the chance of a person working for that company committing the same offence in future. That would be an important step in encouraging large organisations to take responsibility for those they hire and the actions they undertake, and more importantly in ensuring that financial crime and misconduct is not repeated by others in the organisation.
Before making an application for a probation order, the prosecution would have to consult enforcement agencies. Once a corporate probation order had been issued, any organisation that failed to comply with it would be subject to a fine. Currently, the only remedies a court may impose upon a company convicted of an offence is a fine, disgorgement of profit and compensation. Corporate probation orders would be an additional tool that prosecutors could seek. Courts could impose conditions requiring companies to undertake remedial action to their management and compliance procedures to ensure that the offending is not repeated.
Under the Corporate Manslaughter and Corporate Homicide Act 2007, courts can impose remedial orders on companies to require them to remedy any management failure that led to an offence occurring. This provides a workable pre-existing model for such orders. Under the Crime and Courts Act 2013, if a company is offered a deferred prosecution agreement, or DPA, a prosecutor can require a company to implement a compliance programme or make changes to an existing compliance programme. There is no equivalent power in relation to convictions. DPAs are reserved for companies that self-report their misdemeanours and co-operate with enforcement authorities.
Although prosecutors could, theoretically at least, use financial reporting orders to require a company to provide financial information, under the Serious Organised Crime and Police Act 2005, it is not clear that that would include information on compliance procedures. Additionally, such orders are heavy-handed, require separate court proceedings and require a prosecutor to prove that the risk of reoffending is sufficiently high.
The effect of that discrepancy is a ridiculous imbalance: companies that self-report and co-operate may be subject to greater monitoring of their compliance programme than companies that do not and are convicted. The result is that the companies that most need monitoring of their compliance procedures—those whose procedures did not pick up the wrongdoing in the first place—get none, which is a huge deterrent to self-reporting, and puts a greater burden on enforcement agencies.
The Opposition believe that corporate probation orders are required to remedy that clear anachronism. Companies and defence lawyers have noted the more stringent compliance programme monitoring requirements under DPAs as one factor, among others, that puts companies off self-reporting wrongdoing to the Serious Fraud Office. The discrepancy between what happens under DPAs and what happens on conviction is creating a disincentive for companies to self-report.
At the end of the day, we need to encourage self-reporting in a framework in which companies feel that they are able to work with enforcement agencies to deal with rogue elements or individuals. The alternative would see the continuation of a culture of secrecy in which those at the top deliberately turn a blind eye to what those at the bottom do, and in which financial misconduct is not limited to an individual, but instilled and passed on to others in an organisation.
Richard Arkless
The Scottish National party is broadly in support of the new clauses. In particular, a corporate probation order would give an opportunity for an offending company to have its processes meticulously examined to ensure that they are fit for purpose going forward. We support new clause 8 on the potential disqualification of directors, which goes beyond the relevant body offences in the Bill. As a matter of principle, we think it will concentrate minds and ensure the protocols are fit for purpose if the directors at the top of the organisation feel the liability could be at their heels, as it were. I am interested to hear what the Minister has to say.
Several hon. Members rose—
The Chair
Order. I gather that Mr Dowd wants a second bite at the cherry on new clause 8.
Peter Dowd
I apologise, Mrs Main. I was going to deal with new clause 8 and was pre-empted, I am afraid. New clause 8 relates to the facilitation of tax evasion offences and the disqualification of directors.
It will be pretty apparent to hon. Members that a central theme to proceedings so far, as promulgated by virtually everybody, is the notion of transparency in the actions of those in positions of stewardship, such as directors of companies. Opaqueness has its advantages, I have no doubt, but when it leads to illegality there must be action to deal with it. Given that, the new clause would require the Secretary of State
“to investigate the directors of a company found guilty of a UK or foreign tax evasion offence to establish whether the directors should be subject to a disqualification order for the failure to have proper procedures in place to prevent agents of that company facilitating tax evasion.”
Under the new offences covering the facilitation of tax evasion, a company could be criminally held to account if an employee commits such an offence. That is a huge step forward. However, there is a danger that senior executives, who are ultimately responsible for ensuring the company has in place the procedures to prevent its involvement in the facilitation of tax evasion, will escape any individual accountability under such an offence. The purpose of new clause 8 is to ensure that, where a company is convicted, the director of that company should be investigated with a view to disqualification, as happens currently when a company is held to have breached competition law, for example.
A perfectly legitimate question is whether new clause 8 is taking a hammer to crack a nut. That has been alluded to in past debates. I contend that it is not, because tax evasion has huge implications for the public purse, not just in lost revenue but in relation to public confidence in the tax system.
Mr Wallace
I am grateful to the hon. Member for Bootle and pleased to say that the Government are supportive of what he is trying to achieve—that the new offences should be as effective as possible at changing corporate behaviour, and that law enforcement should have the tools it needs to police the new laws effectively. However, I hope to reassure him and his hon. Friends that those matters are already provided for.
As the hon. Gentleman said, new clause 7 would introduce a system of corporate probation orders, which would allow a court to require relevant bodies found guilty of the new corporate offences to make changes to their prevention procedures. Hon. Members should be aware that clause 43(2) adds those offences to the list of offences for which a serious crime prevention order can be imposed under the Serious Crime Act 2007. Serious crime prevention orders allow for a court passing sentence on a person or corporate body to impose prohibitions, restrictions or requirements to prevent, restrict or disrupt involvement in serious crime. Those orders are already available and can successfully disrupt tax fraud. Where such an order is made against a relevant body, its terms may require the body to allow a law enforcement agency to monitor how it provides services in the future.
Additionally, where the corporation in question is in the regulated sector, the regulator may, quite independently of a serious crime prevention order, undertake monitoring of the relevant body, relevant to failings in its systems and controls. For example, the Financial Conduct Authority could take steps to disqualify directors or put extra conditions on to the companies. It is the Government’s view that the hon. Gentleman’s objective can be achieved by applying the existing power to impose serious crime prevention orders on conviction of the new offences, or within the terms of the deferred prosecution agreement. Those orders can do anything that corporation probation would do.
New clause 8 would create a duty on the Secretary of State to investigate the directors of a company found guilty of a UK or foreign tax evasion offence, to see whether they should be disqualified. The existing law already allows the Secretary of State to apply to a court to have a director disqualified where he or she believes that that is in the public interest. A court can grant such an order when it is satisfied that the director’s conduct makes him unfit to be concerned in the management of the company. There is no evidence of which we are aware that the power is not being used in the appropriate cases. When not used, it is not used for appropriate reasons. When company directors are charged with offences, the sentencing court can consider disqualification.
Where the new offence is charged and the relevant body is not tried alongside a director, prosecutors will still be able to refer cases to the Secretary of State so that an application for disqualification can be considered. Indeed, there may be cases when sentencing judges recommend that this is done in their sentencing remarks. In short, rather than creating new law, we again consider it proper for the new offences to sit alongside, and work within, the existing legislative framework for disqualifying directors. If regulators have evidence that a director is unfit to be concerned in the management of the company, they can refer the case to the Secretary of State to make an application to have that director disqualified.
I hope that the hon. Members for Ealing Central and for Bootle, and others, agree that these points are therefore already accounted for, that they do not feel the need to move their new clauses, and that clause 38 can stand part of the Bill.
Question put and agreed to.
Clause 38, as amended, accordingly ordered to stand part of the Bill.
Clause 39
Guidance about preventing facilitation of tax evasion offences
Question proposed, That the clause stand part of the Bill.
Clause 39 requires the Government to produce guidance on reasonable prevention procedures, and empowers the Government to agree supplementary guidance produced by others, such as industry and trade bodies. The aim of the guidance is to help organisations to understand and avoid committing the new offences by undertaking a risk assessment and establishing reasonable prevention procedures to address their risks. The guidance is vital to the success of the offences and will mean higher levels of compliance with the new legislation, creating the desired culture change, and ultimately leading to a reduction in the criminal facilitation of tax evasion. In parallel, it will help to avoid an unnecessarily defensive approach to compliance, whereby excessive prevention procedures are adopted that constitute an undue regulatory burden.
Whether any relevant body can avail itself of the reasonable procedures defence will always be a matter for the criminal courts. The guidance will be only an illustrative set of principles, not a list of absolute requirements. Departure from the guidance will not mean that the defence is unavailable and that the relevant body is guilty. There may well be many different approaches—all equally reasonable—to preventing tax evasion facilitation offences by those who act in the relevant body’s name. Equally, following the guidance does not lead the relevant body to safe harbour rendering it immune from prosecution. Even full compliance with the guidance might not amount to having reasonable prevention procedures if the prevention procedures ignore a particular risk that the relevant body’s particular business carries.
Her Majesty’s Revenue and Customs consulted with industry extensively on what support was needed to ensure compliance with the new offences. The overwhelming feedback revealed a desire for guidance akin to that already produced for the similar offence of corporate failure to prevent bribery in the Bribery Act 2010. The last draft guidance was published at the same time as the introduction of the Bill and has received positive feedback. HMRC continues to work with a number of leading financial service trade bodies on developing detailed supplementary guidance for the sector. I hope the clause stands part of the Bill.
Dr Huq
We all need guidance in life. The measures sound eminently sensible and the Minister described them cogently. We support the clause.
Question put and agree to.
Clause 39 accordingly ordered to stand part of the Bill.
Clause 40
Offences: extra-territorial application and jurisdiction
Question proposed, That the clause stand part of the Bill.
Mr Wallace
Clause 40 provides for the extraterritorial application of the corporate failure to prevent offences. The UK’s criminal courts will have jurisdiction to try the domestic tax offence in clause 37, regardless of where the conduct took place. The UK courts claim jurisdiction as a result of the UK suffering the tax loss. With respect to the foreign tax offence, our courts again claim jurisdiction on the basis that the relevant body has a nexus with the UK, such that it can be regarded as part of UK plc and thus is required to abide by the criminal law of this country. We have seen, and our partners in other jurisdictions have confirmed that they have also seen, that those deliberately facilitating tax evasion will typically offshore illicit services to try to avoid detection and to hide in the gaps between domestic legal systems.
Those facilitating offshore tax evasion often do not provide those services from within the geographic borders of the country whose tax loss they are facilitating. It is therefore vital that both the domestic and the overseas tax evasion facilitation offences capture activity that takes place outside the United Kingdom. Failure to apply the laws in such a way would lead to loopholes that could be easily exploited. By its very nature, the foreign tax evasion offence is likely to raise a complicated range of competing interests and issues, including those relating to international relations and diplomatic affairs.
Clause 41 puts appropriate safeguards in place by requiring that a decision to prosecute the offence is taken only by, or with the authority of, the director of these prosecuting bodies: the Director of Public Prosecutions, the director of the Serious Fraud Office or the Director of Public Prosecutions for Northern Ireland. A similar protection is in place for prosecutions for the corporate failure to prevent bribery under section 7 of the Bribery Act. I hope the clauses stand part of the Bill.
Dr Huq
Her Majesty’s loyal Opposition support clause 40.
Question put and agreed to.
Clause 40 accordingly ordered to stand part of the Bill.
Clause 41 ordered to stand part of the Bill.
Clause 42
Offences by partnerships: supplementary
Question proposed, That the clause stand part of the Bill.
Mr Wallace
Clause 42 makes provision for rules of criminal procedure in relation to the prosecution of companies to apply to prosecutions of partnerships for the new offences in part 3. It mirrors section 15 of the Bribery Act 2010 and provides that proceedings for an offence under clauses 37 or 38 are to be brought in the name of the partnership and not that of an individual partner; and that any resulting fine is paid out of the assets of the partnership. The clause also applies existing rules of criminal procedure applicable where bodies corporate are prosecuted. They cover various matters including the transfer of cases from the magistrates court to the Crown court, the representation of the relevant body in court, the entering of pleas and the taking of action in the relevant body’s absence.
As I mentioned in debating an earlier group, clause 43 amends a number of pieces of existing legislation, adding the new offences created by part 3 to the lists of offences for which various powers are available, which will assist the effective investigation and prosecution of the offences. That includes allowing the CPS to require suspected persons to answer questions or provide information in relation to those offences; allowing for serious crime prevention orders to be imposed on relevant bodies; and providing for deferred prosecution agreements.
Clause 44 is simply an interpretation clause, defining terms within part 3. I hope the clauses stand part of the Bill.
Dr Huq
We support the clauses.
Question put and agreed to.
Clause 42 accordingly ordered to stand part of the Bill.
Clauses 43 and 44 ordered to stand part of the Bill.
New Clause 9
Immigration officers
‘(1) Section 24 of the UK Borders Act 2007 (seizure of cash) is amended as follows.
(2) For the heading substitute “Exercise of civil recovery powers by immigration officers”.
(3) For subsection (1) substitute—
(1) Chapters 3 to 3B of Part 5 of the Proceeds of Crime Act 2002 (civil recovery) apply in relation to an immigration officer as they apply in relation to a constable.”
(4) In subsection (2)(a), for “section 289” substitute “sections 289 and 303C and Chapter 3B”.
(5) In subsection (2)(c), for “and 297A” substitute “, 297A and 303E and in Chapter 3B (see section 303Z2(7))”.
(6) In subsection (2)(d), for “section 292” substitute “sections 292 and 303G”.
(7) In subsection (2)(e), for “and 293A” substitute “, 293A, 303H and 303I”.
(8) In subsection (2)(f), in the words before sub-paragraph (i), after “295(2)” insert “or 303L(1)”.
(9) In subsection (2)(f)(ii), after “298” insert “or (as the case may be) 303O”.
(10) In subsection (2)(g), after “298” insert “, 303O or 303Z14”.
(11) In subsection (2)(h), after “302” insert “, 303W or 303Z18”.” .—(Mr Wallace.)
Immigration officers exercise the civil recovery powers conferred by Chapter 3 of Part 5 of the Proceeds of Crime Act 2002 by virtue of section 24 of the UK Borders Act 2007. These amendments of section 24 provide for immigration officers to be able to exercise the civil recovery powers conferred by new Chapters 3A and 3B of Part 5 of the Proceeds of Crime Act 2002 (see clauses 12 and 13 of the Bill) in the same way.
Brought up, read the First and Second time, and added to the Bill.
New Clause 10
Forfeiture of cash
‘(1) In section 289(6) of the Proceeds of Crime Act 2002 (meaning of cash for purposes of Chapter 3 of Part 5 of that Act), after paragraph (e) insert—
“(f) gaming vouchers,
(g) fixed-value casino tokens,”.
(2) After section 289(7) of that Act insert—
“(7A) For the purposes of subsection (6)—
(a) “gaming voucher” means a voucher in physical form issued by a gaming machine within the meaning of the Gambling Act 2005 (see section 235 of that Act) that represents a right to be paid the amount stated on it;
(b) “fixed-value casino token” means a casino token that represents a right to be paid the amount stated on it.”
(3) In Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 (forfeiture of terrorist cash), in paragraph 1 (meaning of terrorist cash)—
(a) after sub-paragraph (2)(e) insert—
(f) gaming vouchers,
(b) fixed-value casino tokens,”;
(b) after sub-paragraph (4) insert—
“(5) For the purposes of sub-paragraph (2)—
(a) “gaming voucher” means a voucher in physical form issued by a gaming machine within the meaning of the Gambling Act 2005 (see section 235 of that Act) that represents a right to be paid the amount stated on it;
(b) “fixed-value casino token” means a casino token that represents a right to be paid the amount stated on it.””—(Mr Wallace.)
This new clause provides for casino tokens and what are commonly referred to as “ticket in ticket out vouchers” to be treated as cash for the purposes of the civil recovery powers conferred by Chapter 3 of Part 5 of the Proceeds of Crime Act 2002 and by Schedule 1 to the Anti-terrorism, Crime and Security Act 2001.
Brought up, read the First and Second time, and added to the Bill.
New Clause 18
Forfeiture of terrorist cash
‘(1) Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 (forfeiture of terrorist cash) is amended as follows.
(2) In paragraph 3 (detention of seized cash)—
(a) in sub-paragraph (2)(a), for “three” substitute “6”;
(b) after sub-paragraph (8) insert—
“(9) Where an application for an order under sub-paragraph (2) relates to cash seized under paragraph 2(2), the court, sheriff or justice may make the order if satisfied that—
(a) the condition in sub-paragraph (6), (7) or (8) is met in respect of part of the cash, and
(b) it is not reasonably practicable to detain only that part.”
(3) After paragraph 5 insert—
Part 2A
Forfeiture of terrorist cash without court order
Cash forfeiture notice
5A (1) This paragraph applies while any cash is detained in pursuance of an order under paragraph 3(2).
(2) A senior officer may give a notice for the purpose of forfeiting the cash or any part of it if satisfied that the cash or part is terrorist cash.
(3) A notice given under sub-paragraph (2) is referred to in this Schedule as a cash forfeiture notice.
(4) A cash forfeiture notice must—
(a) state the amount of cash in respect of which it is given,
(b) state when and where the cash was seized,
(c) confirm that the senior officer is satisfied as mentioned in sub-paragraph (2),
(d) specify a period for objecting to the proposed forfeiture and an address to which any objections must be sent, and
(e) explain that the cash will be forfeited unless an objection is received at that address within the period for objecting.
(5) The period for objecting must be at least 30 days starting with the day after the notice is given.
(6) The Secretary of State must by regulations made by statutory instrument make provision about how a cash forfeiture notice is to be given.
(7) The regulations may (amongst other things) provide—
(a) for a cash forfeiture notice to be given to such person or persons, and in such manner, as may be prescribed;
(b) for a cash forfeiture notice to be given by publication in such manner as may be prescribed;
(c) for circumstances in which, and the time at which, a cash forfeiture notice is to be treated as having been given.
(8) The regulations must ensure that where a cash forfeiture notice is given it is, if possible, given to every person to whom notice of an order under paragraph 3(2) in respect of the cash has been given.
(9) A statutory instrument containing regulations under this paragraph is subject to annulment in pursuance of a resolution of either House of Parliament.
(10) In this Part of this Schedule—
“senior officer” means—
(a) a senior police officer;
(b) an officer of Revenue and Customs of a rank designated by the Commissioners for Her Majesty’s Revenue and Customs as equivalent to that of a senior police officer;
(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;
“senior police officer” means a police officer of at least the rank of superintendent.
Effect of cash forfeiture notice
5B (1) This paragraph applies if a cash forfeiture notice is given in respect of any cash.
(2) The cash is to be detained until—
(a) the cash is forfeited under this paragraph,
(b) the notice lapses under this paragraph, or
(c) the cash is released under a power conferred by this Schedule.
(3) If no objection is made within the period for objecting specified in the notice under paragraph 5A(4)(d), and the notice has not lapsed, the cash is forfeited (subject to paragraph 5D).
(4) If an objection is made within the period for objecting, the notice lapses.
(5) If an application is made for the forfeiture of the whole or any part of the cash under paragraph 6, the notice lapses.
(6) If the cash or any part of it is released under a power conferred by this Schedule, the notice lapses or (as the case may be) lapses in relation to that part.
(7) An objection may be made by anyone (whether a recipient of the notice or not).
(8) An objection means a written objection sent to the address specified in the notice; and an objection is made when it is received at the address.
(9) An objection does not prevent forfeiture of the cash under paragraph 6.
(10) Nothing in this paragraph affects the validity of an order under paragraph 3(2).
Detention following lapse of cash forfeiture notice
5C (1) This paragraph applies if—
(a) a cash forfeiture notice is given in respect of any cash,
(b) the notice lapses under paragraph 5B(4), and
(c) the period for which detention of the cash was authorised under paragraph 3(2) has expired.
(2) The cash may be detained for a further period of up to 48 hours (calculated in accordance with paragraph 3(1A)).
(3) But if within that period it is decided that neither of the applications mentioned in sub-paragraph (4) is to be made, the cash must be released.
(4) The applications are—
(a) an application for a further order under paragraph 3(2);
(b) an application for forfeiture of the cash under paragraph 6.
(5) If within that period an application is made for a further order under paragraph 3(2), the cash may be detained until the application is determined or otherwise disposed of.
Application to set aside forfeiture
5D (1) A person aggrieved by the forfeiture of cash in pursuance of paragraph 5B(3) may apply to a magistrates’ court or (in Scotland) the sheriff for an order setting aside the forfeiture of the cash or any part of it.
(2) The application must be made before the end of the period of 30 days starting with the day on which the period for objecting ended (“the 30-day period”).
(3) But the court or sheriff may give permission for an application to be made after the 30-day period has ended if the court or sheriff thinks that there are exceptional circumstances to explain why the applicant—
(a) failed to object to the forfeiture within the period for objecting, and
(b) failed to make an application within the 30-day period.
(4) On an application under this paragraph the court or sheriff must consider whether the cash to which the application relates could be forfeited under paragraph 6 (ignoring the forfeiture mentioned in sub-paragraph (1)).
(5) If the court or sheriff is satisfied that the cash to which the application relates or any part of it could not be forfeited under that paragraph the court or sheriff must set aside the forfeiture of that cash or part.
(6) Where the court or sheriff sets aside the forfeiture of any cash—
(a) the court or sheriff must order the release of that cash, and
(b) the cash is to be treated as never having been forfeited.
Release of cash subject to cash forfeiture notice
5E (1) This paragraph applies while any cash is detained under paragraph 5B or 5C.
(2) The person from whom the cash was seized may apply to a magistrates’ court or (in Scotland) the sheriff for the cash to be released.
(3) On an application under sub-paragraph (2), the court or sheriff may direct the release of the cash or any part of it if not satisfied that the cash to be released is terrorist cash.
(4) An authorised officer may release the cash or any part of it if satisfied that the detention of the cash to be released is no longer justified.
Application of cash forfeited under cash forfeiture notice
5F (1) Cash forfeited in pursuance of paragraph 5B(3), and any accrued interest on it—
(a) if first detained in pursuance of an order under paragraph 3(2) made by a magistrates’ court or a justice of the peace, is to be paid into the Consolidated Fund;
(b) if first detained in pursuance of an order under paragraph 3(2) made by the sheriff, is to be paid into the Scottish Consolidated Fund.
(2) But it is not to be paid in—
(a) before the end of the period within which an application under paragraph 5D may be made (ignoring the possibility of an application by virtue of paragraph 5D(3)), or
(b) if an application is made within that period, before the application is determined or otherwise disposed of.”
(4) In paragraph 7(4) (release of cash on appeal against decision in forfeiture proceedings), after “of” insert “the whole or any part of”.
(5) In paragraph 9 (victims), after sub-paragraph (3) insert—
“(4) If sub-paragraph (5) applies, the court or sheriff may order the cash to be released to the applicant or to the person from whom it was seized.
(5) This sub-paragraph applies where—
(a) the applicant is not the person from whom the cash claimed was seized,
(b) it appears to the court or sheriff that the cash belongs to the applicant,
(c) the court or sheriff is satisfied that the release condition is met in relation to the cash, and
(d) no objection to the making of an order under sub-paragraph (4) has been made by the person from whom the cash was seized.
(6) The release condition is met—
(a) in relation to cash detained under paragraph 3, if the conditions in that paragraph for the detention of the cash are no longer met,
(b) in relation to cash detained under paragraph 5B or 5C, if the cash is not terrorist cash, and
(c) in relation to cash detained pending the conclusion of proceedings in pursuance of an application under paragraph 6, if the court or sheriff decides not to make an order under that paragraph in relation to the cash.”
(6) In paragraph 19 (general interpretation), in sub-paragraph (1), at the appropriate places insert—
““cash forfeiture notice” has the meaning given by paragraph 5A(3),”;
““senior officer” (in Part 2A) has the meaning given by paragraph 5A(10),”.”—(Mr Wallace.)
This new clause makes various amendments of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 to bring it into line with the provision made by Chapter 3 of Part 5 of the Proceeds of Crime Act 2002, including amendments to provide for the forfeiture of “terrorist cash” by the giving of a forfeiture notice. This administrative forfeiture regime will apply throughout the UK; the equivalent regime under the 2002 Act is limited in its application to England and Wales and Northern Ireland.
Brought up, read the First and Second time, and added to the Bill.
New Clause 1
Review of Scottish Limited Partnership
“(1) The Secretary of State must undertake a review into the extent of financial criminal activity associated with Scottish Limited Partnerships, and lay a copy of the review before the House of Commons within six months of this Act receiving Royal Assent.
(2) In conducting the review the Secretary of State must consult—
(a) the Scottish Government;
(b) the National Crime Agency;
(c) the Serious Fraud Office;
(d) the Financial Conduct Authority;
(e) HMRC;
(f) interested third sector organisations; and
(g) any other persons he deems relevant.
(3) The review must set out what steps the Government intends to take to prevent Scottish Limited Partnerships being used for criminal purposes.”—(Roger Mullin.)
This new clause would require the Secretary of State to conduct a review of financial criminality associated with Scottish Limited Partnerships and set out what steps the Government intends to take to prevent Scottish Limited Partnerships being used for criminal purposes.
Brought up, and read the First time.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
I beg to move, That the clause be read a Second time.
It is a great pleasure to serve under your chairmanship, Mrs Main. Before I go into the substance of the new clause, I place on the record our thanks to the Minister for his willingness to discuss the issue with us both before and after Second Reading. Although I am a relatively new Member of Parliament, this is the fifth Bill Committee on which I have served in just over a year, and this is the most listening Minister I have come across. I would like to acknowledge that.
Roger Mullin
Yes, this is the gentle dagger.
I rehearsed on Second Reading many of the specific instances of abuse using Scottish limited partnerships. I do not intend at this moment to repeat all that, but for the Minister’s benefit, I would like to add to what has already been said.
First, we have had further discussions with the Law Society of Scotland and others. They indicate a willingness to assist us in moving forward to address what the solutions may be to Scottish limited partnerships. I have also had discussions with an individual who was named in evidence to us, Mr Richard Smith, who has undertaken a lot of research into this matter. He, too, has indicated a willingness to assist.
Why do we consider that a review is needed? A lot of research has been undertaken, including by Mr David Leask, who gave evidence to the Committee just last week. However, in our view, before the Government move towards precisely how they will take action to secure SLPs from abuse in the future, it would do us a lot of good if we conducted a detailed review, sponsored by the Government, to ensure that all forms of abuse are properly understood. It would be good to do that before we move towards saying what the precise solutions will be. Therefore, it would be valuable if the Minister, when he comments on the new clause, indicates whether he thinks there is still scope for the Government to consider a detailed review such as that which we have discussed.
I shall conclude now and allow the Minister to respond. Our hope is that the response will be such that there will be no need for us to push the new clause to a vote.
Mr Wallace
I thank the hon. Gentleman for his kind words. As the son of a Fifer, I know that one always does well to listen to a Fifer—or one faces the consequences.
I am also grateful to the Scottish National party and The Herald newspaper for raising this issue. It is a genuine issue of abuse, as they have rightly pointed out. We have taken important steps to prevent the misuse of corporations for money laundering, corruption and tax evasion. The UK’s public register of company beneficial ownership went live this year—we were the first G20 country to put such a register in place. At the London anti-corruption summit, we committed to going further and creating a register of the beneficial ownership of foreign companies that own real property or wish to be involved in public sector procurement contracts in the UK.
However, we must not be complacent. Hon. Members have rightly raised the issue of Scottish limited partnerships a number of times. I hope they are assured that I take it very seriously. The stories in The Herald and the intelligence assessments that I have received from our law enforcement agencies are very concerning.
As I committed to do on Second Reading, I have spoken on this subject to the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stourbridge (Margot James), who is responsible for small business, consumers and corporate responsibility, and she shares my concerns about the abuse of SLPs. We agreed that we need to get the balance right between ensuring that the UK remains a good place to do business for the law abiding and cracking down on abuse. Her Department recently published a discussion paper that invites views on a number of questions about transposing corporate transparency requirements under the fourth anti-money laundering directive. The catchy name is “Implementation of the Fourth Money Laundering Directive—Discussion paper on the transposition of Article 30: beneficial ownership of corporate and other legal entities”.
Mr Wallace
I can repeat it for those who want to write it down. That was launched on 3 November. I think that it is a six-week consultation. As a starting point, I strongly urge the Scottish National party to make a submission.
Roger Mullin
We are aware of that consultation with a snappy title, and it is our understanding that, appropriately, submissions have to be in by St Andrew’s day— 30 November. We intend to make a submission.
Mr Wallace
One issue raised in the paper is whether SLPs should be brought within the scope of the directive by including them on the UK’s public company beneficial ownership register, which would go some way to revealing the people behind some of those arrangements. The Government propose that SLPs should be on the register, although we must wait to see the responses to the consultation before we make a final decision. Hopefully my office will be in touch with hon. Members to arrange a meeting to discuss both that and some of the other issues they have raised.
New clause 1 proposes a statutory review of SLPs. The existing discussion paper already provides for interested parties to submit their views on identifying the beneficial owners of SLPs, which is a good first step. I reassure hon. Members that officials and Ministers in multiple Departments are looking closely at the wider issues related to SLPs, and I hope we will have more to say about that on Report. For now, I hope the hon. Gentleman feels suitably encouraged to withdraw his new clause.
Roger Mullin
I thank the Minister for his encouraging response. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 2
National Crime Agency: Report on staff training
“Section 3 of the Proceeds of Crime Act 2002 is amended as follows, after subsection (7) insert—
‘(8) The National Crime Agency must make an annual report to Parliament on the provision of training to persons under this section.’”.—(Dr Huq.)
This new clause would require the National Crime Agency to make a report to Parliament about the training it provides to its staff in financial investigation and the operation of the Proceeds of Crime Act.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss
New clause 5—Accredited financial investigators: Recovery of training costs—
“(1) The Secretary of State shall have a duty to work with enforcement authorities to ensure that enforcement authorities have in place training cost agreements with staff who are trained by the enforcement authority to be accredited financial investigators.
(2) For the purposes of this section
“Enforcement authority” has the same meaning as in section 362A(7) of the Proceeds of Crime Act 2002
“training costs agreement” means an agreement requiring an employee who has been trained as an accredited financial investigator to repay the cost of their training if they voluntarily leave the employment of the enforcement authority within 3 years of their training being completed.
“accredited financial investigators” has the same meaning as in section 47A(2) of the Proceeds of Crime Act 2002.”.
This new clause would place a duty on the Secretary of State to work with enforcement agencies to ensure that the agencies have appropriate HR arrangements in place to recover the costs of training accredited financial investigators where the AFI leaves the employment of the agency within 3 years of completing their training.
Dr Huq
New clause 2 would ensure that the National Crime Agency makes an annual report to Parliament on the training it provides to enforcement agency staff who are defined under both this Bill and the Proceeds of Crime Act 2002 as having the power to exercise civil recovery proceedings. We selected the National Crime Agency to be subject to the proposed duty because it is the sole body responsible for the training of other enforcement agencies with such powers under POCA.
Our main reason for wanting to introduce a duty on the National Crime Agency to make an annual report is that new clause 2 is nothing new. All this stuff was in the two influential Select Committee reports—the report by the Select Committee on Home Affairs on the proceeds of crime, and the report by the Public Accounts Committee. The report by the Home Affairs Committee showed that there is a lack of understanding at enforcement level regarding confiscation orders. There is sometimes confusion about where the buck stops.
The Home Affairs Committee report makes it clear that that misunderstanding is manifested in a number of ways, and I will give two quick examples. Some enforcement staff are not aware of their power to exercise civil recovery procedures and/or actions to that end, and confiscation orders are regularly not factored in at the beginning of criminal investigations—that is on page 13 of the report. The Home Affairs Committee alleges that, as a result, criminals regularly have time to hide their assets and that that has contributed to the poor recovery rate of confiscation orders. We know there is a lot wrong with those orders and that a lot of money falls through the cracks. According to the Committee report, as of last year there was a total of £1.6 billion in outstanding debt from confiscation orders.
The Public Accounts Committee also recently reported that administering the orders costs £100 million, yet £175 million was recovered through the orders last year. I am not arguing that that is solely down to staff training or a lack of knowledge among the staff, but the Home Affairs Committee report makes it clear that a number of causal factors contribute to the poor rate of recovery. Those factors include, but are not limited to, the overworked ELMER IT system for suspicious activity reports. My right hon. Friend the Member for Leicester East eloquently mentioned that several times in the debate on the Floor of the House. The creaking IT system is overloaded and overworked as it is. I cannot account for where he is now, but I am sure that he will be there when needed. That is one factor. There is also a reluctance among barristers and judges to specialise in asset recovery law, as the Home Affairs Committee report also mentioned. Arguably, there is a lack of specialist confiscation courts.
Obviously, we are not arguing that the amendment would suddenly wave a magic wand to remedy those problems, but building in the audit mechanism through an annual report would allow us to identify weaknesses in the context of training provided by the National Crime Agency. One problem contributing to the poor recovery rate for confiscation orders, as I mentioned earlier, is that they are not factored into the very beginning of criminal procedures. The Minister talked about behaviours. If there were a regular report, we could identify similar behaviours and remedy the problem. In theory, we would increase the rate of recovery. To that end, Labour see the duty to report as being a cost-effective performance enhancer. There is nothing quite like the fear of having to make a statement that must be relayed on the Floor of the House orally or in writing or both, and it would focus the mind on the tasks at hand.
Regular reporting would allow Parliament to assess in real time the necessity of adjusting NCA training—that form of crime and the techniques underpinning it change in real time. Since the Proceeds of Crime Act 2000, 16 years ago, we have seen technology change how such evil crimes are effected—hopefully, they are ineffective. To that end, I draw Members’ attention to the debate on whether NCA training should be mainstreamed or extended to new enforcement agencies. Detective Superintendent Clark, head of the economic crime directorate at the City of London Police, has been positive about the idea of mainstreaming National Crime Agency training, so that some of it can be taken over. That is on page 9 of the Home Affairs Committee report.
That level of detail may be for another day, but the point I am trying to make is that regular reports to Government would allow the House to keep a closer eye on the quality and quantity of training provided. The reports could then be factored into more well-informed discussions at a later date about things such as mainstreaming training. Whether or not we are now living in an age of austerity, everyone in this House wants best value for money from our public services, particularly when budgets are tight. When it comes to underperforming services, we can all agree that making institutional or procedural change, rather than just throwing money around in an unfocused way, can help to drive up standards. I believe that regular, up-to-date, detailed reports would provide this and future Governments with the ability to make such changes.
The amendment is not intended to be political; it is technical. I know that the Minister is a reasonable man, and I think that he will agree that it is fair and reasoned. Everyone in the House appreciates the great work done by the NCA on our behalf, but it is only fair that we monitor and have an up-to-date understanding of the training that it provides.
Dr Huq
Yes. New clause 5 is simple and does what it says on the tin. We want the Secretary of State to work with the enforcement agencies, using accredited financial investigators, to hammer out some form of agreement whereby if an accredited financial investigator chooses to leave his post within the first three years of qualifying as an AFI, they must repay the cost of training before doing so. There are some figures.
Mr Wallace
The Government recognise the importance of ensuring that investigation and prosecution agencies have sufficient expertise and resources to carry out their functions under the Proceeds of Crime Act 2002. Section 3 of the Act places a statutory duty on the National Crime Agency to provide a system for the accreditation of financial investigators who use the powers under POCA. This is done through the National Crime Agency’s Proceeds of Crime Centre. The accreditation system includes provision for monitoring performance and, importantly, accreditation can be removed from an investigator who fails to meet the accreditation standards.
The training can be lengthy and expensive. The Home Affairs Committee, during its recent inquiry into asset recovery, identified the risk of the private sector poaching trained resources with the promise of better pay and benefits. It was a good report. I read it in full as well as the Public Accounts Committee report.
The NCA already publishes statistics on the training activities undertaken by the Proceeds of Crime Centre in its annual report. Their last report showed the delivery of 95 training courses, support for 760 delegates through that training, and the completion of 1,400 registrations and re-accreditations. Those statistics are already published annually.
New clause 5 provides for the use of agreements to tie accredited financial investigators to their agencies, so that they would pay the cost of their training if they voluntarily left the employment of the agency that has funded their training. However, these agencies have tried such agreements and found them difficult and costly to enforce. In most cases, the benefits of such agreements are minimal.
Even if an effective and enforceable form of cost training agreement could be found—I do not want to dismiss the idea out of hand today—making it a requirement in primary legislation would not be appropriate. The operational agencies who use financial investigators should be given the freedom to manage their workforce according to their needs.
In line with the hon. Lady’s concerns, the criminal finance board, which I chair with my hon. Friend the Economic Secretary to the Treasury, commissioned a working group to examine the retention and training of financial investigators. It has not gone away or been swept under the carpet; I assure hon. Members that nothing is swept under the carpet in my Department. There is no conspiracy either—we do not do conspiracies in my Department; we are the conspiracy, according to some. That group is also considering what actions can be taken to incentivise investigators to stay and develop their career within the public sector.
The hon. Lady also referred to ELMER—the database of the suspicious activity reports IT regime. We have committed to replacing the SARs IT regime by October ’18, but in the meantime we have taken steps to upgrade and maintain it as part of the SARs reform package. We have not finished reforming the SARs programme, and before we roll out a new system we need to know what the new suspicious activity reports will look like, because if we are going to have a software database in order to cope with that effectively, we need to know what we are planning to cope with.
I am therefore alive to the issues and will be following the issues raised by the right hon. Member for Leicester East. I will visit to look at the system directly; I will have to bring my 1980s computer knowledge up to date to see whether I can remotely understand what I am looking at. I will certainly make sure that it is on because, like the hon. Member for Ealing Central and Acton, it is not my or the Government’s intention for the system to grind to a halt. It is very important.
It is also important that we register that we are keen to make sure that all those people who benefit from that system—not just the Government but the banks and the other people who use it—perhaps make a contribution towards the new system. That is important. It is for their benefit as well for the system to work successfully and efficiently.
I hope that demonstrates to the hon. Lady that I take both matters seriously. I think the training has already been dealt with, because it is published in the National Crime Agency’s annual report. I hope she is inclined to withdraw her motion on that basis.
Dr Huq
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 3
Annual reporting: Adequacy of resources
“(1) In Part 12 of the Proceeds of Crime Act 2002 (miscellaneous and general), after section 455, insert—
“455A Annual reports on resources
(1) A relevant authority must, no later than 1 June in each calendar year, prepare an annual report on the adequacy of the resources available from money voted by Parliament for the exercise of any functions of that authority—
(a) under this Act;
(b) in connection with investigations into terrorist financing offences under the Terrorism Act 2000;
(c) under Part 3 of the Criminal Finances Act 2017.
(2) In this section, “a relevant authority” means—
(a) the National Crime Agency;
(b) the Director of Public Prosecutions;
(c) the Director of the Serious Fraud Office, and
(d) Her Majesty’s Revenue and Customs.
(3) The reports prepared in accordance with subsection (1) shall be sent—
(a) in the case of the National Crime Agency, to the Secretary of State;
(b) in the case of the Director of Public Prosecutions and the Director of the Serious Fraud Office, to the Attorney General, and
(c) in the case of Her Majesty’s Revenue and Customs, to the Chancellor of the Exchequer.
(4) The person receiving annual reports in accordance with subsection (3) must lay those reports before each House of Parliament in the form in which they were received no later than 30 June in the same calendar year, together with a statement on plans for future resources to be provided from money voted by Parliament.”.”.—(Peter Dowd.)
This new clause would require the National Crime Agency and other agencies to report annually to Parliament on the adequacy of its resource to fulfil its functions relating to combating financial crime.
Brought up, and read the First time.
Peter Dowd
I beg to move, That the clause be read a Second time.
This is not a technical clause. It goes to the heart of transparency of resources for the enforcement agencies concerned. It is crucial that they are adequately funded, given the nature of the task that they are dealing with. They are chasing billions of pounds of evaded tax in relation to crime, with a particular emphasis on concerns around terrorism, and it is therefore perfectly legitimate for Parliament to be directly reported to on the adequacy of resources. That is the starting pitch.
In the evidence session, I, along with other Members, in particular the hon. Member for Portsmouth South, as I recall, asked many questions of witnesses about the resources available to law enforcement agencies. To Detective Superintendent Harman, who heads the national terrorist financial investigation unit at the Met, the hon. Lady asked:
“Are you confident that the enforcement agencies will have sufficient resources to make full use of the new powers in the Bill?”––[Official Report, Criminal Finances Public Bill Committee, 15 November 2016; c. 9, Q8.]
“Yes” was the response from the police officer and the witness accompanying him. I have to say, it is a pleasure to have the police helping us with our inquiries, rather than the other way around.
Clearly, the adequacy of resources goes to the heart of the ability of enforcement agencies to stamp out and tackle abuse within the financial sectors, particularly that which is linked to crime and terrorism. It is self-evident that, if the resources are not there, or if they are not used forensically and wisely, the agencies concerned will certainly not fulfil the intention of the Bill. It is worth reminding hon. Members of the intention of the Bill, as set out in the explanatory notes—I alluded to this in the evidence sessions last week—namely,
“to give law enforcement agencies, and partners, the capabilities and powers to recover the proceeds of crime, tackle money laundering and corruption, and counter terrorist financing.”
It is fair to say the Government could not be any more plain on this matter. The measure is, after all, the Criminal Finances Bill, so the clue is in the title. Given that we all agree with the Government’s intention as set out in the overview of the Bill—in the section relating to its mission—it is incumbent upon us to establish whether the resources are available to effect that good and laudable intention, notwithstanding the view expressed by the superintendent and his colleagues that they felt that they had enough money.
One way of holding the Government to account is to ensure that those intentions are backed up with the wherewithal to carry them out through a parliamentary annual review, given the crucial nature of these issues. All those who were asked about the adequacy of the resources to do the job agreed that the intention of the Bill was sound, and I do not dispute that. However, aside from the enforcement agencies themselves, which felt that they had enough to do the job—I am not sure whether that was in hope rather than in expectation—it is fair to say that most of the other witnesses’ enthusiasm for that element of the equation was not quite as clear-cut, although I would stand corrected and am challengeable on that.
For illustration purposes, Members may recall that when I asked the witnesses representing the Centre for Financial Crime and Security Studies at the Royal United Services Institute, Corruption Watch, Global Witness and Transparency International a question about whether they felt that—in their experience—the resources were available to do the job, there was a bit of a tumbleweed moment, with sideways looks at one another. I read the clear body language—and you do not have to be an experienced psychologist to have spotted it—that in their experience they felt that there clearly were not enough resources, and that they felt that that would hinder the enforcement agencies in doing their job. In response to the question from my hon. Friend for Ealing Central and Acton about the adequacy of resources, the director of the Centre for Financial Crime and Security Studies Mr Keatinge said:
“Resourcing is clearly a major issue. Cynically, one of the reasons for involving the private sector is to harness it to do some of the work…I do not believe we have the resources that we need.” ––[Official Report, Criminal Finances Public Bill Committee, 15 November 2016; c. 69-70, Q150.]
I accept that that is a view, but it is a view that has been reached after asking expert witnesses. We at least have to listen to them and take on board some of the concerns that they had. Moreover, when I followed up with the representative from the Metropolitan Police Authority, the National Crime Agency and the National Police Chiefs Council earlier the response to the hon. Member for Portsmouth South, I felt that they had begun to row back a little on their unequivocal answer to the hon. Lady.
That is why it is paramount that the professionals, and those whose day to day job is to tackle financial crime adequately, are adequately equipped with the resources to do the job. That is why we have to challenge them, and it is our responsibility to challenge them. In a sense, it is Parliament’s responsibility to challenge the Government and the Executive, and one of the best ways of doing that is for the information to be reported directly, rather than articulated through some sort of pontifical process to Parliament. I can inform Members now—I do not think I have to, but I will—that the people the law enforcement agencies are trying to catch are ahead of the game in relation to the crimes that they are committing, and we need to ensure that the enforcement agencies have the resources to do the job.
A clear example of where annual reporting would be effective is in the oversight of the IT system for SARs, which I know the Minister has referred to as being revamped or changed. As far as I am aware, ELMER is designed to process up to 20,000 suspicious activity reports; it is currently processing up to 381,000 of them. Of those, only 15,000 are looked at in detail, as was noted in the Home Affairs Committee’s fifth report of the 2016-17 Session, “Proceeds of crime”. That raises the question of whether reporting that many SARs is simply over the top, and borne out of caution on the part of banks. If so, then that approach wastes a good deal of time for those doing the reporting, and for the receiving agencies, who have to search through the haystack. Alternatively, if the reporting numbers are, to all intents and purposes, a reasonable reflection of concern that has reached a mutually agreed threshold, that raises another question: why are so many reports being ignored, brushed aside or not acted on? The Minister has reassured us that they are not under his office carpet.
Mr Wallace
In my response to the hon. Member for Ealing Central and Acton on new clauses 2 and 5, I explained what we are doing to assess the capacity and capability of investigator resource. The new tools in the Bill are a key part of strengthening our response to economic crime. The Government continue to invest in law enforcement agencies through the asset recovery incentivisation scheme, which returns recovered assets back to the frontline. A top-slice of £5 million has been set aside every year until the end of this Parliament to fund key national asset recovery capabilities, and I can announce today that we are going further. We made a manifesto commitment to return a greater percentage of recovered assets to policing, and we are implementing that commitment by investing in policing the whole Home Office share of amounts above a certain baseline collected by the multi-agency regional asset recovery teams. That will give the agencies greater financial resources, if performance continues to increase—100% of the Home Office share, rather than the 50% that they currently get. There we are: an announcement in a Bill Committee—a new way of venturing forward.
Let us be honest: I say to the hon. Member for Bootle that in Government, we never have enough resources across all our priorities, because different priorities are preyed on by events such as flooding in the west of England, or issues for the Home Office such as a surge in terrorism. I therefore question the use of the word “adequacy” in the new clause. We can scrutinise accounts or budgets, but asking a police officer whether he feels he has enough is like asking, “How long is a piece of string?” Of course we never have enough for crime fighting across the country. If I had millions of pounds, I could find things to spend that money on immediately, and so could every Member in this Committee Room.
I am concerned about whether it would be right and fair to publish a report to Parliament, as the new clause demands. The agencies that use their powers under the Proceeds of Crime Act already report on their resources and results through the departmental annual accounts, which are subject to scrutiny from the National Audit Office and the Public Accounts Committee. The use of criminal justice tools and powers is also subject to scrutiny by Her Majesty’s inspectorate of constabulary and, in the case of terrorism legislation, by the independent reviewer of terrorism legislation. The criminal finances board also closely monitors performance and resourcing issues. I hope that the hon. Members for Ealing Central and Acton, and for Bootle, can see that there is already significant scrutiny of resourcing. I invite the hon. Member for Ealing Central and Acton to withdraw the motion.
Dr Huq
I was interested to hear a groundbreaking announcement in this Committee. I completely get the Minister’s point that we will never feel satiated, and that there will always be inadequacy, but my hon. Friend the Member for Bootle made a really powerful case. He mentioned SARs and the ELMER IT regime. Originally, 20,000 SARs were anticipated, but there are now 381,882—my hon. Friend said there were “up to” 381,000 of them, but there are even more, and the figure is rising.
I want to mention the NCA’s ability to cope with the greater workload. It takes an increasing length of time to get investigations into the courts. We have heard that it could take more than 200 days, with the new SARs regime. The NCA was created as a successor to several different organisations. The budget of those it replaced was £812 million, but the NCA’s new annual budget was £474 million. Those figures put the situation into context. The Government have cut that budget even further since the NCA’s creation; it received £411 million in 2015-16. I accept that there was a one-off £200 million cash injection last year, but the agency needs steady long-term funding to carry out its functions effectively. It is no good just sprinkling blockbuster sums now and then; it needs a consistent funding model.
My hon. Friend the Member for Bootle made some powerful points. For effective crime fighting, we should not have agencies that are overworked and under-resourced. The announcement that 100% of assets will go to the Home Office conflicts with an amendment that we have tabled.
Mr Wallace
Not the Home Office; it is going to the law-enforcement agencies.
Dr Huq
Okay, so it is within the system. We have tabled new clause 20, which is about repatriating assets to the jurisdictions they came from. Some charities—Christian Aid and all those people—are saying that third-world health budgets get robbed when someone buys a house in Hampstead with such proceeds. Are we going to—
Richard Arkless
I would like to make a very small point about the Minister’s comments on new clause 3. He rightly suggests that if we were to ask any police officer or public servant whether they had enough resources, the answer would clearly always be no, but the new clause does not seem like a generic question about whether there is enough generally. The hon. Member for Bootle is asking whether adequate resources are available for specific functions to be exercised under the Proceeds of Crime Act 2002. That is a marked departure from asking any Department the generic question, “Have you got enough, guv?”, to which we would almost certainly know the answer. The new clause is about activities undertaken under the Act, and I do not think it is fair to categorise the suggestion as the Minister did.
Mr Wallace
Perhaps I can clarify some of the issues. Obviously the word “adequate” is subjective. We heard evidence in Committee from members of the law enforcement agencies, and they did use the word “enough”. My point is that we scrutinise the accounts in this place, and then compare that with agencies’ performance and outcomes. That is how we come to a decision—subjective, often—on whether there are adequate resources. It is not necessary to put that in primary legislation.
Perhaps I could clarify for the hon. Member for Ealing Central and Acton the issues around asset recovery and where those funds go. At the moment, if we recover assets from drug dealers, for example, the money is split, with 50% going to the Home Office, and 50% to the Crown Prosecution Service and all the other agencies—the National Crime Agency or the police—involved in that operation, so that they can invest it in their capabilities, and use it to increase their ability to fight crime. I can say today that further to our manifesto commitment, in future, instead of having that 50% of the cake, they will be able to keep 100% of the amount coming in above the baseline, which was set in 2015, if I am not mistaken. They have a very strong incentive to ensure that they are rewarded for their good work, and to make sure that we go after big sums as well as small. That is important.
On the point the hon. Lady raised about returning money that is stolen—we will come back to this—we sent back £27 million to Macau recently. Where we identify the ownership of stolen assets that we can return to a foreign country or wherever, we will, and we have already done that. My colleague the Minister for Immigration signed a memorandum of understanding with the Nigerian Government in August to make it even easier for us to return stolen property or assets to a country’s people. It is absolutely our intention to do that.
Across the money laundering piece, we can identify the owners of certain assets and take steps to return them. Other assets that accrue because of the high margins in the illicit trade of, say, drugs may be harder to return. In fact, the people who contributed to those sums may have committed a crime themselves, so there is a difference there. I recently saw in Mombasa some confiscated stuff that we will be returning, as soon as we can get through the paperwork. It is not our intention to divvy up the proceeds from the house in Knightsbridge and hand them all over to the National Crime Agency, and rob the third country from which the money was stolen.
Mr Wallace
No. As I said earlier, we have spent money updating and making sure that ELMER is maintained, but we are also in the process of drawing up a SAR reform policy. There are a number of reasons why there are so many referrals—380,000-odd—but the Bill will hopefully cut that number. We want quality, not quantity. At the moment, we are getting quantity, partly because in the suspicious activity regime, if a body makes the report, its defence is halfway there—that is the tick-box bit that is highlighted in the report. Also, many institutions currently report a fragment of the transactions, because they say that they are unable to report the complete transaction due to data-sharing barriers. That is why this Bill removes those barriers. Hopefully, instead of 15 pieces of a transaction being reported as 15 separate SARs, we will get one, because one institution will be able to report the transaction from beginning to end.
We are already taking steps to reduce demand on the system. The system is working; people should not think it has stopped working. The challenge is the analysis, and making sure that we act on the suspicious reports and are quick enough to discard the ones that are not, because we want quality, not quantity.
This time last year, we agreed a £200 million capital improvement budget for the National Crime Agency between 2016 and 2020. That is a huge sum of money for it to spend on a whole range of capital projects to bring them up-to-date. We all have lessons to learn—Labour Governments and Conservative Governments—from rushing into IT replacement projects that cost much more than anyone envisaged. It is therefore important we get the new SARs regime right before we replace the system. I assure hon. Members that that is at the forefront of my mind. We are not going to fall over—that is the main thing—and we will make sure that when we replace it, we do so with the right system, so that we are not all back in this Committee Room in a few years’ time saying, “The SARs regime is not working.” I hope that clarifies the point for the hon. Member for Ealing Central and Acton.
Peter Dowd
I started by talking about Parliament being able to have reports from the agencies concerned, given the seriousness of the issue facing us. The Minister, reasonably, told us that 100% of the proceeds will go to the appropriate agencies and be divvied up as appropriate. I completely accept that, in good faith, and repeat the point made earlier: that he is a reasonable man. I do not challenge the Minister’s reasonableness; my challenge is based on the fact that Parliament, given the nature of this issue, is perfectly entitled to receive reports from agencies—no doubt articulated through the Departments in some fashion—on their resources. A definition of “adequacy” is that something is proportionate, or sufficient for its purpose. That is a matter for Parliament to discuss. It will not necessarily be able to do anything other than discuss it, but the discussion may produce views and experiences for the Minister to consider.
As to the Minister’s point that this is not something to go into primary legislation, about this time last year I was on the Committee that for 17 sittings considered the Housing and Planning Bill. There were all sorts of things in that Bill far less important to the health and integrity of the nation. Indeed, in the past, local government Acts—primary legislation—have even included provisions on how many hours off a person in one local authority can have, compared with a person in another. Primary legislation can be used in a range of ways. It is for the Government of the day to say, “We have nothing to fear from the reports coming before Parliament, from openness and transparency, or from challenge.”
Mr Wallace
Anyone who is a victim of financial crime takes that crime incredibly seriously; the same goes for victims of violent crime. The National Crime Agency has a number of threats to deal with, including drugs, firearms, child sexual exploitation, financial crime and foreign national offenders. Our police forces deal with a range of threats. Are we to say, on the principle that the hon. Gentleman has set out, that primary legislation should require our law enforcement agencies to produce a report every year, under each heading across the whole range of crime, on whether they believe they have adequate funding to do their job? If so, I envisage that our law enforcement agencies will be full of people doing reports all year, arguing about whether resourcing is “adequate”, and submitting them to Parliament, rather than getting on and prosecuting the people we need prosecuted.
Peter Dowd
That is a fair point, but we know that, every day, Parliament debates issues that are far less important for the body politic, security and the safety of the country. The point that I am trying to make is that the issue is of great importance and significance. It is so different in degree as to be different in kind. My hon. Friends and I therefore say that Parliament should have this opportunity. This is not a technical proposal. I repeat that, given the nature of the threat to the country, and the importance that people place on the safety of the country, we would like the report to be made to Parliament.
Question put, That the clause be read a Second time.
Peter Dowd
I beg to move, That the clause be read a Second time.
The new clause would create a corporate offence of failing to prevent financial crime. It would compel the financial services industry to take greater steps to stamp out financial crime, and to tackle tax evasion and other economic crimes. At the heart of the new clause is the need for a level playing field, and to end the impunity that many large global organisations have enjoyed, whereby directors have plausible deniability if they are not involved in decisions taken at a lower level by employees.
The 2015 Conservative party manifesto stated:
“We are...making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to punish and deter.”
At the UK anti-corruption summit on 12 May this year, the Government announced that the Ministry of Justice would consult on an extension of
“the criminal offence of a corporate ‘failing to prevent’ beyond bribery and tax evasion to other economic crimes.”
They acknowledged that law enforcement struggles
“to prosecute corporations for money laundering, false accounting, and fraud under existing common laws.”
As far as I am aware, no consultation has been announced; it appears that the consultation is likely to have been downgraded to a call for evidence, bringing further delay and sending the wrong message.
The Opposition are always willing to assist the Government where it is sensible and in the interests of the country to do so. The new clause would enable the Government to fulfil their manifesto promise, which I know is dear to the hearts of every Government Member; I know that they recite the manifesto with catechistic fervour before, during and after meetings of the 1922 committee. The Minister will sleep easier knowing that he has delivered his part of the schedule ahead of time. I expect Government Members will want to fulfil the UK summit’s commitment before the parliamentary calendar becomes clogged up with Brexit-related measures. The Prime Minister has promised to deliver an economy in which everybody plays by the same rules.
UK corporate liability laws rely on a “directing mind” test, which requires prosecutors to prove that senior board level executives intended misconduct to occur. This moves the focus of attention away from the bigger fishes, and on to small and medium-sized enterprises, where directors are more involved and can therefore be more easily prosecuted—quite rightly, if appropriate. This was a concern of some of the witnesses. The system undermines corporate governance by creating perverse incentives to keep boards in the dark about decisions that may lead to misconduct. Several recent major scandals, including LIBOR and Euribor, have resulted in no prosecutions against companies owing to the current corporate liability regime.
Where individuals have been prosecuted under conspiracy to defraud, they have argued that their actions were condoned and encouraged by their employers. However, the Serious Fraud Office has not charged any of the employers concerned, which include Barclays, UBS and Deutsche Bank, and not a single UK financial institution faced criminal charges as a result of the 2008 financial crisis. A “failure to prevent” offence for fraud and conspiracy to defraud would have enabled such prosecutions. Similarly, in 2015 the SFO was forced to drop its case against Olympus after the Court of Appeal found that it was not illegal under current corporate liability laws for companies to mislead their auditors. This was also the case in 2015, when the CPS stated that because of corporate liability laws, it could not mount a successful prosecution against the companies in the phone hacking scandal, which included some of the largest tabloid newspapers in the UK. Although the new clause would not specifically address the phone hacking case, it highlights the urgent need for broader corporate liability reform.
The Government also need to tackle the facilitators of corruption.
Criminal Finances Bill (Sixth sitting)
Tuesday 22nd November 2016
(7 years, 5 months ago)
Public Bill CommitteesRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 22 November 2016 - (22 Nov 2016)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
Peter Dowd (Bootle) (Lab)
This morning I was indicating that the Government also need to tackle the facilitators of corruption—by that, I mean those institutions that fail to conduct due diligence on their clients. The UK anti-corruption summit committed countries to pursuing and punishing those who facilitate corruption, and the new clause reaffirms Britain’s commitment to do so.
The failure to include such measures in the Bill will lead to many of our partners accusing us of hypocrisy and double standards; it will severely damage our prestige abroad, or will have the potential to damage our prestige abroad; and it will undermine our reputation. I find it perplexing, as do many others, that not a single bank has yet been criminally prosecuted for handling the proceeds of corruption, despite the fact that they may have been fined for doing so. This is not just about banks, but about some of the people in the banks—that is the important thing to take away. My constituency is similar to those of other Members, in that as well as having lots of local branches, Santander has 2,000 people based there. I am certainly not in the business of pointing the finger at everybody in the banking sector—it is important to make that point.
In March 2012, Coutts was fined £8.75 million by the Financial Conduct Authority for serious systemic failings that resulted in “an unacceptable risk” that Coutts had handled the proceeds of crime, yet despite that fine, in April 2016 Swiss authorities investigated whether money from the 1Malaysia Development Berhad scandal had ended up in Coutts’ bank accounts, which suggests that regulatory action alone is an insufficient deterrent against laundering corrupt proceeds. From that instance, it is clear that an extension of a failure to prevent money laundering offence would significantly enhance the scope for criminal sanctions.
We should not forget that the cost of fraud and money laundering greatly exceeds the cost of tax evasion. In 2016, Her Majesty’s Revenue and Customs estimated the tax gap to be £36 billion, of which tax evasion accounted for £5.2 billion. Some witnesses last week believed it to be higher. In May 2016 the annual fraud indicator put the cost of fraud to the UK economy at £193 billion. The cost to the public sector is £37.5 billion, with procurement fraud costing as much as £10.5 billion a year. We are talking about significant figures, which is why we need significant action. I am pleased that the Government are taking significant action but we want to push them further. The National Crime Agency estimates that billions of pounds of suspected proceeds of crime are laundered through the UK every year. That money, if accounted for, would be more than enough to help fund a whole range of services in the country.
The Crime and Courts Act 2013 specifies that certain economic crimes, which include fraud, money laundering and false accounting, as well as bribery and tax evasion, can be dealt with by way of a deferred prosecution agreement. The absence of an extension to a failure-to-prevent offence to the other economic crime offences listed in the Act results in a disparity in how different economic crimes, which all cause significant damage to the taxpayer, can be dealt with by prosecutors.
New clause 6 would also improve corporate governance. Companies are already subject to criminal law for all the additional offences listed in the amendment, although currently on the basis of the “directing mind” test. In addition, companies are required under FCA regulations to have effective systems and controls in place to prevent themselves being used to further financial crime, including money laundering.
At the end of the day, we are trying to get the message across to the Government. Mostly, in broad terms and in specific situations, the Government have got that message, but it is the duty of the Opposition to push the boundary a bit more where we feel that the Government have not acted as forcefully as they could, in the light of what I have just said about scale, and in the light of the comments we heard from our witnesses last week.
Richard Arkless (Dumfries and Galloway) (SNP)
We broadly support new clause 6, tabled by the Opposition, which seeks to extend corporate financial crime beyond the provisions in the Bill as drafted—beyond tax evasion and bribery. We are generally supportive. It is worth mentioning the point made by the hon. Gentleman that the provisions in new clause 6(4) defining a criminal financial offence are at the moment corporate offences that require the directing mind to be present. To my mind, the new clause would merely remove the directing mind provision from those offences.
We broadly support the new clause, but I question subsection (2)(b), which states that a defence could be that
“it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.”
Although the provision seeks to catch other offences, it strikes me that the bank or organisation would merely need to demonstrate that it was not reasonable to have prevention procedures in place. To my mind, that defeats the purpose of extending the offence so widely. Nevertheless, we broadly support the new clause, and I would like to hear from the Minister about the Government’s inclination, if not to accept new clause 6, then to recognise that, at some future point, corporate financial crime could be extended beyond the provisions agreed in the Bill.
Another way of framing new clause 6 would be to codify specifically the exact offences within the three Acts. That might have negated the need for subsection (2)(b), which strikes me as a direct negative that might defeat the purpose. I would be interested to hear what the Minister has to say about the thought process, but generally speaking we support extending corporate financial crime, and are provisionally minded to agree to and support the new clause.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
It is a pleasure to serve under your chairmanship again, Mrs Main. My hon. Friend the Member for Bootle made an excellent speech. New clause 6 is supported by Amnesty International, CAFOD, Corruption Watch, Global Witness, ONE, Rights and Accountability in Development, Tax Justice Network, The Corner House, Traidcraft and Transparency International UK. Those are some heavyweight organisations. Before we adjourned, my hon. Friend asked what happened to the consultation promised at the anti-corruption summit. I would be interested to hear the answer.
The Minister for Security (Mr Ben Wallace)
New clause 6 highlights an issue raised on a number of occasions when we heard from interested parties about the Bill last week. I am pleased that the Opposition have tabled it, because it allows me to restate that the Government appreciate those concerns and agree that the damage caused by economic crime facilitated by those working for major companies is serious and affects individuals, businesses and the wider economy, and indeed the reputation of the United Kingdom as a place to do business.
As the hon. Member for Ealing Central and Acton is aware, the Labour Government took action in the Bribery Act 2010 in respect of bribery committed in pursuit of corporate business objectives. The Act is widely respected as both a sound enforcement tool and a measure incentivising bribery prevention as part of good corporate governance. We have already debated the new corporate offence of failure to prevent tax evasion created in the Bill. The provisions followed a process of extensive consultation, as did the Bribery Act 2010. I trust that hon. Members will agree that such an approach is necessary when considering the adequacy of the existing legal framework in matters involving complex legal and policy issues.
In respect of the current law governing corporate criminal liability for economic crime, the Government announced that a consultation would take place in May this year. I confirm that we will publish a call for evidence on the subject. In keeping with the considered and methodical approach adopted for the reforms on bribery and tax evasion, the call for evidence will form part of a two-part consultation process. It will openly request and examine evidence for and against the case for reform and seek views on a number of possible options. Should the responses that we receive justify changes to the law, the Government will then consult on firm proposals. The Government believe that it would be wrong to rush into legislation in this area for the reasons I have given. In the light of my assurances and the forthcoming publication of the call for evidence, I invite the hon. Gentleman to withdraw the new clause.
Peter Dowd
As I have said, the job of the Opposition is to push the issue as much as we can. As to what the hon. Member for Dumfries and Galloway said about subsection (2), the reality is that we are building into the new clause the capacity for someone to defend themselves, but not stating categorically, “Someone commits an offence if this happens.” There is room for manoeuvre, which is only right. However, in the light of what the Minister has said and the assurance he has given, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 11
Unexplained wealth orders: reporting requirements
‘In Chapter 2 of Part 8 of the Proceeds of Crime Act 2002, after section 362H insert—
“362HA Unexplained wealth orders: reporting requirements
(1) The Secretary of State must make an annual report to Parliament setting out the number of unexplained wealth orders applied for by enforcement agencies under section 362A of this Act (and by Scottish Ministers under section 396A of this Act) during the previous 12 month period.
(2) The report must also provide information in respect of each unexplained wealth order about—
(a) the value of property subject to the order,
(b) whether the respondent was—
(i) a politically exposed person,
(ii) a person involved in serious crime (whether in a part of the United Kingdom or elsewhere)
(c) whether the order was granted,
(d) the value of the property reclaimed as a result of the order.
(3) For the purposes of this section “enforcement agencies” has the same meaning as in subsection 362A(7).”’—(Tristram Hunt.)
This new clause would require the Secretary of State to make an annual report to Parliament about the number of unexplained wealth orders made each year.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
I beg to move, That the clause be read a Second time.
The purpose of new clause 14 is to require the Secretary of State to establish a publicly accessible register of the beneficial ownership of UK property by foreign companies within six months of the commencement of the Act. That is another helpful intervention to support the Minister in his work.
As I read in The Observer on Sunday, money launderers use anonymous offshore companies to acquire properties in the UK with the proceeds of crime. That became evident from the Panama papers. More than 2,800 secret companies set up by Mossack Fonseca held 6,000 Land Registry titles in the UK with combined historical costs in excess of £7 billion. In London alone more than 40,000 properties —one in every 10 in the borough of Westminster—are owned by offshore companies with unknown beneficiaries. There is not only an impact on housing costs in the capital, which can, indeed, spread to St Albans, Mrs Main, but a fear about money laundering and the hiding of finance through the use of London property essentially as a reserve currency.
Requiring offshore companies holding property titles in the UK to declare their beneficiaries would be fully in line with the legal obligations of UK companies to disclose persons with significant control, which came into effect in June. Requiring the Government to set up a public register of the persons with significant control of non-UK corporations holding properties and other assets, or PSCs willing to do business in the UK, will naturally tie the two purposes together: the commitment to lift offshore secrecy; and the passing of the Bill with the aim of the eradication of money laundering in the UK. It will build on exactly what the Minister suggested with reference to the former Prime Minister’s anti-corruption speech in Singapore, and the anti-corruption summit. I hope the Minister will agree to the new clause.
Mr Wallace
At the London corruption summit earlier this year, the Government announced that we plan to create a beneficial ownership register of overseas companies that own or wish to purchase property in the United Kingdom. The Government remain committed to delivering that policy and are developing the detail of how the register will work before we issue a call for evidence in the coming months. Our intention is to bring forward legislation to provide a statutory basis for the register in due course and as soon as possible.
The UK leads the world in corporate transparency. That is a position that the UK Government are rightly proud of: we are the first in the G20 to have started a public register of beneficial ownership. We should build on that position, and I am determined that we complete what we started at the summit.
The proposal is that the register will apply throughout the whole of the United Kingdom. That is important to ensure that control of companies owning land is transparent wherever in the UK the land is. However, Scotland and Northern Ireland have different land registration requirements from England and Wales, which makes the drafting of the legislation more complex. The Government therefore believe that it is important to spend time to get the policy and its implementation correct, and to consult on the policy before legislating.
Mr Wallace
It is getting higher—we will be getting into double figures for The Observer’s readership if we are not careful.
The best time to examine the register is when we have had a full consultation. We have worked closely with the Scottish Government and the Northern Ireland Executive to ensure that we get it right. As the Scottish National party has pointed out, things such as Scottish limited partnerships were set up often for landowners to avoid ownership obligations way back in 1907, if I am not mistaken. Therefore, legislating is easier said than done, and we want to ensure that we get it right so that there are no loopholes or areas in which people can hide in the shadows, which might happen if we rushed it. We want to ensure that public means public. I therefore urge the hon. Gentleman to withdraw his new clause.
Tristram Hunt
I thank the Minister for his response. I understand that such a register throws up legal complexities and matters to do with the interrelationship between the English property market and legal system and the Scottish and Welsh ones. That is why it should be a UK-wide process. I am willing to admit that six months might seem a little aggressive in terms of the full publication of the register. The Minister said “in due course” and “as soon as possible”. On Report, perhaps he will give us slightly greater clarity about the commitment with which the Government are approaching the register. I very much welcome his enthusiasm. On that basis, I beg to ask leave to withdraw the motion.
Motion, by leave, withdrawn.
New Clause 15
Failure to prevent facilitation of tax evasion offences: exclusion from public procurement
‘(1) In section 57 of the Public Contract Regulations 2015 after paragraph 3(b) insert—
“(c) the contracting authority is aware that the economic operator is a body that has been convicted of an offence under section 37 or 38 of the Criminal Finances Act 2017.”’—(Tristram Hunt.)
This new clause would ensure that companies convicted of failure to prevent a tax evasion facilitation offence are excluded from public procurement.
Brought up, and read the First time.
Tristram Hunt
I beg to move, That the clause be read a Second time.
The new clause builds on new clause 6, which we looked at earlier. Exclusion is the key means of incentivising good corporate governance. The threat of exclusion from public procurement is known to be one that companies fear more than fines. Making the new offences subject to exclusion would ensure that companies take preventing such offences seriously. The UK’s anti-corruption summit committed to excluding corrupt bidders from public procurement contracts, so it is important that companies that facilitate tax evasion are similarly excluded.
Under the Public Contract Regulations 2015, public authorities must exclude companies found to be in breach of their obligations related to the payment of taxes. Unless the Bill specifies whether the new offences under clauses 37 and 38 will constitute such a breach, the Crown Commercial Service, which is often narrow in its approach, is unlikely to consider that they do. The purpose of the new clause therefore is to urge Ministers to ensure that the Crown Commercial Service understands there to be a breach in that context.
Mr Wallace
I am grateful to the hon. Gentleman for tabling his new clause because it allows us to cover another important element of the tax evasion offence we debated earlier. I also thank him for meeting me to discuss those proposals.
New clause 15 would create mandatory exclusion from public contracts of a relevant body convicted of an offence under part 3 of the Bill. I fully agree that, where an organisation has been convicted under the new offences and grave professional misconduct has taken place, it should be possible to exclude that organisation from public contracts.
I am pleased to say that existing law already allows for that by virtue of the Public Contracts Regulations 2015, which allow for the exclusion of a body from a public contract
“where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable”.
That is quite a low threshold if you ask me; nevertheless, it allows us to do it. I know the hon. Gentleman will be interested in this part, because it is a European angle to his proposal. I am advised that it is not possible lawfully to include a new mandatory exclusion under regulation 57, as proposed by the amendment. Regulation 57 contains a list of offences based on the six categories set out in the EU public contracts directive. The categories outlined in the directive are exhaustive. Case law indicates that member states are not free to add new additional grounds for exclusion to those set out in the directive.
Mr Wallace
I hope the Committee is satisfied that, where there has been grave professional misconduct by an organisation convicted under the new offences, contracting authorities will have the discretion to exclude them from public contracts.
Tristram Hunt
I thank the Minister for his answer. As my hon. Friend the Member for Bootle quietly alluded, this might be something we will have to look at again amid the welter of opportunities—count them!—thrown up by Brexit. [Hon. Members: “Hear, hear!”]
As a result of European regulations, I am willing to accept the Minister’s point. On Report, will he say whether we could have included in the statistical bulletins on unexplained wealth orders and other elements of the Bill an account of any corporations excluded from public procurement as a result? Is there a statistical account of whether any companies have fallen foul of the measure? Could we gain some account of that?
Mr Wallace
I am grateful for the hon. Gentleman’s idea, which I think is a good one. I will certainly try to ensure it is released in any statistical bulletins. When the Bill is up and running, I would like to know as much as he would how many people are precluded from public procurement practices.
Tristram Hunt
I thank the Minister. On that basis, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 16
Failure to prevent facilitation of tax evasion offences: reporting
‘The Secretary of State must make an annual report to Parliament containing the number of prosecutions brought and convictions made under section 37 and 38 of this Act.’ —(Tristram Hunt.)
This new clause would require that the Secretary of State reports annually on the number of prosecutions brought and convictions made for failure to prevent the facilitation of UK and foreign tax evasion offences.
Brought up, and read the First time.
Tristram Hunt
I beg to move, That the clause be read a Second time.
The new clause would
“require the Secretary of State reports annually on the number of prosecutions brought and convictions made for failure to prevent the facilitation of UK and foreign tax evasion offences.”
That is connected to an earlier new clause about culture change within Government to ensure the right degree of ministerial push and importance given to the implementation of the Bill, and to ensure that attention is given at the top of the Home Office and in ministerial offices, which is something a report to Parliament encourages. The fear that I and some of my colleagues have is that, if that detail is hidden away in obscure departmental documents, it does not necessarily have the drive and political push it deserves. The new clause is therefore another attempt to support the Minister in his job, and to encourage proper transparency about this interesting and in many ways useful Bill.
Mr Wallace
I do not want to look ungrateful to the hon. Member who is, as he says, trying to help me enhance the Bill and do my job. I am incredibly grateful for all the suggestions from hon. Members over the last few weeks.
Mr Wallace
I am not that grateful.
New clause 16 would require the Secretary of State to report annually to Parliament on the number of prosecutions brought and the number of convictions made under the new corporate offences. Under the domestic tax evasion offence, HMRC will be the investigating authority and the decision on whether to prosecute will rest with the Crown Prosecution Service. In relation to the overseas offence, the Serious Fraud Office and the National Crime Agency will be the investigating authorities and the decision to prosecute will rest with the SFO or the CPS.
It is important to emphasise that, as with the corresponding offence under the Bribery Act 2010, the number of prosecutions alone will not be a true metric of the level of success of the measure. The new corporate offences are not only about responding to wrongdoing but about changing corporate culture and behaviour. True success will lie in changing corporate culture and preventing wrongdoing from occurring in the first place.
In any case, all of the prosecuting authorities already undertake extensive public reporting on investigations and prosecutions. For example, HMRC publishes quarterly performance updates and the CPS publishes an annual report. Neither of those documents are obscure—they are weighty but not obscure. I can confirm that information relating to the new offences will be included in those existing formats. Accordingly, I invite the hon. Member for Stoke-on-Trent Central to withdraw his new clause.
Tristram Hunt
I will not detain the Committee with an inquiry into the difference between “weighty” and “obscure”; these things can often be lost in the mists of time. As we did not quite generate the success that we needed to on new clause 11, I will not put the measure to a Division. However, I urge the Minister to ensure that, having created this interesting Bill and having delivered these interesting reforms, if the reforms are going to be put to proper effect and have the political momentum—a terrifying word—behind them, then a degree of political transparency and support connected to Parliament is important. On that basis, I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 19
Whistleblowing in relation to failure to prevent the facilitation of tax evasion
‘The Chancellor of the Exchequer shall conduct a review of arrangements to facilitate whistleblowing in the banking and financial services sector, including the protection of anonymity, in relation to the disclosure of suspected corporate failure to prevent facilitation of tax evasion, and report to Parliament within six months of the passing of this Act.’—(Roger Mullin.)
This new clause would conduct a review into the facilitation and protection of whistleblowers with a focus on the protection of anonymity for those who suspect corporate failure to prevent the facilitation of tax evasion.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 22—The culture of the banking industry and prevention of the facilitation of tax evasion—
‘(1) The Secretary of State must undertake a review into the extent to which the banking culture contributes to the failure to prevent the facilitation of tax evasion in the financial sector, and lay a copy of the review before the House of Commons within six months of this Act receiving Royal Assent.
(2) The review must set out what steps the UK Government intends to take to ensure that banking culture is not facilitating tax evasion.’
Roger Mullin
I rise to speak to new clauses 19 and 22, which are on today’s amendment paper for the Committee to scrutinise thanks to the complacent and worrying attitudes of both the FCA and the BBA at last week’s evidence session, when I specifically raised the issues of banking culture and whistleblowing.
During the previous exchanges, the Minister indicated the importance of culture, for which I am grateful. I have been concerned with culture for a long time. In one of my previous lives, I undertook more than 30 cultural studies of large, complex organisations. As many Members will be aware because I have related this fact more than once, large-scale international studies have shown that around 70% of major corporate failures are primarily as a result of a failure of culture—they are not about detailed regulation or detailed law, but about culture. In that regard, this issue must be taken very seriously indeed.
A very important part of culture for the related new clause on whistleblowing is to assess internal trust within organisations. Unless there is sufficient cultural trust, whistleblowers will not feel secure or safe. Despite advances in recent years in the protection of whistleblowers, I am sure that I am not alone in having had people come to me, an MP for barely over a year, saying that they wish to raise issues in organisations but fear the consequences.
I will highlight that by picking just one example—the case of Paul Moore, with whom some Members will be familiar—from the financial sector to show the importance of culture and whistleblowing. He is best known as the HBOS whistleblower, following his dismissal from Halifax Bank of Scotland in 2004. He was appointed to the role of head of group regulatory risk at the end of 2003 and had formal responsibilities for the bank’s policy and oversight of executive management’s compliance with Financial Services Authority regulation. During 2004, while conducting reviews of the bank’s sales culture, Moore and his team uncovered mis-selling and unethical practice. He reported those findings to the HBOS board as his job demanded, and was fired on 8 November 2004 by the HBOS group chief executive officer, James Crosby. Since then, Mr Moore has been shunned by the financial community for doing his job and doing it well.
Mr Wallace
I am grateful to the hon. Member for Kirkcaldy and Cowdenbeath for his contribution. New clause 19 would require a review of arrangements to facilitate whistleblowing in the banking and financial sectors. Whistleblowing can play an important part in bringing wrongdoing to light. The Government value the contribution of whistleblowers and believe they should be able to highlight wrongdoing without fear of retribution. To that end, the UK has put in place a strong framework of employment rights for workers who disclose malpractice in the public interest.
If a worker loses their job or suffers some other detriment —being overlooked for promotion, for example—as a result of blowing the whistle, they may bring a claim to the employment tribunal for unfair dismissal or detriment. To qualify as a protected disclosure under the Public Interest Disclosure Act 1998, the legislation that protects whistleblowers, the issue in question must fall into one of the categories listed in that Act. Those categories include both criminal offences and failure to comply with the law in other ways, so the issues in the Bill are certainly catered for, as is any new offence as soon as it comes into force.
To retain their employment protections, whistleblowers must generally make their disclosures either internally to the employer or to the relevant prescribed person named in statute. Two such prescribed persons are most likely to deal with issues covered by the Bill. HMRC is prescribed for matters about the administration of UK taxes, and the Financial Conduct Authority is prescribed for matters relating to the conduct of banks and all other funds and firms subject to the Financial Services and Markets Act 2000. MPs are now also prescribed persons, so Public Interest Disclosure Act remedies will also apply if a person suffers a detriment in employment as a result of disclosure to us.
Both HMRC and the FCA have published information for whistleblowers on how to disclose wrongdoing in their workplace. They both accept, and act on, anonymous disclosures. The Public Interest Disclosure Act 1998, under which disclosures are made and protected, was comprehensively reviewed as recently as 2014. There is a code of practice and guidance for its use. The Government are taking significant steps to ensure that effective arrangements are in place to facilitate whistleblowing in relation to tax evasion or other matters. I am not sure that, as yet, I see a case for further review at this stage.
On new clause 22, I agree with hon. Members that the culture of the financial services sector, as well as other sectors such as advisory, accounting and legal, plays a key role in preventing financial crime. That is the very reason that the Government are legislating for the new corporate offences in part 3 of the Bill—to drive culture change among businesses in relation to preventing complicity in and facilitation of tax evasion. A key measure of the success of the new offences will be how businesses respond and drive culture change.
We have engaged extensively with business over the last 18 months on the offences, both in the UK and overseas. We have seen examples of good practice in a number of sectors and organisations, which have responded swiftly to the new measures and are proactively seeking to drive culture change and operate to the highest standards. Some organisations have been slow to react, but HMRC officials have been working with them and their representative bodies to support business in putting in place compliance procedures.
Given that ongoing engagement, I do not believe it would be prudent to conduct a statutory review immediately following Royal Assent, although I share the same objectives as hon. Members. It is the Government’s view that we should focus our efforts on effectively implementing the new offences, and on using them to help trigger further cultural change, prior to diverting resources to a further review of the arrangements. I would be happy to discuss that further with hon. Members in case they have specific concerns that I should raise with other ministerial colleagues, which I am also happy to do. I hope I have provided adequate assurances for now or that we can agree to disagree. I hope the hon. Gentleman feels able to withdraw the new clauses.
Roger Mullin
I thank the Minister for his remarks, particularly his conclusion, when he indicated an open mind, as is only to be expected from him. However, we remain concerned about culture. He mentioned the role of the FCA. After the comments made last week by the FCA representative, I would have thought that the FCA itself needs a bit of a culture review to see whether it is fit for purpose.
Mr Wallace
When the Bill was being rolled out, I specifically asked for a meeting with the FCA to demand that when it comes into force—hopefully it will do so—they will up their game. The overall intention of the Bill is not just the criminal prosecution of individuals, but to bring about cultural change. As a regulator, I would like steps to be taken. One of the things that I welcome in the English part of the Bill is that the perpetrators are faced with unlimited fines for some of the offences—there is no cap on fines. With large fines, we change not only employees’ habits, but shareholders’ behaviour, which is important.
Roger Mullin
I think the Minister for those remarks and I particularly welcome his remarks about his meeting with the FCA. He is to be commended for that, and we would fully support him. Given his remarks, we will not at this stage push either of the new clauses to a Division, but we will reserve our position and perhaps return to it on Report. I beg to ask leave to withdraw the new clause.
Clause, by leave, withdrawn.
New Clause 20
Recovery orders: repatriation
‘(1) The Proceeds of Crime Act 2002 is amended, after section 266, by inserting—
“266A Recovery orders: repatriation
(1) Where a court—
(a) issues a recovery order under section 266; and
(b) has reasonable grounds for suspecting that property subject to the recovery order was obtained through unlawful conduct in a foreign country,
the court must issue a repatriation order in relation to that property.
(2) A repatriation order shall provide that within a year of the property’s having been recovered the property must be repatriated back to its country of origin.
(3) When a repatriation order has been issued, the Secretary of State shall send a request for cooperation and assistance to a representative of the government of the country of origin, in consultation with relevant third parties, and must, upon a court having issued a recovery order, endeavour to agree with that representative—
(a) as to how such property or the value of such property will be used upon its being repatriated to ensure that wherever possible the property repatriated will be used in a manner that will contribute to the implementation of Sustainable Development Goal 16, that benefits victims of the unlawful conduct, or that ensures the repatriated property is used for the original purpose from which it was diverted;
(b) a mechanism for accounting for the disbursement of the property and for making public a report on the use to which the property has been put.
(4) For the purposes of this section—
“relevant third parties” will include civil society actors and non-governmental organisations; independent audit bodies; the Department for International Development and multilateral development banks; and
“victims” will include communities affected by the unlawful conduct as well as the State.
(5) A repatriation order shall not be issued where—
(a) the court is satisfied that on the balance of probabilities that successful repatriation would lead to the property or the value of the property being subject to conduct that, were it within its jurisdiction, would violate the Human Rights Act 1998;
(b) the court is satisfied that on, the balance of probabilities, that successful repatriation would most likely result in such property being subject to illicit financial activity by a Politically Exposed Person in its country of origin; or
(c) the court is satisfied that, on the balance of probabilities, the property would not reach and/or be used for the purposes as agreed to by the Secretary of State and the representative of the country of origin.
(6) The UK may retain the total value of the recovered property where the Secretary of State and the relevant enforcement agency take all appropriate steps as set out in section (3) subsections (a) and (b) to assist the State in question in repatriating such property and yet receive no cooperation from the other State within a year of having taken such appropriate steps.
(7) For the purposes of subsection (6) “cooperation” is defined as the foreign State’s conclusively demonstrating to the Secretary of State and enforcement agency of its having done or being in the process of implementing the necessary steps required to ensure that the property or value of such property will be used for the ends laid down in section (3) (a) and the court is satisfied on the balance of probabilities that the property or value of such property will be used in accordance with those activities and probabilities as laid down in subsection (5)(a), (b) and (c).
(8) The court may order that a repatriation order may grant that the property could be given, subject to an agreement between the Secretary of State and a representative of the government of the country of origin, to a non-state actor who may distribute the property in accordance with subsection (3)(a) and (b) above.
(9) Upon application by the relevant enforcement agency the court may increase the time period within which repatriation must happen up to a maximum of five years if the court is satisfied that operational circumstances preclude the possibility of repatriation within the period previously required.
(10) The relevant enforcement agency may apply to the court for further extensions to the time period, where there is less than a year before the date of repatriation.
(11) Where the court grants an extension the enforcement agency in conjunction with the Secretary of State must publish a public report detailing the reasons why it sought an extension to the deadline for repatriation.
(12) Where the Secretary of State in conjunction with the enforcement agency publishes such a report as set out the Secretary of State may omit sensitive operational information which would preclude the possibility of repatriation being successful should such details be published.
(13) Such a report without redacted information will be passed to the Secretary of State upon each application made to the court for an extension.
(14) No later than one year after such property is repatriated all such reports will be made public in an uncensored form.””—(Dr Huq.)
This new clause would require property that was subject to a recovery order to be repatriated to its country of origin where the money was options through unlawful conduct in that country.
Brought up, and read the First time.
Dr Huq
I beg to move, That the clause be read a Second time.
The new clause would place a duty on the Secretary of State—and the enforcement agencies vested with the power to do so—to receive recovered property under the Proceeds of Crime Act 2002, and to repatriate recovered property where a court is satisfied that the property or the value of the property was begotten by illicit means. I hinted at the issue this morning. The clause builds on former Prime Minister David Cameron’s global forum for asset recovery, which came about after the anti-corruption summit of May 2016. We Opposition Members commend him for that. How he is missed. We have seen the forum begin to bear fruit, with the Government having signed a memorandum of understanding with Nigeria last September. There has clearly been limited progress on repatriation, but the Crown Prosecution Service’s most recent asset recovery strategy laments the low take-up of mutual legal assistance requests:
“Since London is a global centre for finance, there are a large number of criminal proceeds deposited in its financial institutions. Despite this, historically the CPS has not received a high volume of incoming MLA requests for the restraint and recovery of assets.”
Many of the people from the charitable sector who gave evidence worry that, at the end of the process, little will go back to those communities and third-world economies.
The Minister said on Second Reading, in relation to repatriating illicit wealth, that
“It is important to note that we are already doing this. In November 2015, the UK returned £28 million to Macau, which were the proceeds of corruption laundered in the UK. That is a concrete example of our giving back money to those countries that have been robbed by crooks who have used Britain to launder the money or to make the money in its jurisdiction. I want to see more of that and to see it go further.”—[Official Report, 25 October 2016; Vol. 616, c. 198.]
Through this new clause, we seek to help him with that process. He has made a clear commitment to seeing repatriation go further, and to ensuring that there is more of it. The CPS has also stated that mutual legal assistance is seriously underused, and that massive sums of illicit wealth are simply not subject to such requests and are therefore not being repatriated.
The new clause would not obstruct the Minister or the Government in their desire to see greater repatriation of illicit wealth. In fact, it would aid the Government in realising their aims. The new clause seeks to provide a different avenue from mutual legal assistance for repatriating illicit wealth, and it has a number of in-built safeguards to ensure that the UK repatriates such wealth to deserving countries, as well as safeguarding against the UK’s time being wasted.
Although the new clause is substantial in scope and takes up a number of pages in the amendment paper, we are not trying to cause an argument for argument’s sake. A precedent for repatriating wealth has been set, and the Committee has heard an example. The new clause would streamline the process, and I hope that the Government will take that in good faith; the new clause is technical, rather than political.
This is how we envisage the new clause working: where a court is satisfied that property is recoverable and issues a recovery order, and where it is also satisfied that the property was acquired with wealth illicitly obtained abroad, it may instruct a receiving enforcement agency to take steps towards repatriating that wealth upon the property being initially recovered. We term that a “repatriation order”—that is snappy.
Once such an order has been made, the Secretary of State would request co-operation and assistance in the repatriation process from a representative of the Government of the country of origin. The Secretary of State would then be free to enter into consultation with any other relevant third party. After that initial contact, an agreement would be reached with the aforementioned actors on how the value of the property would be used on repatriation.
The purpose of the measure is international development. In the new clause, proposed new section 266A(3)(a) of the Proceeds of Crime Act 2002 states that
“wherever possible the property repatriated will be used in a manner that will contribute to the implementation of Sustainable Development Goal 16”,
or the repatriated property will benefit the victims of the crime, or it will be used for its original purpose. The Government have some flexibility and room for discretion in the phrase “wherever possible”. Proposed subsection (4) contains a list of definitions.
Mr Wallace
First, I think that we all support what we are trying to do: returning money that we take off the bad guys to whomever it belongs to. If that is not possible—I used the example earlier of a criminal enterprise whose wealth was created by drug dealers, rather than by ripping off a state or somebody else’s assets—we return it to the prosecution authorities to ensure that they can continue.
Significantly, in the past, we have seen money paid back in cases of grand corruption. The UK is party to the UN convention against corruption, article 57 of which clearly requires embezzled funds to be paid back to the victim state, so we are already obliged under international law to do that. We must do that, and it is what we want to do. The £28 million returned to Macau that the hon. Lady and I both mentioned fell under the auspices of that convention. As we are subject to international law, there is no requirement to put such provisions in our domestic legislation. Nothing in our law prevents us from returning recovered assets.
Sharing and repatriating assets in asset recovery cases is a fast-developing issue in international law, and it is something that the UK fully supports. For example, there is a requirement, under the EU framework decision on the mutual recognition of confiscation orders, that at least 50% of assets recovered on behalf of another member be sent back to that state. The UK can return assets to any country, and where underpinning international agreements are required, we enthusiastically pursue them. For example, we recently concluded an asset-sharing agreement with Nigeria, under the formal title I referred to earlier.
This helpful debate on the Opposition’s new clause has allowed us to put these points on the record, but I trust that the Opposition will agree that there is no need for further primary legislation. Asset return happens anyway, with my full support and encouragement. Indeed, strict requirements in an Act could restrict our flexibility and make it harder to obtain effective asset-return agreements tailored to the peculiarities of individual cases. I am aware of a number of cases in which another country’s Government members have requested that we effectively co-return assets for certain projects, for fear of them disappearing into other parts of that Government that are corrupt. That type of flexibility is important to make sure that moneys returned do indeed get to the right place, rather than going back to the same place, and the same individual turning the assets of crime back into another townhouse in London.
That flexibility is really important, and while I cannot bind any successor Government, it would be odd if any Government chose to say, “No, thank you, we are going to keep everything, break our international law obligations, and upset a number of countries around the world by just pocketing this for ourselves.” It is not what we have done in the past, and it is not what we will do in the future. I urge the hon. Member for Ealing Central and Acton to look to our obligations under international law; I hope that that will satisfy her that we do not need more restrictive primary legislation on this issue.
Dr Huq
I listened carefully to the Minister. The 14 subsections in new clause 20 have a set of in-built checks and balances, and I know that the development charities would be disappointed if the new clause was not in the Bill. I accept, as I said, that things are being done on this front—the Macau example is a very good one—but as I understand it, the Minister says that there is no need for the new clause because there are international agreements. He mentioned the EU framework; the first money laundering directive also came from the EU, and we are leaving the EU, so I think it is no bad thing to put our own defence in the Bill, if only for ourselves. We would like to put the new clause to a vote.
Question put, That the clause be read a Second time.
Dr Huq
I beg to move, That the clause be read a Second time.
We discussed this subject this morning in connection with clause 38. The new clause would make it incumbent on the Secretary of State to do all that she can to ensure that there are public registers of beneficial ownership in the UK’s overseas territories and Crown dependencies for companies operating and registered in their jurisdictions.
Proposed new subsections (2) to (5) delineate the steps that the Secretary of State would take to ensure that such registers were adopted. Proposed new subsection (3) states that those territories that failed to do so by a specific time would be subject to an Order in Council. I know what was said this morning, but there is precedent for that; I could go through a whole list of examples, but I will not bore the Committee with that quite yet.
The Government have created a Bill with the express intention of stamping out financial crime and clearing up the UK and London’s image. We quite rightly no longer wish to be seen as a country that is a soft touch, or as a City where dirty money can be hidden. To me and others, it is therefore astounding that there is no mention at all of the UK’s overseas territories and Crown dependencies in the Bill.
Thanks to the Panama papers, we and the rest of the world know that the UK overseas territories and Crown dependencies facilitate corruption, money laundering and tax evasion on a global scale. I am sure that the Minister is sick to death of hearing about the issue—we heard about it so many times in the evidence, and pretty much in every speech on Second Reading, with both Government and Opposition Members mentioning it—but I am afraid to say that the public are also sick of hearing about the double standards that exist for the politicians and wealthy elite who do not pay their taxes.
Opinion polling and recent research has shown that more than eight in 10 people think that it is morally wrong for businesses to avoid paying tax, even if that is legal or looks like, prima facie, a victimless crime. Only 20% of people think that any political party has done enough, and 77% think that the Government should be doing more to ensure that companies stop tax-dodging; among leave voters, that figure rises to 83%. More than two thirds of people want the Government to insist on public registers of beneficial ownership in the overseas territories and Crown dependencies. Again, there is a whole alphabet soup of different organisations and charities involved. This is all according to ComRes polling done on the issue for Oxfam and Christian Aid.
The issue will continue to reappear until the Government start listening to the people, finally step in and, if needs be, compel overseas territories to toe the line. None of us wants overseas territories to have registers forced on them, so we would be delighted if they did something. Christian Aid suggested a timeline, a set of goals being put in place to make something happen, because nothing will happen overnight; those jurisdictions are used to propping up tax evasion, so they will not fall into line quickly. A set of dates and objectives, however, would be extremely helpful.
We have already heard today about how overseas territories and Crown dependencies are making progress, but it is not swift enough. They have had three years, but nothing has happened. Under the former Prime Minister, they were first asked to take action three years ago, but not one of them bothered to consult on that request. The ones that responded to it largely said a simple no to the supposed consultations. In April 2014, they were asked again to do so in a letter from the former Prime Minister, but only one, Montserrat, committed to adopting a public register. The worst offenders, however, the ones that facilitate the stealing of wealth from developing countries and so in effect harbour blood money —the British Virgin Islands and the Cayman Islands—ignored the Foreign and Commonwealth Office’s request to meet and discuss the issue. I tried to ask about that this morning, but did not get a proper answer.
At every step of the way, the overseas territories and Crown dependencies have sought to frustrate any real progress. I did not mention any particular ones by name in my speech on Second Reading, but I had a really snotty, or not very friendly, letter from the Isle of Man, basically saying, “How very dare you. You don’t understand any of this.”
The Library brief on beneficial ownership cites a Minister who said:
“We have made huge progress in ensuring that we have registers of beneficial ownership in the overseas territories…The progress that has been made in the overseas territories is the greatest under any Government in history, which perhaps is one reason Transparency International said that the summit had been a good day for anti-corruption.”—[Official Report, 15 June 2016; Vol. 611, c. 1745.]
However, the brief also states:
“Given that some of the Crown Dependencies and British Overseas Territories have already…said very firmly that they will not be creating public registers, it seems likely that any further negotiation towards such registers will not be easy.”
That is an impartial brief. Transparency International recognises that some people are setting their faces against this.
Dr Huq
Yes. The Minister was quoted in the Jersey States Assembly in a question about the fact that
“the U.K. Government hopes the Crown Dependencies might have made their Registers of Beneficial Ownership of Companies public by the end of this year, or into next year.”
The Deputy asked whether the Chief Minister would
“advise what discussions he has had”
and what steps were being taken to put in place the good work that the Minister has mentioned. The following answer came back:
“The U.K. Government accepts, and has accepted in conversations with us, that our approach meets the policy aims that they are trying to meet and international bodies, standard setters and reviewers, have acknowledged that our approach is a leading approach and is superior to some other approaches taken.”
The answer is quite long, and I will bore people if I read it all out, but in essence it was, “We’re doing enough, and we’ve been told that it’s fine.” That is quite scandalous. A supplementary question was also asked. The Chief Minister of Jersey has said, “We’re doing what we’re doing, and it’s enough.” That does not go far enough. As long as such countries can get away with that, they will do that. There is a race to the bottom. They are all saying, “We don’t have to do it; no one else is doing it.”
As I am sure the Minister knows, Orders in Council have been made over the years in relation to different things. One was made in 1991 to abolish capital punishment for the crime of murder in the Caribbean territories of Anguilla, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos Islands. In 2009, the UK Government suspended the ministerial Government and the House of Assembly of the Turks and Caicos Islands. The Government basically went in to run the thing: direct rule from London was imposed, despite opposition and criticism. There is a longer list of examples. That has been done before. It seems from the Chief Minister’s answer that Jersey thinks it can get away with it. Could we perhaps set a date of, say, 2020 and say that if it has not published entirely public registers of beneficial ownership by then, we will presume that all money coming through is dirty, or something like that? That may concentrate minds.
I could go on and on about the new clause, but I was told to be brief this afternoon, so I will end there for now. I am curious to hear the Minister’s response.
Richard Arkless
The SNP generally supports that proposition—we would prefer that Crown dependencies and overseas territories held publicly available registers of beneficial ownership—but to further a point that I made earlier, as the Scottish National party, we are obviously reluctant to compel this place in primary legislation to legislate for jurisdictions where it perhaps does not have locus. Proposed new section 2AA(5) in new clause 5 highlights the constitutional quagmire that that would put this place in. It states that this place would
“take all reasonable steps to support the Crown Dependencies to consent”.
Are we going to try to persuade them to consent? I do not quite understand what that subsection is getting at. If we have jurisdiction, we have jurisdiction; if we do not have jurisdiction, we simply do not have jurisdiction.
In conversations that I have had with the Jersey authorities—I have forthcoming conversations with the Isle of Man authorities, which sent me a similar letter, although I perhaps would not describe it in such terms—they have been at pains to stress that this place does not have competency to make such legislative provisions. I am minded to agree, even though I think it would be a good idea if they did, under their own steam, make those public registers available. Our position is that we support the proposition in principle, but we do not see that this new clause is competent, given the jurisdictional capabilities of this place over the Crown dependencies.
Roger Mullin
The SNP has been very supportive of everything today, but I have to say that for the past year and a half I have been having discussions with the Isle of Man authorities, including with the First Minister there, and I have found them genuinely willing to engage in discussions. I think that the language used about the Isle of Man was unfortunate.
Mr Wallace
As the hon. Lady rightly says, this subject has been raised significantly, both on Second Reading and elsewhere. New clause 21 would set a legislative timetable for the UK Government to ensure that overseas territories have a public register of beneficial ownership, and to work with Crown dependencies to achieve the same outcome. There is considerable interest in this specific issue and I am pleased that this amendment allows us to debate it. I understand where the Opposition are coming from and appreciate the desire for these jurisdictions to have publicly accessible registers of beneficial ownership information—David Cameron made this an ambition in 2015. I would be grateful if the hon. Lady clarified why she chooses to treat Crown dependencies differently from overseas territories when it comes to some of the measures; that would be helpful to all Members.
While the overseas territories and Crown dependencies are separate jurisdictions with their own democratically elected Governments, and are responsible for their own economic diversification and fiscal matters, we have been working with them on their role on company transparency. If public registers emerge as a new global standard, the UK Government would expect all relevant jurisdictions to meet that standard. However, it would be wrong to say that, in the absence of public registers, no efforts have been made to increase corporate transparency and tackle tax evasion and corruption. The Crown dependencies and those overseas territories with financial centres are already taking a number of important steps on beneficial ownership and tax transparency, which will put them well ahead of most jurisdictions. This includes some of our G20 partners and other major corporate and financial centres, including some states in the United States. These measures will prevent criminals from hiding behind anonymous shell companies and mark a significant increase in the ability of UK law enforcement authorities to investigate bribery and corruption, money laundering and tax evasion.
I asked officials whether there has ever been an example of our imposing legislation on the Crown dependencies. As far as we can find out, in recent history there has never been an example of our imposing legislation on Crown dependencies without their consent. That is important—we have not gone around imposing our will on Crown dependencies as we see fit. Where we have done so on overseas territories, it has been on very strong moral issues such as capital punishment. Both in Crown dependencies and overseas territories, people have moved quite significantly and, I have to say to the hon. Lady, far more significantly than in 13 years of a Labour Government. We cannot sit here and ignore the elephant in the room.
Under our Government, we now have a position where the debate in this room is about the word “public” and whether registers are going to be public. It is not about whether these islands and other places will have a central register of beneficial ownership. By next year, they will either have a direct central register or linked registers and that is 90% of the way. By the way, our law enforcement agencies will have automatic access to that information.
The best thing, in my view, would be to say, “Yes, we know what David Cameron’s intention was in 2015 when he made that statement; yes, the United Kingdom pretty much leads the world in making our register public for the whole of the United Kingdom”, but also to say, “Let us revisit this once we get the Bill through, once we see whether our law enforcement agencies can use that access to prosecute, deter, change culture and show the way forward.” If that is not happening, of course we can have these debates again, but we should recognise that a lot of those countries have moved without our imposing our will on them, and we are hopefully giving access to our National Crime Agency and HMRC—all the things that we struggled to get for very many years. Let us see where that journey takes us. Our intention is clear. We pretty much lead the world in this. I urge hon. Members to recognise that we are going a long way.
Richard Arkless
The Minister will forgive me if I am wrong, but he has only outlined the position and the progress made by the Crown dependencies in having registers and information sharing. Will he elaborate on the overseas territories or did I miss something?
Mr Wallace
I am grateful to the hon. Gentleman for pointing that out. I meant and/or the overseas territories. The full house will, hopefully by next year, have those registers in place with automatic sharing enabled for our law enforcement agencies, and vice versa—should someone choose to use our country to hide tax from those other countries, their law enforcement agencies will be able to have it.
What I notice about all this is that the world is changing. Transparency is in the ascendancy, secrecy is not. Whether these places are overseas territories or other countries that are nothing to do with the United Kingdom, it is not secrecy that makes them competitive or attractive, but the tax rates and surrounding regulations. That is generational change. Yes, there will be people who wish to hide their wealth for all the wrong reasons, but we are now in a position where our agencies and bodies of law and order will be able to access those areas. They will not have to rely on leaks or third-hand information.
I would not be surprised if, in five or 10 years, we are talking about entirely different countries around the world, maybe even countries that we might think would not be harder to access, but actually are. Those countries might have a more developed legal system and a more protective privacy system that makes it harder for our forces of law and order to get hold of data. I certainly think that these places have come 90% of the way, and we should see whether that works for us. We all have the intention and the United Kingdom is leading by example.
The new clause is a very strong measure. We should not impose our will on the overseas territories and Crown dependencies when they have come so far. Irrespective of the point raised by the hon. Member for Ealing Central and Acton about their attitude and about whether they were pushed or forced, they were not pushed there by a gunboat. It is important to recognise that we have got where we have through cajoling, working together and peer group pressure, which, after all, makes a real difference. Therefore, I urge the hon. Lady to withdraw the new clause.
Dr Huq
It is not good enough to say that we just have to pat ourselves on the back and that everything is fine. I am a bit disappointed with the Minister for trotting out that thing about 13 years of Labour. What did Labour do? We passed the Proceeds of Crime Act 2002, which the Bill amends; the Serious Organised Crime and Police Act 2005; the Bribery Act 2010, section 7 of which we discussed so much this morning; and the Money Laundering Regulations 2007. We created the Serious Organised Crime Agency to ensure a single, intelligence-led response to organised crime.
Dr Huq
Let me finish this list. We also passed the Terrorism Act 2000, part 3 of which we have been amending here, as well as part 2 of the Anti-terrorism, Crime and Security Act 2001—legislation to deal with all these things that we have been talking about, such as terrorist funding. It is a bit low of the Minister to trot out that one about 13 years of Labour. We have been consensual and friendly all the way through this Committee, saying what good legislation this is, so that is a bit tawdry. [Interruption.]
The Chair
Order. It is a bit difficult to hear what the hon. Lady has to say. Is the Minister intervening?
Mr Wallace
We could say that that is a whole list of missed opportunities for Labour to impose its will on the Crown dependencies. The point is that this takes time. I do not expect Labour to rustle up a perfect, tax-transparent solution to the problem; I did not expect Labour to do it in 13 years, and it is unreasonable to say suddenly, “We are going to impose it in the Bill.” There has been a direction of travel all the way through the last decade and a half. This has been about building a slow but thorough process to make sure that we got to where we are. We will be back again on economic crime and reviews of regulators, and to build on some of these issues.
Dr Huq
I respect the Minister and I know that he is a reasonable person, but six years into government, he is dragging up the record of a previous Government. I would like to pass on to him the Hansard of the States of Jersey legislature. In it, the question was asked:
“Can the Chief Minister confirm that this is not something that, from Jersey’s perspective, is immediately on the cards”
or is
“the Minister for Security in the UK”—
that is the Minister opposite me—
“under a misunderstanding of what direction the Crown Dependencies are going in?”
The answer from Senator Gorst, from the governing party in Jersey, was as follows:
“they have decided that the best approach for them is a public register. Of course, they are asking others around the world to consider following their approach. We take the approach which meets the international standard which is, as far as we are concerned, a leading approach.”
Judging from that, Jersey has no plans to have a public register until it becomes the international standard.
I accept that the Minister says that it is bad to compel people to do things, but in my last speech, I said that we could work towards some sort of timeline or some dates. Rather than compelling and forcing people to do things, we can encourage them with dates. Already three years have passed, and very little has happened. From what the Chief Minister and all these people in Jersey have said, it looks very much as though they have no intention of taking this action. Earlier, my hon. Friend the Member for Bootle referred to things looking a bit hypocritical from the outside; I worry that people might judge us that way. I have listened carefully to what the Minister said. We will not push the new clause to a vote, but I am sure that he is aware that a lot of people are concerned about the issue. I thought he would be interested to see that Hansard, in which he is mentioned; it is quite flattering. I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
Clause 45
Minor and consequential amendments
Question proposed, That the clause stand part of the Bill.
The Chair
With this, it will be convenient to discuss the following:
That schedule 5 be the Fifth schedule to the Bill.
Clauses 46 to 51 stand part.
Mr Wallace
The remaining clauses in part 4 are relatively technical and straightforward. I am tempted to sit down after saying that. They are also similar to other pieces of legislation, so I will not delay us much longer, beyond highlighting a few points.
Clause 46 allows the Secretary of State to make by regulation such provision as they consider necessary in consequence of this Bill. Clause 47 sets out the procedural requirement for making regulations in respect of the devolved Administrations, while clause 49 covers the Bill’s territorial extent. Most of the Bill extends to England, Wales, Scotland and Northern Ireland. As I stated on Second Reading, we expect the Scottish Government and the Northern Ireland Executive to seek legislative consent motions from their legislatures; I welcome that, and support them in doing so. I am grateful for our constructive and ongoing engagement with the devolved Administrations.
As this brings us to the end of the Committee, I pay tribute to the Chair and co-Chair for their expeditious and authoritative chairing of our proceedings, and to the many members of the House authorities that have facilitated our consideration of the Bill. They include the Clerks of the Public Bill Office, the Doorkeepers, Hansard and many others.
I am grateful for the constructive approach taken by the Opposition Front Benchers and the Scottish National party in trying to make the best of the Bill. It is not over yet; I understand that there is a long way still to go. I am grateful for the amendments that were tabled, including those from the hon. Member for Stoke-on-Trent Central. I thank the hon. Members for Dumfries and Galloway, and for Kirkcaldy and Cowdenbeath, for pointing out the issues to do with Scottish limited partnerships and other concerns; I shall meet them for discussions.
The fact that the Committee stage is to finish early is a testament to the significantly cross-party approach, it says here. We shall, I hope, return to the Floor of the House with the Committee’s strong endorsement of the Bill as well drafted legislation that will make a difference in the fight against organised crime.
Since I took on my present job, I have had to deal with a range of matters, including terrorists and serious organised crime. The bit that scares me the most is the serious and organised crime—the wealth of those individuals, and the impunity with which they operate. I cannot say how helpful the Bill will be, at least in taking away their profit and returning it to the countries or people they have stolen from or, failing that, to the forces of law and order. When I go to sleep at night, it is serious and organised crime that scares me more than anything else in my brief. I hope that we have gone a long way towards at least deterring those engaged in it, and sending a strong message to people who think that such behaviour is permissible.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Schedule 5
Minor and Consequential Amendments
Amendments made: 54, in schedule 5, page 140, line 11, leave out “designated” and insert “counter-terrorism”.
See the explanatory statement to amendment 16.
Amendment 73, in schedule 5, page 140, line 32, at end insert—
‘( ) In paragraph 5, in sub-paragraph (1), for “this Schedule” substitute “any provision of this Schedule other than Part 2A”.
( ) In that paragraph, omit sub-paragraph (4).”
This amendment is consequential on NC18.
Amendment 74, in schedule 5, page 140, line 33, at end insert—
‘( ) In paragraph 8(1), for “this Schedule” substitute “paragraph 6”.”
This amendment is consequential on NC18.
Amendment 75, in schedule 5, page 140, line 34, at end insert—
‘( ) After paragraph 9 insert—
Restrictions on release
9A Cash is not to be released under any power or duty conferred or imposed by this Schedule (and so is to continue to be detained)—
(a) if an application for its forfeiture under paragraph 6, or for its release under paragraph 9, is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cash is connected, until the proceedings are concluded.”
( ) In paragraph 10, in sub-paragraph (1) after “Schedule,” insert “and the cash is not otherwise forfeited in pursuance of a cash forfeiture notice,”.
( ) In that paragraph, after sub-paragraph (8) insert—
“(8A) If any cash is detained under this Schedule and part only of the cash is forfeited in pursuance of a cash forfeiture notice, this paragraph has effect in relation to the other part.””
This amendment is consequential on NC18.
Amendment 55, in schedule 5, page 141, line 27, leave out “303O(4) and insert “303O(5)”
This amendment corrects an incorrect cross-reference.
Amendment 56, in schedule 5, page 142, line 2, at end insert—
( ) in paragraph (b) (as amended by section 28 of this Act), for “or 298(4)” substitute “, 298(4) or 303O(5)”;” —(Mr Wallace.)
This amendment is consequential on amendment 15 and corresponds to the amendment of section 82 of the Proceeds of Crime Act 2002 made by paragraph 18(3)(b) of Schedule 5 to the Bill, as amended by amendment 55.
Schedule 5, as amended, agreed to.
Clauses 46 to 48 ordered to stand part of the Bill.
Clause 49
Extent
Amendment made: 52, in clause 49, page 102, line 34, at end insert—
“() section 28(2A);” —(Mr Wallace.)
This amendment is consequential on amendment 15.
Clause 49, as amended, ordered to stand part of the Bill.
Clause 50
Commencement
Amendment made: 53, in clause 50, page 103, line 5, after “25” insert “and 28(2A)”—(Mr Wallace.)
This amendment is consequential on amendment 15.
Clause 50, as amended, ordered to stand part of the Bill.
Clause 51 ordered to stand part of the Bill.
Question proposed, That the Chair do report the Bill, as amended, to the House.
Dr Huq
It has been a pleasure to serve under your chairmanship, Mrs Main, and that of Sir Alan Meale in the earlier sittings. I commend the Minister on the Bill. We can all sleep safely in our beds because of it. I am fortunate that my first Front-Bench service has been with such a nice Minister. I look forward to working constructively with the Government on Report—even if there were some tiny things. However, let us not raise those.
Richard Arkless
I add my thanks to you, Mrs Main, and congratulate you on your splendid chairing today. We got through the Bill at a rate of knots, and like other Members, I am delighted to be leaving before 3.30 pm, thanks to you. I do not wish to inflate the ego of the Minister any further, given the compliments that he has had from all sides. Suffice it to say that with the second name Wallace, I wonder what happened.
There is a great deal of cross-party consensus about the objectives of the Bill. It is about making sure that the bad guys, who elicit huge sums of money from criminal activity, have nowhere to hide. We are all focused on that goal, and we will all come together to make sure that that happens. If we can achieve that—subsequent, obviously, to lengthy conversations that we still have to have on a few points, and I am sure that the Minister will treat those conversations as he has done others throughout the Bill process—then I am sure that we can get to a position that will satisfy us, if not in this primary legislation on Report, then certainly within the contemplation of Government in future. That is certainly our objective. Unlike my more experienced colleague, my hon. Friend the Member for Kirkcaldy and Cowdenbeath, who has been an MP for the same amount of time as me, this is my first Bill Committee. It has not been the most contentious in the world, which I suppose I should be grateful for, but I look forward to the other stages on the Floor of the House, and I thank all Members.
Question put and agreed to.
Bill, as amended, accordingly to be reported.
Criminal Finances Bill
Tuesday 21st February 2017
(7 years, 2 months ago)
Commons ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 21 February 2017 - (21 Feb 2017)
17:18 - The House divided: - Ayes: 180 / Noes: 301 - Question accordingly negatived.
17:32 - The House divided: - Ayes: 241 / Noes: 300 - Question accordingly negatived.
The Minister for Security (Mr Ben Wallace)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 1—Civil recovery: gross abuse of human rights—
‘(1) Part 5 of the Proceeds of Crime Act 2002 (civil recovery of the proceeds etc. of unlawful conduct) is amended as follows.
(2) In section 241 (which defines unlawful conduct), after subsection (2), insert—
“(2A) Conduct which—
(a) occurs in a country or territory outside the United Kingdom and has been designated as conduct by a person connected to a gross human rights abuse in accordance with the provisions of section 241B, and
(b) if it occurred in a part of the United Kingdom, would be or would have been unlawful under the criminal law of that part at the relevant time,
is also unlawful conduct.”
(3) After section 241 (which defines unlawful conduct), insert—
“241A Conduct connected to a gross human rights abuse
(1) “Conduct connected to a gross human rights abuse” means—
(a) involvement by a Person (“A”) in torture or other serious breaches of human rights and fundamental freedoms against a Person (“B”) where B sought or seeks—
(i) to expose illegal activity carried out by foreign public officials, or
(ii) to obtain, exercise, defend or promote human rights and fundamental freedoms,
(b) activities by a Person (“C”) as an agent in a matter relating to an activity by A described in paragraph (a),
(c) activities by a Person (“D”) to profit from, materially assist, sponsor, or provide financial, material or technological support for, or goods and services in support of, an activity by A described in paragraph (a),
(d) commission by a Person (“E”), whether or not a foreign public official, of the illegal activity described in paragraph (a)(i).
(2) For the purposes of this section, it is immaterial where the conduct occurred.
(3) In this section “human rights and fundamental freedoms” means the “Convention rights” as defined in section 1 of the Human Rights Act 1998.
241B Designation of conduct connected to a gross human rights abuse
‘(1) The High Court may make an order designating that the actions of the respondent constitute conduct connected to a gross human rights abuse and, if considered appropriate, that—
(a) a person is prohibited from dealing with property, funds or economic resources owned, held or controlled by the respondent if the person knows, or has reasonable cause to suspect, that the person is dealing with such property, funds or economic resources,
(b) a person is prohibited from making property, funds or financial services available (directly or indirectly) to the respondent if the person knows, or has reasonable cause to suspect that the person is making the funds or financial services so available,
(c) a person is prohibited from making funds or financial services available to any person for the benefit of the respondent if the person knows, or has reasonable cause to suspect, that the person is making the funds or financial services so available.
(2) An order under subsection (1) may only be made on application.
(3) An application for an order under subsection (1) may be made by—
(a) the Secretary of State,
(b) an individual, or
(c) an entity, including a non-governmental organisation.
(4) An application for an order under subsection (1) must be supported by a statement of information which addresses—
(a) the circumstances surrounding the respondent’s conduct connected to a gross human rights abuse, and
(b) the nature and extent of the respondent’s involvement.
(5) An application for an order under subsection (1) may be made without notice to the respondent to a judge in chambers.
(6) The Court must be satisfied that it is in the public interest to make an order under subsection (1).
(7) The Court shall reach a decision on an order under subsection (1) on the balance of probabilities.
241C Duration, extension, variation and discharge of an order
‘(1) The High Court shall specify the duration of an order under section 241B(1) which shall not exceed two years.
(2) In determining the duration of an order, the Court shall have regard to the likely duration of consequential proceedings under this Part.
(3) The Court may extend an order for a maximum period to two years at any time before it expires, if it is satisfied that the requirements of a designation order continue to be met.
(4) An extension application may be made without the need for a hearing if the court considers it appropriate.
(5) An application to extend, vary or discharge an order may be made to the court by—
(a) the Secretary of State,
(b) the applicant,
(c) the respondent, or
(d) any person affected by the order.
(6) An application to discharge a designation order must be made by the applicant as soon as reasonably practicable in circumstances where the requirements of an order are no longer satisfied.
241D Appeals, etc.
‘(1) The following persons may appeal to the Court of Appeal in respect of the High Court’s decision on matters falling to be decided under sections 241B and 241C—
(a) the applicant,
(b) the respondent, or
(c) any person affected by the order.
(2) On an appeal under subsection (1) the Court of Appeal may—
(a) confirm the decision, or
(b) make such orders as it believes appropriate.
(3) An appeal lies to the Supreme Court from a decision of the Court of Appeal on an appeal under this section.
(4) An appeal under this section lies at the instance of any person who was a party to the proceedings before the Court of Appeal.
(5) On an appeal under this section the Supreme Court may—
(a) confirm the decision of the Court of Appeal, or
(b) make such order as it believes is appropriate.
241E Standard to be applied
All matters to be determined by a court under sections 241B to 241D are to be decided on the balance of probabilities.
241F Costs
In the exercise of its discretion, a court may, on application, make a costs capping order in respect of proceedings under sections 241B to 241D.
241G Duties in respect of gross abuse of human rights
‘(1) It shall be the duty of the Secretary of State to apply for an order under section 241B where the Secretary of State is satisfied that—
(a) the requirements for the making of an order are met; and
(b) it is in the public interest to make the application.
(2) It shall be the duty of the Secretary of State to maintain a public register of—
(a) individuals in respect of whom orders have been made under section 241B(1),
(b) the circumstances giving rise to the making of such orders, and
(c) any decisions of a court under sections 241C and 241D in relation to such orders.
(3) In any case where a relevant authority considers that evidence is available of property being held by a person in respect of whom an order has been made under section 241B which may represent property obtained through unlawful conduct, it shall be the duty of the relevant authority to seek to initiate proceedings for civil recovery under this Part.”
(4) In section 304 (which defines recoverable property), after subsection (1), insert—
“(1A) Property of a person who is the subject of a designation order under section 241B is presumed to have been obtained through unlawful conduct unless the contrary is shown by the respondent.””
This new clause extends the scope of unlawful conduct for the purposes of Part 5 of the Proceeds of Crime Act 2002 to cover to certain actions connected to a gross human rights abuse which has taken place abroad.
Government amendments 58 and 59.
Mr Wallace
Some time has passed since we last considered this Bill. There was, as hon. Members will recall, a great deal of cross-party consensus on it, both on Second Reading and in Committee, and I hope that we will be able to continue in that same spirit of constructive debate and healthy scrutiny today.
This first group of amendments concerns the extremely grave matter of gross human rights abuses or violations. The Government are committed to promoting and strengthening universal rights globally, and I welcome the opportunity to debate this issue. In particular, these amendments have been prompted by the harrowing case of Sergei Magnitsky. Magnitsky was not a serious criminal; he was a lawyer who tried to blow the whistle on large-scale tax fraud in Russia, and he believed that he would be protected by the law. Unfortunately, he died in state custody in 2009 after suffering both mistreatment and assault, and being denied medical attention. I share the strong feelings of many hon. Members about this case, and I want to reassure the House that the Government have expressed, both publicly and to the Russian Government, our serious concerns about Mr Magnitsky’s death. Of course, we must also remember that his case is only one of many atrocious human rights violations committed globally each year.
As I am sure that hon. Members will highlight, the US has legislated to prohibit the entry of certain named individuals to the US and to forbid them use of the US banking system. Less than two months ago, President Obama’s Administration extended the legislation so that it could be applied to those involved in human rights violations, wherever in the world they have taken place. That sends an important signal that perpetrators of gross human rights violations will face consequences. However, we have an entirely different legal system, which merits a different approach.
I pay tribute to those hon. Members who have raised this issue by tabling new clause 1—in particular, my hon. Friend the Member for Esher and Walton (Mr Raab), the right hon. Members for Barking (Dame Margaret Hodge) and for Carshalton and Wallington (Tom Brake), and the hon. Member for Ross, Skye and Lochaber (Ian Blackford). I am grateful to hon. Members for giving me advance notice of the amendment, and am pleased to have had the opportunity to discuss it with many of its signatories.
It has always been the Government’s position that for further legislation to be warranted on this issue, there would need to be a real case that existing powers were insufficient. I hope that hon. Members will agree that we should avoid doing anything that might have an impact on the effectiveness of our existing sanctions and civil recovery powers. The National Crime Agency has confirmed that it has considered all the material provided to it on the Magnitsky case. It concluded that the individuals whom we believe to be connected to the case do not reside in the UK, and it has identified no assets of value in the United Kingdom that are connected to the case, so the additional powers proposed in new clause 1 would have no obvious material effect on the individuals involved in this case.
Mr Jonathan Djanogly (Huntingdon) (Con)
The point about the Magnitsky Act in the US is that it pulls together the visa ban, the ban on using American banks and the inability to trade there; the advantage is that it is all pulled together. I appreciate that the scenario is different in this country, but will the Minister please explain how he intends to pull the links together in this country, using the different pieces of existing legislation?
Mr Wallace
I am grateful to my hon. Friend for that point. I will get to that later in my speech, but we have to recognise this difference between the United States and the UK: here, most of our sanctions regimes are under the European Union umbrella. Of course, there will be time to discuss those sanctions, and the United Kingdom’s post-Brexit arrangements, at a later date. When it comes to sanctions, we have slightly different dispersals of authority and power from the United States, which often can, and does, act entirely unilaterally in this area; we should point that out.
One problem with new clause 1 is that we think it would be non-compliant with our domestic human rights law, because it contains no derogations. It would freeze all the assets of a designated individual, so they would not have any funds for living expenses or medical treatment, or to pay for legal representation. The reversal of the burden of proof, so that it would be assumed that all assets owned by designated individuals were the proceeds of their unlawful conduct, would also be an unprecedented step. That is incongruous with the existing civil recovery regime and could be judged by the courts to be disproportionate.
However, we recognise the strength of feeling on this matter, and understand the deterrent effect that such an amendment would have on those who seek to profit from the gross abuse or violation of human rights overseas.
Tom Brake (Carshalton and Wallington) (LD)
The Minister is clearly very well informed on this issue, and I know that he has had meetings on the subject. If assets connected to the case were identified in the UK—I know that there is a dispute with Bill Browder, who believes that there are such assets here—is the Minister confident that existing legislation or his new clause 7 would enable them to be frozen?
Mr Wallace
I am grateful to the right hon. Gentleman for his point. I have to respect the boundaries of our law enforcement agencies. As a Minister, I cannot direct them to take action; they have an operational freedom and independence that we value greatly in this country. They have said to me that should actionable evidence be presented to them, they would be free to follow that up and enforce the law. Speaking as the Minister, where actionable evidence of gross human rights abuses or other criminal offences is presented, of course we would like to see action taken. This is not about trying to shelter people who have been involved in those offences; it is about trying to make sure that the appropriate action is taken when the correct evidence is presented. I absolutely concur with the right hon. Gentleman’s point: it is important to understand that we need to act on the evidence. If there is evidence, we could take action, even without this legislation. I certainly urge our law enforcement agencies to take action to make sure that people are held to account for the atrocious murder in Russia of Mr Magnitsky.
We have tried to come some way towards meeting many of the concerns of hon. Members by tabling new clause 7 and the consequential amendments 58 and 59. They would widen the definition of “unlawful conduct” in part 5 of the Proceeds of Crime Act 2002 to include torture or
“the cruel, inhuman or degrading treatment”
of those exposing corruption, or obtaining, exercising, defending or promoting human rights, including in cases where that conduct was not an offence in the jurisdiction in which it took place. That would allow any assets held in the UK that were deemed to be the proceeds of such activity to be recovered under the provisions in part 5.
Chris Bryant (Rhondda) (Lab)
The Government’s new clause 7 contains no duty on the Government to act at all; they can simply ignore the provisions. That is one of the key differences between new clause 7 and new clause 1, tabled by the hon. Member for Esher and Walton (Mr Raab).
Mr Wallace
The hon. Gentleman talks about duty, but there are lots of criminal offences on the statute books on which the Government do not have a duty to act. We leave it to the interpretation and freedom of our law enforcement agencies to act. Are we to say that the duty in this case is greater than the duty on the police to act on burglary or on a whole range of other criminal offences? The fundamental issue is that the hon. Gentleman wants to put a duty on the Government for one specific type of criminal offence, which would, I am afraid, hinder the freedom of our law enforcement agencies to take the appropriate action when the evidence was presented to them.
Chris Bryant
But in the Government’s new clause, as opposed to new clause 1, there is no provision for third parties to bring a case to the courts to allow the seizure of assets, so, yet again, the Government are closing off the options for tackling money laundering in London and the UK.
Mr Wallace
I am afraid we are not. The National Crime Agency, the Serious Fraud Office and Her Majesty’s Revenue and Customs are not full of people who do not want to do their job. They want to enforce the law: they want to go out and catch the criminals and stop money laundering. It is slightly insulting to imply that if we did not put a duty on them, they would not do it. They would do it. The problem with new clause 1 is that it would allow non-governmental organisations and individuals—it does not define whether those NGOs or individuals are foreign or from the UK—to go to the court, with limited liability, to force the Government to take action, without a high threshold at all.
For example, under new clause 1 a Cuban exile living in Florida who does not like the rapprochement with the Cuban Government could come to our courts to allege human rights abuse and make an application against the Cuban ambassador’s assets in this country, and actually confiscate or freeze those assets. It would not only preclude us from making peace or moving on with some countries, but would allow massive amounts of vexatious claims based on gimmick politics. That is why we have to respect the professionalism and independence of our law enforcement agencies and allow them to make the case based on the evidence presented to them.
Chris Bryant
That is simply not the case. For example, we already regularly have lots of vexatious applications from Russia for the extradition of Russians who are now resident in the United Kingdom, but the court decides. New clause 1 would not allow an individual to decide that somebody’s assets must be frozen; a court would decide.
Mr Wallace
First, the hon. Gentleman misses the point that courts do not like vexatious complaints. They do not like time-wasting applications with what would be in the case of new clause 1 limited liability for those people who want to use the court’s time to make a statement. Secondly, applications for deportation are often made by the state. The hon. Gentleman would open it up to individuals all over the world to come to our courts, without liability, to make the case for or to make a gesture out of freezing individuals’ assets, without any recourse to the state or even necessarily to evidence. That would open up a whole can of worms for countries around the world.
I shall give another example. We have sponsored and supported the peace deal in Colombia. Should the Colombian Government at some stage choose to send somebody with a background in the FARC to represent them or to be a cultural attaché in their embassy or something, and somebody in Colombia does not like that, under new clause 1 they could, as an individual, come to a court here and make a tokenistic application. The judiciary might throw it out, but there is capped liability, so the court’s time could be wasted writ large by lots of people making statements and blocking the courts.
Mr Djanogly
Have the Government considered whether any application should go first to the Attorney General before being allowed to proceed? That might stop the abuse that the Minister is suggesting.
Mr Wallace
We did consider that in consultation with the office of the Attorney General and the Solicitor General, but it was felt that there was not the appropriate need for that, so we progressed with new clause 7 as it is drafted. We should remember that we are putting on the statute book a new power to take action based on gross human rights abuse, torture and degrading treatment. We have not done that before and it is a major step. It is a major signal to countries around the world that if evidence is presented, we could interdict with their assets. That sends the powerful message that London and the United Kingdom are not bases for them to put their assets or ill-gotten gains from such behaviour.
Sir Eric Pickles (Brentwood and Ongar) (Con)
Surely that is the substantive point. The concern would be that we would get not only vexatious complaints, but complaints designed for publicity, in the almost certain knowledge that such complaints would not be seen through by the courts and there would be virtually no cost to the people making the complaint. New clause 7 provides the opportunity to nab the guilty, and it says to people that bloodstained dictators have no place putting their money in this country.
Mr Wallace
My right hon. Friend is absolutely right that it sends a message, but it also respects the independence of our law enforcement agencies so that they can apply the law and take action when they are presented with evidence, which will ensure that the courts’ time is not wasted and that we get successful results when we deal with these individuals. It will also ensure that it is done in a way such that the Executive retains the initiative to carry out the process and prevent vexatious complaints. Judges will tell us that they do not want their courtrooms to become public relations arenas in which people can make vexatious applications; they want their courts to be able to decide on the basis of evidence. Under new clause 7, they will be able to do that, but we respect the operational independence of our law enforcement agencies.
All that explains why we tabled the new clause. As I have said, it would allow any assets held in the UK that were deemed to be the proceeds of the activities I outlined to be recovered under the provisions in part 5. Of course, any civil recovery would be subject to all the existing processes and legal safeguards in the Proceeds of Crime Act 2002. The court would need to be satisfied, on the balance of probabilities, that the property in question was the proceeds of crime, or was likely to be used to fund further criminal activity. Law enforcement agencies would, as ever, need to consider which of their powers to utilise on a case-by-case basis.
I hope Members will agree that the new clause would send a clear statement that the UK will not stand by and allow those who have committed gross abuses or violations around the world to launder their money here. I have been the Minister in charge of the Bill from the beginning, and when colleagues from either side of the House have tabled amendments, I have asked my officials, “Do they have a point?” I have asked my officials about the evidence set against Mr Magnitsky’s killers and to find out whether we have actually done the work we say we are doing. I make sure; I do not just take things at face value. It is important to say that I am confident that we have not taken action in this case because we have not yet had the evidence to do so or the assets have not been located in the right place. I have checked that out and verified it.
I have come to the House today with an attempt to put a compromise in statute—to put gross human rights abuse on record for the first time. I hope we can send the right message to the regimes, criminals and individuals around the world, while at the same time respecting the law enforcement agencies so that they can carry out their job unhindered by political interference, or by third-party groups or anyone else who might want to use publicity rather than actual evidence to further their cause. That is really important. I shall pause my comments there and wait to hear from other Members, and then respond at the end of the debate.
Richard Arkless (Dumfries and Galloway) (SNP)
It is not fair for us to live in a world in which criminals are free to generate cash and spend it without fear of repercussion. Given what I have learned during the progress of the Bill, I think all Members on both sides of the House would agree with that sentiment. There simply must be a level playing field for the vast majority in society who chose to play by the rules.
Until now, provisions on financial crime have been focused on anti-money laundering regulations and proceeds of crime legislation, which have been specifically geared towards dealing with the proceeds of drug traffickers and bank robbers. In many senses, it has worked. It is not as easy to launder money in 2017 as it used to be, although, sadly, it is not impossible. It used to be the perception of criminals that if they could evade capture and not flash the cash, they could eventually spend their ill-gotten gains. In many cases, criminals looked forward to spending the gains when they were released.
Thankfully, the world has moved on, and this Bill is an attempt to move us another step ahead of the criminals, so that we as a society are fit to attack the finances of criminals in 2017 and beyond. We cannot buy into the rule of law unless we can agree to the evolution of regulations surrounding the financial industry that has happened over the years. Today, we face the threat of grand corruption, particularly in relation to politically exposed people, which is facilitated for the most part—perhaps unwittingly—by the City of London.
Last year, The Guardian revealed, through the Panama papers, how a powerful member of Gaddafi’s inner circle had built a multi-million pound portfolio of boutique hotels in Scotland and luxury homes in Mayfair, Marylebone and Hampstead in London. He was head of Libya’s infrastructure fund for a decade and has been accused by Government prosecutors in Tripoli of plundering money intended for schools, hospitals and infrastructure projects.
Scottish police have confirmed that they are investigating the matter. Libya has made a request for an asset freeze, but, as far as I understand it, the freeze has not been implemented. With the powers contained in the Bill, we could have dealt with such an injustice much more swiftly, so, in general terms, we welcome its provisions. However, as I intimated earlier in this process, our issue is not with what is in the Bill, but with what is not in the Bill. None the less, that list has narrowed as this process has continued.
The Bill does not satisfactorily address corporate economic crime—which we will discuss in the third group of new clauses, which includes proposals on Scottish limited partnerships, on which my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) has done so much to campaign—and the real facilitator of criminal finances: the profit-seeking, responsibility-shedding and self-serving banking culture that we have in the UK and the wider western world. Until we challenge the attitude of the banks that house these moneys, we will never absolutely deal with the criminality. The Bill attempts to deal with the symptoms of the criminality—getting at the assets and seizing them—but it does not deal with the facilitators, the banks, which is a great shame.
New clauses 1 and 7 have been touched on by the Minister, and much of the talk has been about the scope for applicants to bring an application under these provisions. In general terms, those new clauses seek to extend the scope of unlawful conduct. That makes sense in that a public official—or someone acting with the consent or acquiescence of a public official—who is depositing funds in the UK should not be safe on account of that criminality having occurred abroad. I think that most people would agree with that sentiment; it is a sensible and logical step, and one that we support in principle.
The protection of human rights is a profoundly good thing. Violations of human rights should not be allowed to remain hidden behind international borders—they should be there for the world to see—and the consequences of such violations should be global consequences. With the adoption of either new clause 1 or new clause 7, the UK will no longer be a hiding place in that respect, and that is worth lauding.
What are the differences between the new clauses? As has been suggested, there is wider scope for more applicants to make applications under new clause 1. The Government say that that is not necessary, as the judiciary would vet those claims; it would be up to the court, not the applicant, to decide their merits. One other difference is that the ambit of new clause 1 is wider with regard to potential respondents, as it includes more people connected to criminality. Will the Minister touch on the scope of respondents as well as the scope of applicants and the differences between new clauses 1 and 7?
Furthermore, new clause 7 contains a provision, which is mirrored in amendments 58 and 59, to set the limitation period for actions under unlawful conduct to 20 years. In one sense, we welcome that, because without it the standard limitation periods of five and six years would apply. However, given that we are talking about gross violations of human rights—torture and the like—should a perpetrator ever be free from those crimes? Are we saying that, 20 years after someone has committed a gross violation of human rights, their money should be safe? Given that some of these abuses take years to come to light, are there unintended consequences that could let some of the criminals off the hook?
Mr Dominic Raab (Esher and Walton) (Con)
I rise to speak to new clause 1, which is known as the Magnitsky amendment, and to touch on the Government’s new clause 7 in the process.
New clause 1 was tabled by me, the right hon. Member for Barking (Dame Margaret Hodge) and 50 hon. Members representing eight different political parties across the House. That is testimony to the cross-party nature of our ambition, which was kindled by the tragic murder, on the instructions of the Russian state, of the young Russian lawyer, Sergei Magnitsky. In November 2008, Magnitsky was arrested and detained. His crime was to identify the perpetrators of the biggest tax fraud in Russian history, which was committed by the Russian Government against the investment firm, Hermitage Capital, that employed Magnitsky and against the Russian taxpayer to the tune of a mind-boggling $230 million.
For his courage, Sergei Magnitsky was jailed and tortured for almost a year, and then ultimately murdered. The crime was perpetrated by some of the very officials whom Magnitsky had identified. Although those appalling crimes were documented by two Russian investigations, no one has ever been brought to justice in Russia. Perversely, it was Magnitsky who was convicted, posthumously, of fraud—a sickening snapshot of the corrupt and venal state of the Russian justice system today.
Large amounts of the stolen money were subsequently laundered out of Russia, and Hermitage Capital submitted to all the relevant UK authorities detailed evidence of $30 million that was sent to the UK between 2008 and 2012, including to firms run or owned by the Russian mafia. Despite receiving that evidence, the Metropolitan police, the Serious Organised Crime Agency, the Serious Fraud Office, HMRC and the National Crime Agency have never opened a single investigation. Notwithstanding the Minister’s comments, this case also shines a light on the weaknesses of our own justice system, which is what we are here to address today. We should be clear in this House that, although Magnitsky has been the standard-bearing case for reform, it is by no means an isolated case. According to the Home Affairs Committee’s 2016 report on the proceeds of crime, an astonishing £100 billion is laundered through UK banks alone each year, and we know from the NCA that only around 0.2% of that figure is currently frozen.
No one wants Britain to be a competitive global hub that attracts investment and is open to international talent more than I do, but I also want us to be known the world over for our integrity, our commitment to the rule of law and our adherence to the most basic of moral principles. We therefore have to stop turning a blind eye to the blood money of butchers and despots that, frankly, flows all too freely through some UK businesses, banks and property. New clause 1 is designed to address the weaknesses in the current UK asset-freezing regime. I pay tribute to Jonathan Fisher QC, the expert in this field—one of the leading experts in public law and human rights law—who carefully helped us to craft the mechanism.
New clause 1 would enable the Secretary of State, an individual or a non-governmental organisation to convince the High Court to make an order to empower the UK authorities to freeze assets where it can be demonstrated, on the balance of probabilities, to a senior judge that those assets relate to an individual involved in, or profiting from, gross human rights abuses. The clause would put a duty on the Secretary of State to pursue such an order when there is sufficient evidence and when it is in the public interest to do so—there is a measure of flexibility—and would establish a public register of those who are subject to such orders, all against the backdrop of appropriate safeguards and due process in law.
The Government have responded with their own proposal, new clause 7. In fairness, it is only right and proper to pay tribute to the Security Minister and the Foreign Secretary for engaging so seriously with the issue and, ultimately, for being willing to act. New clause 7 would, indeed, mark a significant step forward, principally because it would provide specific statutory grounds for an asset-freezing order based on gross human rights abuses and would target individuals responsible for, or profiting from, such crimes against whistleblowers and defenders of human rights abroad.
My view is that new clause 7 is not as robust as new clause 1, mainly because it does not impose a duty on UK law enforcement agencies to act subject to the flexibility I described, and it omits the third-party application procedure and removes the public register. In each of those three cases, I understand and recognise the Minister’s reasons why that is the Government’s position—it is probably to be expected—and I do not want to let the best be the enemy of the good, but I retain at least a measure of underlying concern. My concern touches on something that is so often the case with criminal justice legislation: the extent to which the new power will be enforced in practice. The hon. Member for Rhondda (Chris Bryant) touched on that, and the concern is probably shared across the House.
If I may be so bold, I would like to elicit some further reassurances from the Minister—which he may feel free to indicate during my speech or his winding-up speech—on the issue of enforcement. First, will he commit to the Government to collecting data on the exercise of the new clause, say, annually, so that the House and the public can properly scrutinise the extent to which it is being exercised in practice? I recognise and understand the Minister’s point that the success of the clause should not be judged only by how many times it is exercised but by its deterrent effect, but I still think that would be a valuable source of reassurance.
Mr Wallace
I am delighted to tell my hon. Friend that I will commit to collecting those stats and ensuring that they are published annually alongside other stats on the proceeds of crime.
Mr Raab
I thank the Minister for such an immediate, swift and decisive acceptance and provision of assurance. That would be extremely useful. There is only one other aspect on which it would be useful to have some reassurance. I understand that there is a wider ongoing review of UK-wide asset-freezing powers. I can well appreciate why the Government may be reticent about reinventing a bespoke procedural mechanism for one new power, given its relationship with other wider proposals that may be forthcoming, but I hope that the Minister will undertake to factor the proposals made in new clause 1 into the review process and to ensure that any future new proposals on enforcement include the most robust and rigorous mechanism available under UK law applying to new clause 7. If the Minister can give that assurance on top of the one he has just given, I am inclined to accept new clause 7 and to not press new clause 1, heartened by the Government’s commitment to strive to make the new power work as effectively as possible in practice.
For those of us who have campaigned for change, there remains the further issue of visa bans, but that is for another day. Today, the House has the opportunity to lay down some moral red lines in UK foreign policy and to take a lead in denying safe haven to the dirty money of those profiting from the most appalling of international crimes.
Mr Djanogly
My hon. Friend says that visa bans are for another day, but of course visa bans already exist as a possibility. Would it not be helpful to know how the existing visa ban system will complement the new proposal?
Mr Raab
My hon. Friend is absolutely right. We will need a separate legislative vehicle to address the wider question of visa bans, but he makes his point and has been tenacious in powerfully campaigning for this. We will want to move on to that issue at the appropriate time. Today is really about the asset-freezing side of things. We have in this last analysis the opportunity to send a message of solidarity to those who are fighting for the liberty that we in this country hold so dear. We have the opportunity to nurture the flame of freedom on behalf of those brave souls, such as Sergei Magnitsky, who suffered the very worst crimes when standing up for the very highest principles.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
As I rise to speak to this group of amendments, it looks as though new clause 1 might not be moved in favour of Government new clause 7. The Minister started by saying that the Bill has so far enjoyed a degree of cross-party consensus in its parliamentary passage, so I would like to say that Her Majesty’s loyal Opposition will not stand in the way of new clause 7 and will not stand in the way of new clause 1 if it is moved.
I welcome new clauses targeting asset seizure for those guilty of human rights abuses outside Britain who seek to use the UK to conceal their wealth. New clause 1 has become known colloquially as the Magnitsky amendment, and we have heard some of the tragic details of that case. It would bolster the Bill’s aim to tackle the growing concern about money laundering, terrorist financing and corruption. The International Monetary Fund and the World Bank estimate that the annual loss through money laundered globally is between 2% to 5% of global GDP—a staggering $800 billion to $2 trillion. We do not know the true figures because this is all hidden, white-collar crime.
It is estimated that serious and organised crime on our own doorstep costs the UK economy at least £24 billion annually. The amount of money laundered here every year is between £36 billion and £90 billion. That is a loss to our Exchequer, so it is only right that we tighten up the legislation with this Bill, and such an amendment would tighten them up further. Quite simply, those who have blood on their hands from the worst human rights abuses should not be able to funnel their dirty money through our country. In a recent article in The New York Times, the journalist Ben Judah uses quite colourful language to attest:
“Just because there aren’t bodies on the streets of London doesn’t mean London isn’t abetting those who pile them up elsewhere. The British establishment has long feigned ignorance of the business, but the London Laundromat is destroying the country’s reputation.”
Under new clause 1, the names of individuals who have been involved in or profited from human rights abuses would be published, and Ministers would be obliged to apply for a freezing order of up to two years if they are presented with compelling evidence of abuse and it is in the public interest to do so. That would make dictators and despots think twice about using the UK as a safe place to stash their dirty cash. By creating personal costs for the perpetrators of human rights abuses, we can protect whistleblowers around the world, which would be a fitting tribute to the legacy of Sergei Magnitsky.
Mr Djanogly
I am pleased to be given the opportunity to speak to this significant legislation, which will certainly help the overall objective of stopping the UK being used as a safe harbour for illegal proceeds, as it currently is all too frequently.
Mr Wallace
Perhaps I can inform my hon. Friend and the rest of the House on the visa issue. We can refuse a visa to a person who does not meet the immigration rules. Evidence that a person has been involved in organised crime or in human rights abuses or violations would be taken into account when considering a visa application. We can already do that; the power is there with the Government, and we have exercised it in the past.
Mr Djanogly
I am grateful for the Minister’s clarification. It would be helpful if he could say that it is the Government’s position that, when a prosecution is taken under these new provisions, the court should consider a visa exclusion automatically and not as a possible add-on.
Clearly, if the sanctioned person had his or her assets confiscated but could then go on to buy more assets or to conduct business in the UK, new clause 7 may lack the required teeth.
New clause 7(5) refers to proceedings needing to be brought within 20 years, which seems like a short period in any event. Furthermore, it looks to be 20 years from the commission of the gross human rights abuse. Why is it not from the end of the abuse? In other words, if someone has been abused for 20 years plus one day, would the right to prosecute the abuser fail?
Would the court be required to connect the human rights abuse to the assets being seized? For instance, where the individual is accused of organising the torture of three people but steals from only one of the three and then moves the stolen goods into the UK, would the seizure have to be tied to the one incidence of torture that relates to the stolen goods?
My final question is this: after the legislation is put in place, do the Government actually intend to act? Many foreign nationals—not least Russians—really want to live here, rather than in, say, the US, so we have significant influence in setting the standards of civilised behaviour we expect from people who live or stay here. I ask the Minister, as I think my hon. Friend the Member for Esher and Walton did, whether we are now going to say to those who have been merciless in their own countries and who then look to store their ill-gotten gains in the UK, “We do not want you here. We do not want your money here”, and, importantly, “If you do come here, we will act.” If that is the Minister’s position—I think he said it was, but perhaps he could clarify that—I am minded to support Government new clause 7 rather than new clause 1.
Chris Bryant
I want to pay tribute to two people, the first of whom is the Minister for introducing this Bill. I think we all accept, in all parts of the House, that the corrupt money that swishes around in the British financial system is part of a type of crime and corruption across the whole world. Unfortunately, it also has a very detrimental effect on the housing market in the UK in that large numbers of houses are bought not to live in but as an investment vehicle and a means of laundering money. While some of those properties are at the high end of the market and there might be no effect on the majority of our constituents, in some cases these people have been buying property portfolios all the way down the housing market—and by increasing the value of the top end of the market they are affecting the whole market. If we want to get serious about the housing market in this country, we have to tackle the issue of corrupt money in the British system coming from overseas. I welcome the main provisions of the Bill. I applaud the Minister for trying to get some way towards a provision that might be termed the Magnitsky clause, as he suggests in his new clause 7.
I also pay tribute to the hon. Member for Esher and Walton (Mr Raab). He and I have had very many conversations on this subject for a long time, but we still have not managed to decide how to say the name “Sergei”. One of the most depressing things to add to the long list that he outlined is that Sergei Magnitsky was prosecuted posthumously, which must be a new low in putting two fingers up to the normal standards of criminal prosecution around the world.
I am absolutely certain that significant numbers of the people who are prohibited from entering the United States of America under the Magnitsky list have entered the United Kingdom since his death. That is why the Minister really needs to think again about visa bans. I do look to the United States of America in this regard. Several hon. Members, including the hon. Member for Huntingdon (Mr Djanogly), have already said that the United States of America has gone much further than we have. The Minister tried to argue that the Americans have a very different legal system. Yes, they do, but it is based on the same fundamental principles as ours and, I would have thought, on the same values as ours. That is why we ought to be going at least as far as the United States of America. When the Commons debated this on 13 December 2010, the motion stating that we should proceed with a Magnitsky Act was carried unanimously. The Minister at the time, who is a thoroughly charming chap, said that we had to wait to see what the United States of America does. Well, I think we have all decided that we are not going to wait to see what the United States of America does on anything at the moment, and we might choose to set our own path in relation to these matters. I sometimes feel as though the UK is dragging its heels on this issue.
Sergei Magnitsky was killed just before 2010, when I was Minister for Europe in the Foreign Office, and most of the debate about this has happened since then. My personal perception was that both David Cameron and President Obama were very reluctant to show a strong arm to Russia because they thought that by pressing the reset button—this was Obama’s view—we would somehow manage to get major concessions out of Putin. That has not proved to be an effective strategy. In every single regard, Putin has simply taken those moments as a sign of weakness and proceeded to use force to a greater degree. On the day that David Cameron became leader of the Conservative party, the first thing he did was to go to Georgia to stand with the Georgians against Putin’s invasion of that country. Yet there are still Russian troops in Georgia, and since then we have had the issues in Ukraine.
There is now clear evidence of direct Russian corrupt involvement in elections in France, in Germany, in the United States of America, and, I would argue, in this country. Many believe that some of the highest-level decisions affecting security in the United Kingdom, in Germany, in France and in the United States of America are now compromised by Russian infiltration. The murder of Sergei Magnitsky and his then being posthumously put on trial shows that Russia is, in effect, a kleptocracy—a country ruled by people who have stolen from the people and used every means in their power to protect themselves and guard their position with jealousy. It is, in essence, the politics of jealousy writ large. I fear that this has infected the United Kingdom, and also one of our closest allies in Europe, Cyprus, where much Russian money is currently stored away corruptly and laundered illegally.
Sir Eric Pickles
It is a great pleasure to follow the hon. Member for Rhondda (Chris Bryant). I agred with much of what he said—some I did not, but we will put that to one side for a moment.
I congratulate my hon. Friend the Member for Esher and Walton (Mr Raab)—never forget Walton in his patch—because he has achieved enormous progress. When he started this process, I did not think that he had a chance of getting his measure through, but the Government have made quite an unusual concession, if the Minister does not mind my saying so. Usually concessions arise out of panic about defeat, but I do not think that there was any possibility of that. This concession is due to the power of my hon. Friend’s arguments about righting a wrong and including in British law something that I think will make a difference. I am sure that the House is grateful for what he has done.
I stand before you, Madam Deputy Speaker, as the UK Government’s champion on anti-corruption. When I was appointed by David Cameron, I came out to find that he had described me as the anti-corruption tsar. The Daily Mirror shortened that to corruption tsar, and I felt that that was one step too close to the Romanovs, so I am happy to use the word “champion”.
In that capacity, I went to an Organisation for Security and Co-operation in Europe anti-corruption conference in Paris. One of the speakers talked about taking a lorry full of time-sensitive goods through customs and being asked for a private facilitation payment. They asked how many of the people present would make such a payment. To my amazement—and, I suspect, to the greater amazement of the person who asked the question—a good 60% of hands went up. I was proud to say that if that lorry driver had been British, not only would he have committed a crime, but he would have been prosecuted for it on his return to the UK and so would his company.
New clause 7 and the excellent new clause 1 have to be seen in that context. We have been gradually triangulating this crime. I am old enough to remember listening to a Minister—a Conservative Minister, I am ashamed to say—saying on the radio a number of years ago, “I want British companies to bribe. Everybody bribes, and I want Britain to be among those that do so.” That was a ludicrous thing to say, but it was the kind of reaction that we got to the Bribery Act 2010. People said, “Everybody’s doing it. All we are doing is putting British companies at peculiar risk.” That has not been the case. Because of the Bribery Act, board members have put in place due diligence to ensure that they do not face that problem. That was part of the process of triangulating the crime, and I do not think that there has been any drop-off for British business. The new clauses have to be seen in the context of the call for consultation on economic crimes and the place of boards in relation to economic crimes. They should be seen in the context of transparency over beneficial ownership of property in this country by those who want to trade with the Government, and I hope to see something positive come out of that.
Given the degree of consensus that seems to be breaking out about the proposals, I will make a slightly shorter speech than I intended. New clause 7 should help us to deal with bloodstained dictators and those on the take in kleptocracies around the world. I entirely agree that a posthumous conviction for dishonesty and theft is as ridiculous as the practice during the French revolution of putting animals on trial. We have to understand that there are parts of the world in which Governments and private business move hand in hand, and they make the Tudor court look like the epitome of puritan restraint. To those people, we are sending out a clear message that their assets will be seized and their lives interrupted, and that those who seek to buy expensive flats and jewellery will face a problem.
We have dealt with the worry about third parties making vexatious claims. I will not go over that again, but a further point needs to be emphasised. Non-governmental organisations, especially, often play an enormous part in getting prosecutions together and bringing evidence to the authorities. I have had the privilege, as I suspect the Minister has, of seeing how the Serious Fraud Office works. A lot of its cases are complex and take a lot of time, and there is a risk that if third parties were allowed to make applications, they might actively tip off those involved in an ongoing investigation. That is another compelling reason why states, and more particularly prosecution authorities, should bring such cases.
Tom Brake
I thank the hon. Member for Esher and Walton (Mr Raab) for putting together the proposal in new clause 1 and the Minister for responding positively. I have been in the House for long enough to know that Ministers rarely respond positively to approaches, even cross-party ones, so it is welcome that the Minister has taken on board the spirit of the proposal. I also pay tribute to Bill Browder—many Members in the Chamber will have met him—who has really led the charge on this issue. However, I am sure that Bill wants not a tribute but action.
I share some of the reservations of the hon. Member for Rhondda (Chris Bryant). In other countries, assets have been seized in relation to the Magnitsky case, but it seems that that is not so in London. Many Members would accept that London is a place where many Russians, sometimes of rather dubious backgrounds, like to put their assets, so it seems strange, while assets are being seized almost everywhere else around the world in relation to this case, for London to be the one place where they have not been seized.
The Minister reassured us that the prosecuting authorities—of course he cannot put pressure on them, but he has confirmed this—would prosecute if there was evidence. I assure Bill Browder and others that they will have the support of the House if evidence—or further or more detailed evidence—is forthcoming, as the Minister for one endorsed the need for very firm action. He said that action might be taken under existing legislation, but that it could be taken even more effectively under Government new clause 7.
Like other Members, I would prefer new clause 1 to the Government’s proposal, but I understand why the Minister preferred to table his own new clause. Unfortunately, I suspect that we would not have the numbers in the House to win a Division today on cross-party new clause 1. We will therefore have to follow the matter very closely, and I welcome the fact that the Minister will publish statistics.
Several hon. Members referred to the Magnitsky Act. If they want to see the list of names, they could read my early-day motion 1344—it has been signed by a number of Members—which lists Russian citizens subject to the Magnitsky Act in America. The hon. Member for Rhondda reminded me that I need to retable my early-day motion because, as he said, new names have been added to the American list. The information is there if Members need to refer to it.
I welcome the fact that the Government have moved on this issue, but the proof of the pudding will be in the eating. If evidence is forthcoming that such assets are in this country, in the way that Bill Browder and others believe is the case, the Government must ensure that those responsible are prosecuted and brought to justice for the gross human rights violations they have committed.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
I, as a signatory of new clause 1, can be very brief because my right hon. and hon. Friends, and indeed Opposition Members, have made the case with such eloquence on what is known as the Magnitsky amendment. It seems to me, as such a signatory, that the Government have listened. The Minister has quite rightly heard the cross-party voice on these issues and tabled new clause 7, and I certainly congratulate him on having achieved that.
My hon. Friend the Member for Esher and Walton (Mr Raab), who has done such a good job on this issue, pointed out, in accepting the Government new clause, that we must not allow the best to be the enemy of the good. The story that my right hon. Friend the Member for Brentwood and Ongar (Sir Eric Pickles), the anti-corruption tsar, told us about his Paris meeting reminds me of just how complex is the attack on corruption, of which we must all be a part.
I remember a very eminent New York anti-corruption lawyer, who had been involved in a variety of anti-corruption mechanisms, telling me that he was once invited to Afghanistan to give a lecture on how to tackle corruption, and a vast number of Afghan officials turned up in the auditorium. To his horror, observing the Rolex watches on the wrists of so many of those officials, he suddenly realised halfway through the lecture that they had turned up to learn not how to tackle corruption, but how to evade the tackling of corruption.
Corruption is a cancer: it is insidious in a whole variety of ways. One of the good things about the Bill is that it seeks, in a very complex area, to make progress on some very clear aspects of the issue. The former Prime Minister, the former Chancellor of the Exchequer and other Government Members have also made a very big contribution in the fight to tackle corruption in this area.
I want to make two brief final points. The first is that in the Magnitsky case, as I think the Minister has recognised—I know Bill Browder and I was absolutely horrified to hear the tale of the experience he has undergone—it is clear that the British law enforcement agencies have shown, to put it no more strongly than this, a degree of confusion, delay and obfuscation in their handling of such matters. There are issues of administrative co-ordination and effectiveness, and I very much hope that the Minister ensures that tackling this issue remains clearly on his agenda.
My second and final point is that Britain needs to send a very clear signal about the approach we take to human rights abuses and money laundering. The failure to send a very clear signal—I hope that that will be ended by the decision the House will take this afternoon—damages our international relations. Britain’s relations and dealings with Russia are very complex. We need to work with Russia on a number of matters on which we have a common interest, but we also need to be absolutely clear where we stand on the issues—my hon. Friend the Member for Huntingdon (Mr Djanogly) set them out so eloquently in his speech—so that there is no misunderstanding about where the British Government stand on many of the horrific aspects of Russian governance and conduct. I have been a strong critic in this House of Russian abuses of human rights and, indeed, of war crimes in Syria. Given the other dimension of areas on which we must be able to work constructively with Russia, it is extremely important that we in this House are absolutely clear with the Government about where we stand on human rights issues.
Mr Wallace
We have had a very important and well-informed debate. I am very grateful to colleagues for their contributions, in particular my hon. Friend the Member for Esher and Walton (Mr Raab). As Minister, I have done my best throughout the process to speak to as many colleagues as possible and to listen to their concerns. I have gone back to the law enforcement agencies and asked them tough questions. I cannot say whether my predecessors did that or not, but I take the view that our job as Ministers is to go beyond the briefing papers we all receive, test their resolve and send a very clear message. I have told the agencies that when the Bill is passed by Parliament and becomes an Act, we want to see prosecutions and we want the powers to be used. I will not interfere in how they choose to apply those powers, and I will not choose which powers they use to achieve the right effect.
The main aim is to ensure that we say loud and clear that we do not want money launderers in this country. We do not want organised criminals. We do not want those who abuse people through torture and inhumane treatment. We want to say, “You are not welcome in this country and nor is your dirty money. If you come to this country, we will try to have you and we will certainly try to have your money. If we can return that money back to the regimes it has been stolen from, we shall do that.” We have already started that process by returning £27 million to Macau recently and signing a memorandum of understanding with Nigeria. If we can do that, we will. Both Government new clause 7 and new clause 1—there are many things I agree with in the spirit of new clause 1—say that loud and clear. I think that our new clause will help to achieve that in relation to the people who want to exploit laws around the world, whether through immunities, state sponsorship, state umbrella or tacit support.
I highlighted to my hon. Friend the Member for Esher and Walton that annual reporting will cover the use of this provision. The Government have already agreed, in our response to the Public Accounts Committee and the Home Affairs Committee, to publish a set of annual asset recovery statistics. As I made clear in Committee, it will cover the annual use of unexplained wealth orders. I am also pleased to commit today that it will include the use of this provision.
Mr Djanogly
Will it also include the names and titles of people from whom the assets have been taken?
Mr Wallace
I will have to check and get back to my hon. Friend, but any court action is a matter of public record. If someone is prosecuted under the Proceeds of Crime Act 2002 or has their assets frozen, that will become a matter of public record available to all—that is very important.
To reiterate the point about sanctions, the Government are undertaking an assessment of existing sanctions policy post-Brexit to ensure we can continue our proactive approach. It is right that any changes to our sanctions regime are considered in that context, rather than making changes at this point. We will of course continue a dialogue with parliamentary colleagues on this work, and I will absolutely ensure that the spirit of new clause 1, tabled by my hon. Friend the Member for Esher and Walton, is carried forward in those discussions. The time to do that, however, is not with this legislation; it is when an assessment is made post-Brexit to consider sanctions in the wider picture.
I want to talk about the duty of law enforcement agencies to use the powers. Part of the rule of law and the strength of our system, as opposed to perhaps some other regimes we have talked about today, is that our agencies are operationally independent. As a Minister, I do not sit behind a desk and use the agencies to pick on people or political rivals I do not like. We leave the agencies, as much as possible, to be operationally independent. That is a part of the balance and safeguards in our society.
Chris Bryant
But if the prosecuting authorities were, for a corrupt reason, to choose not to prosecute, there are powers, through the courts, to ensure that they do so.
Mr Wallace
I am afraid I have too positive a view of the integrity of our law enforcement agencies to say—or even allude to the fact—that there could be some corrupt reason they may not use their powers. We all have constituents who write to us and say, “I made a complaint to the police and they didn’t take any action.” Sometimes that is valid and we try to get a better result for them. Hon. Members who have met Bill Browder have brought their evidence to this House and made representations to the National Crime Agency. They cross-examined a National Crime Agency witness in Committee. However, we also have constituents who do not like the outcome of their complaint—that a crime has not been judged to have been committed. That is a disappointment they sometimes have to live with and it is our job as Members of Parliament to tell them, “I’m afraid it does not constitute a crime.” Sometimes the police have to make that case. Sometimes constituents may seek to deal with that by changing the law to create a crime that may be appropriate or up to date. However, it is important to respect operational independence, tempting as it may be sometimes to wish to reprioritise their priorities to suit the issue of the day.
Mr Wallace
I really do have to press on. Hon. Members have made a considerable number of valid queries and I have a small book, handed to me from the Box, to get through.
The hon. Member for Dumfries and Galloway (Richard Arkless) raised a number of issues relating to the unlimited nature of retrospective offences. Torture is an offence where the UK applies universal jurisdiction. On that basis, the provisions are retrospective in so far as they relate to torture, even where it occurs prior to the enactment of the Bill. However, the Government new clause would cover conduct constituting cruel, inhumane and degrading treatment only after the Act comes into force.
We have already taken significant legal steps to suspend the requirement for dual criminality; that is, providing for civil recovery to be pursued against property not necessarily unlawfully obtained in the country in which the conduct took place. We think this is a suitably proportionate approach. We have already gone further than we do in some other areas. We can take action where the unlawful event took place when it was not in this country. That is something we have to balance.
The recovery of proceeds of crime is generally subject to a 20-year limitation period under the Limitation Act 1980. The hon. Members for Rhondda (Chris Bryant) and for Dumfries and Galloway asked about the timescale for claiming the proceeds of crime. Under POCA, it starts when the property is obtained through unlawful conduct. Under new clause 1 it seems to run from the date of the conduct itself, so that could possibly mean a shorter timescale than that under Government new clause 7. I reassure the hon. Member for Dumfries and Galloway that new clause 7 covers conduct linked to torture, such as: assisting it, directing it, facilitating it or profiting from it even when that linked conduct is not conducted by a public official. It therefore goes wider than some have feared.
We must also consider what evidence is needed to allow for assets to be recovered. Any civil recovery would be subject to all existing processes and legal safeguards in the Proceeds of Crime Act. The court would need to be satisfied, on the balance of probability, that the property in question was the proceeds of crime or was likely to be used to fund further criminal activity. Law enforcement agencies would, as ever, need to consider which of their powers to utilise on a case-by-case basis. It would also apply to inherited wealth. That would not be excluded. Inherited wealth would be covered by the ability to recover assets, so I hope I can reassure the hon. Member for Rhondda on that point.
I reiterate to my hon. Friend the Member for Esher and Walton that the Government agree with the spirit of his new clause. We want to say loud and clear that organised criminals, crooks and corrupt individuals are not welcome in this country, and neither is their money. I was pleased to contribute to the implementation of the Bribery Act 2010, introduced by the last Labour Government, and its statutory guidance, under the previous Conservative Government. That is part of this whole package: the Bill comes alongside the Bribery Act and some other measures. I do not want London and the UK to be fuelled by dirty money, and I do not want people to be profiting from it. One of the best ways of making London and the UK open for business is through the rule of law—and, I would say, a competitive tax base. People should want to come to the UK for those reasons, not because they can hide or launder their money. It does not make us a better host for these individuals. I hope that the new powers in the Bill will help us tackle the problem, and I am keen to ensure that upon its enactment we start to deal with these individuals and get the money back to where it belongs.
There was little in the well-articulated speech of my hon. Friend the Member for Huntingdon (Mr Djanogly) that I did not agree with. He is absolutely right about sending a message. There are regimes around the world that deliberately take advantage of Britain’s openness, the quality of places to live and what we have to offer, and they need to be sent a message that we are serious and that they should go elsewhere—although we would like to catch them first and put them in prison, to be brutally honest.
I think I have clarified the point from the hon. Member for Rhondda about inherited wealth. On the worries about the London property market, I must add that it is not just nice townhouses in Knightsbridge being bought up, but huge portfolios up and down the country, and it does not just apply to overseas citizens either. For instance, other parts of the Bill deal with drug dealers, including those in my part of the world, in the north-west, the north-east and Northern Ireland, funnelling money into property.
As part of the Government’s work on the implementation of the fourth anti-money laundering directive, they have consulted on whether estate agents should carry out checks on the buyers of properties as well as the sellers. I was surprised, as I suspect were colleagues, to find out that currently they only carry out such checks on sellers. We intend to publish the response to the consultation “imminently”—that is what my note says—and I think that we will all be looking at it carefully.
The hon. Gentleman also asked about freezing orders and people quickly moving the money. Part 5 of the Proceeds of Crime Act 2002 provides for interim freezing orders, allowing for the freezing of property while the courts consider the case. I recognise that the Home Affairs Committee report on the proceeds of crime and the recovery of assets pointed out some valid problems in the system, however, and I have asked that the Department set about being timely when making cases for the confiscation of funds and assets so that the gaps do not allow criminals and bad people to move the money beforehand.
The hon. Member for Rhondda and my right hon. Friend the Member for Brentwood and Ongar (Sir Eric Pickles), the anti-corruption tsar, will recognise that within Government we always have to satisfy the competing concerns of Departments. They will both know—the hon. Gentleman was a Foreign Office Minister and my right hon. Friend is a former Secretary of State for Communities and Local Government—of the competing interests within Government when it comes to legislating, and inevitably amendments have to walk a fine line between several challenging diplomatic and political issues, but I trust that the House agrees that the Government have taken a constructive approach. I have been determined to listen to colleagues and produce something that sends a strong message while also providing powers to allow us to act against people who abuse human rights.
I want to finish by congratulating my hon. Friend the Member for Esher and Walton on tabling new clause 1. It was important that we have this debate. He is a formidable campaigner and has successfully articulated the case and imbued the Bill with the spirit of his new clause. I hope that the House will support Government new clause 7.
Question put and agreed to.
New clause 7 accordingly read a Second time, and added to the Bill.
New Clause 8
Her Majesty’s Revenue and Customs: removal of restrictions
‘(1) The following provisions, which impose restrictions on the exercise of certain powers conferred on officers of Revenue and Customs, are amended as follows.
(2) In section 23A of the Criminal Law (Consolidation) (Scotland) Act 1995 (investigation of offences by Her Majesty’s Revenue and Customs), omit the following—
(a) in subsection (2), the words “Subject to subsection (3) below,” and the words from “other than” to the end of the subsection;
(b) subsection (3).
(3) In section 307 of the Criminal Procedure (Scotland) Act 1995 (interpretation), omit the following—
(a) in subsection (1), in paragraph (ba) of the definition of “officer of law”, the words “subject to subsection (1A) below,”;
(b) subsection (1A).
(4) In the Proceeds of Crime Act 2002 omit the following—
(a) in section 289 (searches), subsections (5)(ba) and (5A);
(b) in section 294 (seizure of cash), subsections (2A), (2B) and (2C);
(c) section 375C (restriction on exercise of certain powers conferred on officers of Revenue and Customs);
(d) section 408C (restriction on exercise of certain powers conferred on officers of Revenue and Customs).
(5) In the Finance Act 2007, in section 84 (sections 82 and 83: supplementary), omit subsection (3).”
This new clause, together with amendments 20, 25 and 28, removes restrictions on the exercise of certain powers by HMRC officers. The restrictions prevented the powers being exercised in relation to certain former Inland Revenue functions.—(Mr Wallace.)
Brought up, and read the First time.
Madam Deputy Speaker (Natascha Engel)
With this it will be convenient to discuss the following:
New clause 5—Unexplained Wealth Orders: award of costs—
“In Chapter 2 of Part 8 of the Proceeds of Crime Act 2002, after section 362H insert—
‘362HB Unexplained Wealth Orders: award of costs
(1) Pursuant to Part 3 of the Civil Procedure Rules (The Court’s Case Management Powers) the High Court must make a costs capping order, in respect of—
(a) unexplained wealth orders under section 362A of this Act;
(b) interim freezing orders under section 262I of this Act.
(2) The High Court shall not have power to make an award for costs on the indemnity basis against enforcement authorities who bring an unsuccessful application for—
(a) unexplained wealth orders under section 362A of this Act;
(b) interim freezing orders under section 262I of this Act.
(3) For the purposes of this section “enforcement agencies” has the same meaning as in subsection 362A(7).’”
This new clause would prevent the courts from awarding uncapped costs on the indemnity basis against enforcement agencies where they have brought unsuccessful applications for unexplained wealth orders or interim freezing orders. It seeks to define such civil actions as within “exceptional circumstances” required for the purposes of Practice Direction 3F to Part 3 of the Civil Procedure Rules under which the court has the power to make a cost capping order.
Amendment 1, page 3, clause 1, leave out line 29.
This amendment would allow unexplained wealth orders to be issued to politically exposed persons in the United Kingdom and EEA States.
Government amendments 2 to 19.
Motion to transfer clause 12(3).
Government amendments 20 to 57 and 60 to 72.
Mr Wallace
We now come to a group of amendments relating to law enforcement investigative and recovery powers. It is primarily composed of Government amendments that I hope the House will agree are, for the most part, technical and uncontroversial. I therefore do not intend to linger on each of them, but I will quickly summarise the key amendments for the benefit of hon. Members.
New clause 8 and other consequential amendments remove the restriction on HMRC’s criminal powers being used for former revenue functions. This ring fence arose following the merger of Her Majesty’s Customs and Excise and the Inland Revenue in 2005. In the intervening period, legislative changes have brought most major taxes within the scope of HMRC’s criminal justice powers, but there remain some anomalies. For example, investigators cannot use certain powers to fight stamp duty tax fraud. Fraud is a crime, regardless of which function of HMRC it is committed against, and the amendments will ensure that the necessary powers are available in all such cases. They do not provide HMRC with any new criminal justice powers.
Amendments 2 to 15, 70 and 71 relate to the power in clause 9 to allow an extension of the moratorium period in which law enforcement agencies can investigate a suspicious activity report before a transaction is allowed to proceed. These amendments will deliver a number of minor and technical improvements to this provision: they will allow an automatic extension to the moratorium period while a court hearing is awaited to make a decision on an application; they will help to ensure that a company does not provide any information to the customer whose transaction is subject to a suspicious activity report, other than the fact that an SAR has been made; they will allow immigration officers to apply for an extension; and they will allow for an explicit right of appeal in Northern Ireland.
The majority of the remaining amendments in this group—amendments 22 to 24, 26, 27, 29 to 38, 46, 47, 49 to 57, 60 to 69 and 72—clarify the operation of the seizure and forfeiture powers that the Bill adds to the Proceeds of Crime Act 2002 and the Anti-terrorism, Crime and Security Act 2001. Many of these changes are extremely technical in nature, but I will highlight a few of the more significant ones. They will allow the director general of the National Crime Agency to designate the level of senior officer that can authorise the use of certain powers—unlike in the police, no such designation currently exists in law. They will ensure that any interest accrued on forfeited funds while in the agency’s account is returned to the owner of the funds if that person successfully appeals against the forfeiture. They provide that, where the NCA has used the powers, and a court determines compensation should be paid, the NCA will be responsible for paying that compensation. They will introduce a duty on the police and others to consult the Treasury to ensure that the full range of terrorist asset-freezing powers are considered before exercising the related power provided by the Bill. They will require consultation with the devolved Administrations before the provisions in clause 12 relating to the seizure of gaming vouchers and betting slips are commenced. This will ensure that the provisions are implemented effectively in Scotland and Northern Ireland.
On the devolved Administrations, we hope the Scottish Parliament will approve their legislative consent motion on the Bill shortly. Although the Government assert that none of the provisions are devolved with respect to Wales, I note that the Assembly has already provided such a motion. The Government have had extensive discussions with the Northern Ireland Executive about the Bill, and plans were in place for a legislative consent motion to be considered by the Assembly—law enforcement authorities in Northern Ireland are keen to ensure they have access to the powers in the Bill—but the suspension of the Assembly prior to elections has prevented the motion from being pursued at this time. These are clearly extremely unusual circumstances, but the Government remain committed to the central principles of the Sewel convention. We will therefore commit not to commence provisions on matters devolved to Northern Ireland without the appropriate consents having been obtained. It is our intention to pick this up with the Executive, following those elections. It may not be possible to resolve this before the Bill receives Royal Assent. We are most likely to make further amendments to the Bill in the House of Lords to put beyond doubt that all the relevant provisions can be commenced at separate times for different areas of the United Kingdom.
Gavin Robinson (Belfast East) (DUP)
The Minister will be aware that although the aspiration is to see an early return to the Stormont Executive, the likelihood of that happening in the immediate future is somewhat fraught. Given that the Bill will inevitably conclude before we see the return to the institutions of Stormont, will he outline what steps will be taken to regularise issues, once the Assembly has been restored?
Mr Wallace
We are in ongoing discussions with the Northern Ireland Assembly, and we hope that the Northern Ireland Assembly elections are completed and that Stormont takes up the reins again, so that devolution returns to Northern Ireland. That is our starting-point, and it is what we all wish. There was a good cross-party consensus for these provisions for Northern Ireland in the Assembly earlier. I cannot remember the exact date of the election—the hon. Gentleman might have to remind me. Let us plan for normality in Northern Ireland and make sure that we get to a good position.
Gavin Robinson
The election is planned for 2 March. I agree with the aspiration to see a return to Stormont as soon as possible, but does the Minister believe that there would be some merit in at least corresponding with the leaders of each political party to attain affirmation of the measures at this stage, for fear that we do not see a return in a reasonable period?
Mr Wallace
I am grateful to the hon. Gentleman, and I will certainly put that suggestion to officials. My view would be that pre-suspension of the Assembly is the place we are at, and although there has been a change of a leader, I am not sure that we have had any signal that it has gone backwards. The date of 2 March gives me some good hope. I have never known the other place move at the speed of light, so I hope we shall have time to make sure that this gets through.
Finally, this group includes two proposals concerning unexplained wealth orders: new clause 5, in the name of a number of the officers of the all-party parliamentary groups on anti-corruption and responsible tax, and Opposition amendment 1. I will allow hon. Members the opportunity to speak to those amendments and will respond to them in my closing remarks.
Carolyn Harris (Swansea East) (Lab)
The Opposition support the spirit of the Bill and broadly support this group of amendments. We welcome new provisions to prosecute those professionals who fail to prevent tax evasion, as well as welcoming unexplained wealth orders, under which assets can be seized if owners are unable to explain how they were funded. We, of course, support the Government’s effort to tighten up state powers against white-collar crime, but we have concerns that they are squandering the opportunity that the Bill provides to stamp out the everyday corruption of the super-rich who are getting a free ride at the expense of the wider society, thereby fuelling inequality.
Another problem is that, amid the Government’s cuts to public services, the Bill could be very difficult to enforce. Although I understand the giving of new powers to HMRC, are the Government not concerned about how HMRC will carry out its new duties? Given that the coalition Government decimated HMRC’s budgets by £100 million and that HMRC is set to lose 137 of its offices by 2027, there seems little point in creating laws that cannot be enforced—unless, of course, it is to give the impression that the Government are doing something. This, I fear, is a theme that has sadly run through our proceedings on the Bill so far.
We Opposition Members argue that it is crucial for the agencies involved in civil recovery powers to have sufficient resources to do their jobs properly. We therefore request a distinct and clear annual report that details the resources allocated to the agencies that are concerned solely with the task of carrying out these recovery powers.
In previous stages, the Government objected on the grounds that the asset recovery incentivisation scheme would allow frontline agencies to keep 100% of what they recover, but this argument is seriously flawed. In theory, yes, the agencies could retain the total value recovered, but as the Public Accounts Committee made clear in its progress review of confiscation orders and as the Home Affairs Select Committee made clear in its review of the Proceeds of Crime Act 2002, these agencies’ recovery rates have been typically poor. Consequently, it remains to be seen how these agencies will improve their rate of recovery to benefit from the new incentivisation scheme.
Another reason that the Government gave is that anyone who wanted to find out this information could in theory obtain it by going to a number of different sources. Yet again, this is flawed. We previously argued for a detailed reporting of resources, specifically for these agencies, in the exercise of the powers laid down in the Bill and the Proceeds of Crime Act 2002.
The Government have already blocked a number of measures that Labour has proposed to make this a meaningful and effective Bill. We proposed a corporate probation order. If a company was found to have committed a failure to prevent offence, it would have been subject to an independent review of its compliance procedures and it would have had to pay the full costs of such a review. This was coupled with allowing for the removal of directors from companies who failed to ensure that proper procedures were in place to prevent UK and foreign tax evasion offences from taking place. The Government believed that this was unnecessary because UK law could already deal with such cases of negligence. Although there may be a case for some UK law to be used to a similar effect, it would not be an identical effect.
While there is an implied threat to the EU that the Government could change the UK’s economic model into one of a tax haven, there is a strong case for legislation to protect both UK citizens and citizens from around the world. With the potential for a race to the bottom and the destruction of workers’ rights and the slashing of corporation tax, it could be argued that a Brexiteer Government would foster an environment where tax evasion was implicitly encouraged.
As my colleagues have said, and will no doubt say again, the Bill must do more to tackle the deeply entrenched and extraordinarily costly phenomenon of tax avoidance. Tax avoidance is, in effect, living to the letter of the law, but not in the spirit of the law. Repeated investigations of companies that sail close to the wind but know that they have bought the lawyers and accountants to make their tax abuse legal is both very frustrating and extremely costly. As the UK general anti-abuse rules show, there are ways to minimise the risk of corporate abuse of the tax system, and these should be absorbed into the Bill.
Spain, Canada and Australia each have a single agency responsible for supervising and enforcing anti-money laundering regulations—Britain has 22. Worse still, according to Transparency International UK, 15 of these 22 supervisors also lobby on behalf of the interests of their sector, creating clear conflicts of interest and a system inefficient to its core. The Government raised this problem in their action plan that preceded the Bill, but they were not concerned enough to convert this into proposed legislation. The system needs reform and the Bill needs to reflect this. Unless the Government accept all these concerns and indeed all the changes suggested in the Opposition amendments, the Bill is likely to fail on the intention to clean up money laundering and tax evasion.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to speak to new clause 5, which, as the Minister said, stands in my name and those of colleagues in the all-party parliamentary anti-corruption group. The reason for tabling new clause 5 was to probe the Government on the issue and make sure that we make full use of the unexplained wealth orders and the interim freezing orders that we envisage in passing this Bill. I fear that if we are not careful, the various authorities that can use the orders may be a little concerned about the possibility that the people against whom they want to use them—who, in some cases, will no doubt be very rich and powerful and will not take the freezing or restriction of their wealth lightly—will seek to frustrate the process and oppose the orders with every means available to them. They might, for instance, incur huge costs—perhaps well above what could be considered reasonable in the circumstances—and try to force them on to the taxpayer at a later date if they succeeded in resisting the orders.
Although it is absolutely right for people to be able to recover reasonable costs if the state tries to impose orders and fails, it would be unreasonable for them to engage numerous very highly paid barristers and incur costs that were wholly disproportionate, which the taxpayer would end up having to pay. The real risk is that bodies trying to use these powers would be deterred from doing so, because they would fear that very rich people might take large chunks of their budgets for a long period while resisting the orders.
The aim of new clause 5 is to establish whether the existing powers for the courts to restrict the amount of costs recovered can be described as applying to efforts to obtain the orders that are specified in the Bill, so that it is plain to everyone that the various state authorities, acting competently and reasonably clearly in trying to use the orders, cannot be unreasonably opposed and end up with excessive costs. It would be helpful if the Minister explained how he thinks the orders would work and what he thinks about the interaction with the existing capping rules for the courts.
This is not an entirely theoretical issue. In the past, very significant costs have been awarded against the Serious Fraud Office. I am not pretending that the circumstances were similar to those that we are discussing in this instance—I think that that may not have been the finest hour of the Serious Fraud Office—but there is clearly evidence that the sort of people with whom we are dealing might try to obtain costs that would have a deterrent effect on the use of the orders. It would be useful to hear from the Minister whether he thinks that the courts can and should use various cost-capping measures to ensure that we are not unreasonably exposed to very high costs.
Richard Arkless
I want to talk briefly about what I must admit is probably my favourite section of the Bill—the part that deals with unexplained wealth orders. I think it is an excellent provision, which is likely to drive a Trojan horse right through the assets of criminals who choose to lodge them in the United Kingdom.
The hon. Member for Amber Valley (Nigel Mills) made some very valid points about new clause 5. Indemnity costs can be easily translated to mean, in layman’s terms, full costs. In other words, every single hour and every penny of the expense on the file can be charged to the losing party, with no assessment of whether those costs are reasonable. Given that we are talking about politically exposed people, potentially in other jurisdictions, we can imagine the number of officials travelling back and forth on flights. All that will find its way on to a costs sheet, and all of it will be recoverable to the payee in indemnity costs. We could end up with an inequality of arms, not in favour of the Government but in favour of the respondents, which I think would be very dangerous.
The threat of indemnity costs acts as a major litigation risk for the claimants or pursuers, or, in this case, the applicants. If they know that they are likely to be in for a bigger bill, they will think twice about making applications. These are our law enforcement agencies, and I believe that they should be able to pursue their applications with determination, without fear or favour, and without the risk of incurring indemnity costs which would be deeply disproportionate. That would be very bizarre and counterproductive.
I thank the hon. Member for Amber Valley for tabling his probing new clause, and I shall be pleased to hear what the Government have to say about it. As a boring, pedantic lawyer, I think it worth mentioning that indemnity costs are very rare, and arguably arise only in proportionate circumstances. However, we are talking about politically exposed people with potentially limitless funds. The better they can make their case in court, the more likely it is that they will be awarded indemnity costs if they are successful, and I think that we should take that risk out of the equation.
As I have said, the unexplained wealth orders provision is an excellent feature of the Bill. Let me explain exactly how the orders would work. The Bill will enable a court in Scotland—the Court of Session—on application by Scottish Ministers to make an unexplained wealth order. Such orders will require individuals or organisations to explain the origin of their assets if there are reasonable grounds for suspecting that they may have been involved in criminality, or intend to use that wealth for criminal purposes, and if the value of the assets exceeds £100,000. During earlier stages of the Bill, the Minister and I discussed that threshold, and I should be pleased if he could update me on his thoughts about it.
Mr Wallace
In response to what has been said about the issue, and the sensible suggestions made by the hon. Gentleman, we are considering options for potentially lower thresholds, to be dealt with in the other place. We will of course inform him when there is agreement across the Government.
Richard Arkless
That is very co-operative of the Minister, and I greatly appreciate it. I may not have his confidence in the other place, but we will wait with bated breath.
Unexplained wealth orders will be available to the courts when assets appear disproportionate to known legitimate income. For example, it was reported recently that a taxi driver owned a £1 million fish tank. That is not to say that taxi driving is not a potentially lucrative trade, but the asset could certainly be disproportionate to that person’s income. Failure to provide a response to an order and explain the legitimate source of funds would give rise to a presumption that the property was recoverable, which would make any subsequent civil recovery action much easier.
I must say, as a lawyer, that the notion of reversing the burden of proof does not automatically sit very comfortably with me, but, as in other areas, I consider it to be proportionate to the issue at stake. Sound legal principles such as the presumption of innocence, and the burden of proof being on the Crown, should not inadvertently protect criminals, which I suspect may have been the case thus far. The key aspect of this provision is that a criminal conviction will no longer be necessary before law enforcement can pierce the criminal’s veil that camouflages his wealth. Getting away with the crime itself will no longer protect a criminal’s wealth. The Bill will allow this power to be applied to foreign politicians and officials or those associated with them, known as politically exposed people. That will enable the issue to be tackled substantively and determinedly for the first time.
I agree with some of what was said by the hon. Member for Swansea East (Carolyn Harris) about resources. Part of the reason for introducing provisions for unexplained wealth orders is the fact that many law enforcement agencies think that there is a raft of applications, ready to be made immediately. There are properties and asset groups and accumulations in this country, and in some cases we do not know where they come from. If the Act receives Royal Assent, this power will land on the desks of law enforcement agencies that potentially have applications piled up. I think that, in those circumstances, resources are a very viable concern.
I hope that the Minister will be able to give us some reassurance, which unfortunately he has not been able to give thus far during the Bill’s passage, that enough resources will be allocated to make unexplained wealth orders work. This is probably the best part of the Bill, and it needs to work. If it does work, we shall make huge strides in ensuring that this country cannot be used as a safe haven for dirty money.
Mr Wallace
This has been a short and helpful part of our proceedings today. I am pleased that Members in all parts of the House agree in principle with the concept of the unexplained wealth order. I think that it will be an incredibly useful tool. The first group of amendments dealt with another tool that could be used to ask people to explain where their wealth came from, even without the evidence or the intelligence that would link them to the offence of gross human rights abuse that we are seeking to introduce.
The use of unexplained wealth orders to put the onus on individuals to tell us where they acquired their wealth will obviously be a strong step towards clearing the United Kingdom of people who seek to harbour their ill-gotten gains here, but we should not forget that it will also deal with criminals in the UK who are “washing” their wealth and depositing it elsewhere in the community. Such people sometimes hide in plain sight.
What I am about to say is no different from what I have said to the National Crime Agency. I would like to see this provision used sooner rather than later. We in Parliament always get lobbied for new offences—lots of people come along and lobby us, and there is always either a Home Office Bill or a Ministry of Justice Bill going through this House—and a lesson I have learned in my 12 years in Parliament is that if offences are not used sooner rather than later, many of them just sit on shelves. It is therefore important that the law enforcement agencies hear Parliament today say, “We are—hopefully—going to give you these powers; we want them to be used.”
Richard Arkless
Given that we want to start using these orders immediately, resource is a key issue. It is difficult to put a price on this, but has any assessment been made within Government of what this is going to cost in the next two to three months after Royal Assent, because there are a lot of applications ready to be made and we need the resources to make them?
Mr Wallace
I can reassure the hon. Gentleman and the hon. Member for Swansea East (Carolyn Harris) that one part of government that has not seen a significant reduction in its budgets is the area of the regional organised crime units, the national crime agencies and the security and intelligence agencies, which assist us in tackling organised crime and money laundering. The National Crime Agency has a capital budget of £50 million this year, with £427 million of funding. It is supported in England and Wales by the regional organised crime units, which have got £519 million of funding. The figures for the Serious Fraud Office are £45 million, with £5 million of capital this year, and the figures for HMRC are £3.8 billion in resource and £242 million in capital. Of course, in terms of crime-fighting, the question is, “How long is a piece of string?”
Dr Huq
I am listening intently to what the Minister is saying, and I am reminded of an Evening Standard report—from earlier this year, I think—headed: “Home Office reveals new Criminal Finances Bill will target just 20 tycoons a year.” The report says that is based on the Home Office’s own impact assessment which
“predicts that the power will remain unused in its first year ‘as part of the learning curve’, and thereafter will be used in only 20 cases each year.”
That is because of resource implications, which is precisely the point raised by the hon. Member for Dumfries and Galloway (Richard Arkless). Does the Minister have any comment to make on that?
Mr Wallace
The impact assessment is not linked to access to funds. The impact assessment is a judgment as to how it would see these powers being used. Probably like the hon. Lady, I would like to see them used an awful lot more, but that is an impact assessment, and the NCA does not follow the impact assessment. If the evidence is presented or the cases are put before it that allow it to do 100, it will do 100. It is not restricted by the impact assessment. I would therefore not be too distracted by the London Evening Standard and the impact assessment.
Instead, I would focus on the fact that we have well resourced our law enforcement agencies to tackle this, and this Bill will give them the power. They have the political support of both sides of the House to exercise that power, so let us see how far we go. However, I would be delighted to join the hon. Lady in asking, in 12 months’ time or whenever the Bill goes through, why we have not used them more; I will be asking the NCA and all the other organisations to try to make sure they have done so.
The hon. Member for Swansea East made a point about the asset recovery incentivisation scheme, or ARIS, funding for the recovery of assets not really being worth the paper it was printed on—I think that was what she was trying to say, if she will forgive me for putting words in her mouth. However, since 2006, under an arrangement under her last Government, £764 million has gone into funding those law enforcement agencies, and in the last three years £257 million has gone in. Hopefully, with the new arrangement, above the baseline of, I think, £146 million—I will correct that in writing if it is not £146 million—100% will be kept.
We are also following on from the excellent reports from the Home Affairs Committee and the Public Accounts Committee looking into why we have not achieved enough in terms of confiscation orders and recovery of assets. I have told officials I am particularly concerned that it was suggested in one of those reports that the focus seemed to be on small assets—the collection rate was higher for smaller amounts of money, but lower among millionaires—and I have specifically directed officials that we must look at turning the tables. I want all assets collected that are subject to confiscation, but those reports are a good guideline and we did not ignore that specific point. We will certainly make sure that we build on it and improve on it, because there is money in it for us all, should we do it, and I am very keen that we should.
New clause 5, tabled by my hon. Friend the Member for Amber Valley (Nigel Mills), seeks to prevent the courts from awarding uncapped costs against enforcement agencies when they have brought unsuccessful applications for unexplained wealth orders or related interim freezing orders. I appreciate that this is to ensure that law enforcement agencies do not feel constrained in their ability to apply for an unexplained wealth order, for fear of incurring financial liability. But, as law enforcement representatives told the Public Bill Committee in November, this is a natural part of the state wielding its investigative powers, and they are certainly not pressing for a provision of this type. It is a well-established principle that the losing party pays the winning party’s legal costs. This is an important check and balance on parties bringing spurious claims, or the state using its powers erroneously.
At the same time, the civil procedure rules do already allow for capping in exceptional circumstances, so law enforcement agencies would be able, as things stand, to apply for a cost-capping order in appropriate cases. I undertake to ensure that this point is included in the code of practice that will support the use of these orders. I trust that Members will agree that this is a far more sensible way forward than a blanket rule for all unexplained wealth order cases.
It is crucial that the initial cases are thoroughly developed to ensure that the orders have the greatest possible impact. We are already actively engaging with law enforcement officers and prosecutors to encourage the use of the new powers being introduced by the Bill. Ultimately, it will be for the enforcement authorities to decide when to use them, but we will—as, no doubt, will Her Majesty’s loyal Opposition—monitor and review the use of the orders once they have been introduced. This will inform future support or changes that may be needed to ensure that they are being used to maximum effect.
The hon. Member for Swansea East explained from the Opposition Front Bench the objective behind her amendment 1. However, as I explained when this issue arose in Committee, politically exposed persons in the UK and European economic area can, in fact, already be made subject to an unexplained wealth order. These orders can be made in two situations: first, where an individual is suspected of involvement in serious crime; and secondly, in relation to non-EEA politically exposed persons. An unexplained wealth order can thus be made in relation to politicians and senior officials in Europe, when they are suspected of being involved in serious criminality. In such an investigation, if evidence exists of links to serious organised crime, it should be available, obtainable and readily provided, and it would be unreasonable and disproportionate, for example, for Members of this House to be made subject to an order without any evidence of criminality.
However, for investigations into grand corruption involving countries outside Europe, including the developing world, that evidence is far less likely to be available. It will be much harder in some countries where corruption is endemic to get the evidence to bring to the court at first about wealth hidden in London. That is why we have chosen to have a lower threshold for evidence when applied to countries outside the EEA.
We should not forget that unexplained wealth orders are not an end in themselves; they are part of a process leading eventually, should those concerned not be able to give satisfactory answers, to another action in court to confiscate the assets. As I said when I met the right hon. Member for Hackney North and Stoke Newington (Ms Abbott) to discuss this, I do not want unexplained wealth orders also to produce a lot of derelict empty buildings that are caught up in legal dispute and sitting around London being no good for anyone. I want them to be used and be placed on people whom we have linked to serious crime, and then, should they not be able to satisfy the court, for us then to go to the next step and recover that asset, so that the houses and the housing market are freed up, and any money is returned to whoever it has been stolen from—a country, or other people. An order is therefore a step in the process, not an end in itself.
I hope that I have sufficiently reassured the House on these points, and that the Opposition will feel inclined to not press their amendment.
Question put and agreed to.
New clause 8 accordingly read a Second time, and added to the Bill.
New Clause 2
Failure to Prevent an Economic Criminal Offence
“(1) A relevant body (B) is guilty of an offence if a person commits an economic criminal offence when acting in the capacity of a person associated with (B).
(2) For the criminal purposes of this clause—
“economic criminal offence” means any of the offences listed in Part 2 of Schedule 17 to the Crime and Courts Act 2013.
“relevant body” and “acting in the capacity of a person associated with B” has the same meaning as in section 39.
(3) It is a defence for B to prove that, when the economic criminal offence was committed—
(a) B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or
(b) it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.
(4) In subsection (2) “prevention procedures” means procedures designed to prevent persons acting in the capacity of a person associated with B from committing an economic criminal offence.
(5) A relevant body guilty of an offence under this section is liable—
(a) on conviction on indictment, to a fine,
(b) on summary conviction in England and Wales, to a fine,
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(6) It is immaterial for the purposes of this section whether—
(a) any relevant conduct of a relevant body, or
(b) any conduct which constitutes part of a relevant criminal financial offence takes place in the United Kingdom or elsewhere.
(7) The Chancellor of the Exchequer and the Secretary of State must prepare and publish guidance about procedures that relevant bodies can put in place to prevent persons acting in the capacity of an associated person from committing an economic criminal offence.”—(Sir Edward Garnier.)
This new clause would create a corporate offence of failing to prevent economic crime, defined by reference to the offences listed in Part 2 of Schedule 17 to the Crime and Courts Act 2013.
Brought up, and read the First time.
Sir Edward Garnier (Harborough) (Con)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Natascha Engel)
With this it will be convenient to discuss the following:
New clause 3—Failure to Prevent an Economic Criminal Offence (No. 2)—
“(1) A relevant body (B) is guilty of an offence if a person commits a economic criminal offence when acting in the capacity of a person associated with (B).
(2) For the purposes of this clause—
“economic criminal offence” means one of the following—
(a) a common law offence of conspiracy to defraud;
(b) an offence under section 1, 5 or 7 of Fraud Act 2006;
(c) an offence under section 1, 17 or 20 of the Theft Act 1968 (theft, false accounting and destruction of documents);
(d) an offence under section 993 of the Companies Act 2006 (fraudulent trading);
(e) an offence under sections 346, 397 and 398 of the Financial Services and Markets Act 2000 (providing false statements to auditors, misleading statements, and misleading the FCA);
(f) an offence under section 327, 328 and 329 of the Proceeds of Crime Act 2002 (concealing criminal property, facilitating acquisition, acquisition and use of criminal property).
“relevant body” and “acting in the capacity of a person associated with B” has the same meaning as in section 39.
(3) It is a defence for B to prove that, when the economic criminal offence was committed—
(a) B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or
(b) it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.
(4) In subsection (2) “prevention procedures” means procedures designed to prevent persons acting in the capacity of a person associated with B from committing an economic criminal offence.
(5) A relevant body guilty of an offence under this section is liable—
(a) on conviction on indictment, to a fine,
(b) on summary conviction in England and Wales, to a fine,
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(6) It is immaterial for the purposes of this section whether—
(a) any relevant conduct of a relevant body, or
(b) any conduct which constitutes part of a relevant criminal financial offence takes place in the United Kingdom or elsewhere.
(7) The Chancellor of the Exchequer and the Secretary of State must prepare and publish guidance about procedures that relevant bodies can put in place to prevent persons acting in the capacity of an associated person from committing an economic criminal offence.”
This new clause would create a corporate offence of failing to prevent economic crime, defined by reference to certain offences listed in subsection (2).
New clause 4—Failure to prevent criminal financial offences in the UK—
“(1) A relevant body (B) is guilty of an offence if a person commits a criminal financial offence when acting in the capacity of a person associated with B.
(2) It is a defence for B to prove that, when the criminal financial offence was committed—
(a) B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or
(b) it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.
(3) In subsection (2) “prevention procedures” means procedures designed to prevent persons acting in the capacity of a person associated with B from committing criminal financial offences.
(4) For the purposes of this clause—
“criminal financial offence” means an offence listed in Part 2 of Schedule 17 to the Crime and Courts Act 2013 [that could not be prosecuted under the offences created by sections 7 and 38 of this Act],
or, one of the offences listed below—
(a) an offence under section 1, 6 or 7 of the Fraud Act 2006;
(b) an offence under section 1, 17 or 20 of the Theft Act 1968;
(c) an offence under section 993 of the Companies Act 2006;
(d) an offence under section 327, 328 and 329 of the Proceeds of Crime Act 2002;
(e) the common law offence of conspiracy to defraud;
“relevant body” has the same meaning as in section 36.
(5) A relevant body guilty of an offence under this section is liable—
(a) on conviction on indictment, to a fine,
(b) on summary conviction in England, to a fine,
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(6) It is immaterial for the purposes of this section whether—
(a) any relevant conduct of a relevant body, or
(b) any conduct which constitutes part of a relevant criminal financial offence takes place in the United Kingdom or elsewhere.”
This New Clause would create an offence of failing to prevent any financial offence listed in Part 2 of Schedule 17 of the Crime and Courts Act 2013.
New clause 6—Public registers of beneficial ownership of companies registered in the Overseas Territories—
“(1) In Part 1 of the Proceeds of Crime Act 2002 (introductory), after section 2A, insert—
“2AA Duty of Secretary of State: Public registers of beneficial ownership of companies registered in Overseas Territories
(1) It shall be the duty of the Secretary of State, in furtherance of the purposes of—
(a) this Act; and
(b) Part 3 of the Criminal Finances Act 2017
to take the steps set out in this section.
(2) The first step is, no later than 31 December 2018, to provide all reasonable assistance to the Governments of the UK’s Overseas Territories to enable each of those Governments to establish a publicly accessible register of the beneficial ownership of companies registered in that Government’s jurisdiction.
(3) The second step is, no later than 31 December 2019, to prepare an Order in Council and take all reasonable steps to ensure its implementation, in respect of any Overseas Territory that has not yet introduced a publicly accessible register of the beneficial ownership of companies within their jurisdiction. This Order would require the Overseas Territory to adopt such a register.
(4) In this section “a publicly accessible register of the beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006.””
This new clause would require the Secretary of State to take steps to provide that Overseas Territories establish publicly accessible registers of the beneficial ownership of companies, for the purposes of the Proceeds of Crime Act 2002 and Part 3 of the Bill (corporate offences of failure to prevent facilitation of tax evasion).
New clause 10—Duty to prevent use of new Limited Partnerships for financial criminal activity—
“(1) The Treasury may not lay regulations before Parliament on new Limited Partnerships before the Secretary of State has completed and published a review of the proposed regulations.
(2) It shall be the duty of the Secretary of State to review draft regulations which would allow the creations of new Limited Partnerships, in order to prevent the use of new Limited Partnerships for financial criminal activity.
(3) In performing that duty the Secretary of State must, in particular, have regard to the contribution transparency may make in tackling tax evasion, money laundering, national and cross border criminality, and terrorist financing.
(4) Following any review under subsection (2) the Secretary of State must lay a report before Parliament on what steps the Government will take to prevent new Limited Partnerships being used for criminal purposes.
(5) In conducting the review the Secretary of State must consult—
(a) the Scottish Government,
(b) the National Crime Agency,
(c) the Serious Fraud Office,
(d) the Financial Conduct Authority,
(e) HMRC,
(f) interested third sector organisations, and
(g) any other persons the Secretary of State deems relevant.”
This new clause sets a duty on the Secretary of State to review Treasury proposals for new Limited Partnerships to prevent their use for financial criminal activity, including tax evasion, money laundering and terrorist financing. In carrying out the review the Secretary of State will be required to consult those groups listed in subsection (5) and lay a report before Parliament.
New clause 11—Failure to prevent facilitation of tax evasion offences: consultation on other jurisdictions—
“(1) Within 12 months of this Act receiving Royal Assent, the Secretary of State must conduct a public consultation on the issues listed in subsection (2).
(2) The issues are—
(a) the desirability of the Crown Dependencies and Overseas Territories introducing equivalent offences to those introduced by sections 40 and 41 of this Act; and
(b) the steps that would need to be taken for the Crown Dependencies and Overseas Territories to introduce equivalent offences to those introduced by sections 40 and 41 of this Act.
(3) As part of this consultation the Secretary of State must seek views from—
(a) the governments of the Crown Dependencies and Overseas Territories,
(b) such bodies as the Secretary of State or the governments specified in subsection (3)(a) consider appropriate,
(c) any other person or body who the Secretary of State deems relevant, with particular regard to non-governmental bodies and private sector entities.
(4) The Secretary of State must lay before both Houses of Parliament a report setting out the outcome of this consultation within 24 months of this Act receiving Royal Assent.”
New clause 12—Failure to prevent facilitation of tax evasion offences: publication of convictions—
“(1) The Secretary of State must publish an annual report listing all bodies and organisations that have been found guilty of a failure to prevent facilitation of a UK foreign tax evasion offence within the previous five years.”
New clause 13—Failure to prevent tax evasion offences: sentencing guideline—
“(1) The Secretary of State must produce sentencing guidelines for the level of fine to be imposed on bodies found guilty of failure to prevent facilitation of a UK foreign tax evasion offence.
(2) Such guidance must stipulate that the maximum level of the fine cannot be greater than the total value of the tax whose evasion was facilitated.”
New clause 14—Failure to Prevent an Economic Criminal Offence (No. 3)—
“(1) A relevant body (B) is guilty of an offence if a person commits an economic criminal offence when acting in the capacity of a person associated with (B).
(2) For the criminal purposes of this clause—
“economic criminal offence” means any of the offences listed in Part 2 of Schedule 17 to the Crime and Courts Act 2013.
“relevant body” and “acting in the capacity of a person associated with B” have the same meaning as in section 39.
(3) B is guilty of an offence under this section if a person associated with B commits an economic criminal offence intending—
(a) to obtain or retain business for B; or
(b) to obtain or retain an advantage in the conduct of business for B or otherwise for the financial benefit of B.
(4) It is a defence for B to prove that, when the economic criminal offence was committed—
(a) B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or
(b) it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.
(5) In subsection (2) “prevention procedures” means procedures designed to prevent persons acting in the capacity of a person associated with B from committing an economic criminal offence.
(6) A relevant body guilty of an offence under this section is liable—
(a) on conviction on indictment, to a fine,
(b) on summary conviction in England and Wales, to a fine,
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(7) It is immaterial for the purposes of this section whether—
(a) any relevant conduct of a relevant body, or
(b) any conduct which constitutes part of a relevant criminal financial offence takes place in the United Kingdom or elsewhere.
(8) The Chancellor of the Exchequer and the Secretary of State must prepare and publish guidance about procedures that relevant bodies can put in place to prevent persons acting in the capacity of an associated person from committing an economic criminal offence.”
This new clause would create a corporate offence of failing to prevent economic crime, defined by reference to the offences listed in Part 2 of Schedule 17 to the Crime and Courts Act 2013.
New clause 15—Failure to Prevent an Economic Criminal Offence (No. 4)—
“(1) A relevant body (B) is guilty of an offence if a person commits an economic criminal offence when acting in the capacity of a person associated with (B).
(2) For the criminal purposes of this clause—
“economic criminal offence” means one of the following—
(a) a common law offence of conspiracy to defraud;
(b) an offence under section 1, 5 or 7 of Fraud Act 2006;
(c) an offence under section 1, 17 or 20 of the Theft Act 1968 (theft, false accounting and destruction of documents);
(d) an offence under section 993 of the Companies Act 2006 (fraudulent trading);
(e) an offence under sections 346, 397 and 398 of the Financial Services and Markets Act 2000 (providing false statements to auditors, misleading statements, and misleading the FCA);
(f) an offence under section 327, 328 and 329 of the Proceeds of Crime Act 2002 (concealing criminal property, facilitating acquisition, acquisition and use of criminal property).
“relevant body” and “acting in the capacity of a person associated with B” have the same meaning as in section 39.
(3) B is guilty of an offence under this section if a person associated with B commits an economic criminal offence intending—
(a) to obtain or retain business for B; or
(b) to obtain or retain an advantage in the conduct of business for B or otherwise for the financial benefit of B.
(4) It is a defence for B to prove that, when the economic criminal offence was committed—
(a) B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or
(b) it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.
(5) In subsection (2) “prevention procedures” means procedures designed to prevent persons acting in the capacity of a person associated with B from committing an economic criminal offence.
(6) A relevant body guilty of an offence under this section is liable—
(a) on conviction on indictment, to a fine,
(b) on summary conviction in England and Wales, to a fine,
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(7) It is immaterial for the purposes of this section whether—
(a) any relevant conduct of a relevant body, or
(b) any conduct which constitutes part of a relevant criminal financial offence takes place in the United Kingdom or elsewhere.
(8) The Chancellor of the Exchequer and the Secretary of State must prepare and publish guidance about procedures that relevant bodies can put in place to prevent persons acting in the capacity of an associated person from committing an economic criminal offence.”
This new clause would create a corporate offence of failing to prevent economic crime, defined by reference to the offences listed in Part 2 of Schedule 17 to the Crime and Courts Act 2013.
New clause 16—Conversion of platforms to centralised registers: review—
“(1) Within one year of this Act receiving Royal Assent the Secretary of State must establish a review of the operational efficacy of closed beneficial ownership platforms created by Crown Dependencies or British Overseas Territories that are subject to the automatic exchange of beneficial ownership information with Her Majesty’s Government for the purpose of combating illicit financial activity.
(2) The aim of the review will be to gather information to equip Her Majesty’s Government to take all steps necessary to provide financial, administrative or any other support to assist Crown Dependencies and British Overseas Territories in converting all such beneficial ownership platforms into closed centralised registers of beneficial ownership.
(3) In the course of the review the Secretary of State must consult—
(a) the governments of any Crown Dependencies and Overseas Territories which have created closed beneficial ownership platforms and which are subject to the automatic exchange of information with Her Majesty’s Government for the purpose of combating illicit financial activity; and
(b) such bodies as the Secretary of State or governments under subsection (3)(a) deem appropriate.
(4) The review shall be completed and laid before Parliament within one year of its establishment.
(5) No later than one year after the review has been laid before Parliament, Her Majesty’s Government must have taken all steps necessary to assist relevant Crown Dependencies and British Overseas Territories in the establishment of closed centralised registers of beneficial ownership.
(6) Her Majesty’s Government shall supply quarterly reports to Parliament of the progress of steps taken under subsection (5), and such reports shall set out—
(a) concerns expressed by relevant Crown Dependencies and British Overseas Territories about conversion of beneficial ownership platforms to centralised registers, and
(b) an assessment by Her Majesty’s Government of the extent to which objections to the creation of centralised registers can be justified on a constitutional, economic, administrative or any other operational basis.”
New clause 17—Public registers of beneficial ownership of companies registered in Crown dependencies—
“(1) In Part 1 of the Proceeds of Crime Act 2002 (introductory), after section 2A, insert—
“2AA Duty of Secretary of State: Public registers of beneficial ownership of companies registered in Crown dependencies
(1) It shall be the duty of the Secretary of State, in furtherance of the purposes of—
(a) this Act; and
(b) Part 3 of the Criminal Finances Act 2017
to take the actions set out in this section.
(2) The first action is, no later than 31 December 2017, to provide all reasonable assistance to the Governments of Crown Dependencies to enable each of those Governments to establish a publicly accessible register of the beneficial ownership of companies registered in that Government’s jurisdiction.
(3) The second action is, no later than 31 December 2019, to publish legislative proposals to require the Government of any Crown dependency that has not already established a publicly accessible register of the beneficial ownership of companies registered in that Government’s jurisdiction to do so.
(4) In this section—
“a publicly accessible register of the beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006.
“legislative proposals” means either—
(a) a draft Order in Council; or
(b) a Bill presented to either House of Parliament.”
New clause 18—Whistleblowing in relation to failure to prevent facilitation of tax evasion and money laundering—
“(1) The Secretary of State shall conduct a review of arrangements to facilitate whistleblowing in the banking and financial services sector in relation to the disclosure of suspected corporate failure to prevent facilitation of tax evasion and money laundering.
(2) The review must consider, but shall not be limited to—
(a) arrangements to protect the anonymity of persons disclosing suspected corporate failure to prevent facilitation of tax evasion and money laundering;
(b) the efficacy of current penalties for institutions that treat whistleblowers unfairly, and proposals for future criminal penalties.
(3) In conducting the review the Secretary of State must consult—
(a) whistleblowers in the banking and financial services sector,
(b) devolved administrations,
(c) interested charities,
(d) the relevant regulators, and
(e) any other persons the Secretary of State deems relevant.
(4) The Secretary of State must lay the report to Parliament within six months of the passing of this Act.”
This new clause requires the Secretary of State to conduct a review of arrangements to facilitate whistleblowing in the banking and financial services sector, in consultation with those groups listed in subsection (3), and then lay a report before Parliament on steps the Government will take to bring forward penalties for institutions that fail to protect whistleblowers.
New clause 19—The culture of the banking industry and failure to prevent the facilitation of tax evasion—
“(1) The Secretary of State must undertake a review into the extent to which banking culture contributed to the failure to prevent the facilitation of tax evasion in the banking sector.
(2) The review must consider, but shall not be limited to, the following issues—
(a) the impact of culture change on decision making senior executive and board level;
(b) the pressure on staff to meet performance targets;
(c) how allegations of tax evasion are reported and acted on.
(3) The review must set out what steps the UK Government intends to take to ensure that banking culture is not facilitating tax evasion.
(4) In carrying out this review, the Secretary of State must consult—
(a) devolved administrations;
(b) HMRC;
(c) the Serious Fraud Office;
(d) the Financial Conduct Authority;
(e) interested charities, and
(f) anyone else the Secretary of State deems appropriate.
(5) The Secretary of State shall lay a copy of the review before the House of Commons within six months of this Act receiving Royal Assent.”
New clause 20—Report on the impact of the criminal offences relating to offshore income, assets and activities—
“(1) The Chancellor of the Exchequer shall, within one year of the coming into force of the provisions in Tax Management Act 1970 relating to criminal offences relating to offshore income, assets and activities introduced by section 165 of the Finance Act 2016 publish a report on the impact of the introduction of these offences.
(2) The report must include, but need not be limited to, information about—
(a) the number of persons who have been charged with offences under each of sections 106B, 106C and 106D of the Tax Management Act 1970;
(b) the number of persons who have been convicted of any such offence;
(c) the average fine imposed; and
(d) the number of people upon whom a custodial sentence has been imposed for any such offence.”
New clause 21—Report on income lost to tax evasion—
“(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, prepare and publish a report, in consultation with stakeholders, on the value of income lost to the Exchequer from tax evasion offences.
(2) The report must include the following—
(a) the value of the income lost to the Exchequer from tax evasion offences in the financial years—
(i) 2015-16;
(ii) 2014-15;
(iii) 2013-14;
(iv) 2012-13; and
(v) 2011-12;
(b) a detailed summary of the model used by HMRC for estimating income lost to the Exchequer from tax evasion offences.
(c) an assessment of the efficacy of HMRC’s performance in relation to dealing with tax evasion, including—
(i) a breakdown of specific HMRC departments or units dealing with investigation and enforcement of tax evasion matters;
(ii) details of the numbers of staff in each of the years listed in paragraph (a) who are located within departments or units dealing with investigation and enforcement matters in relation to tax evasion;
(iii) details of the budgets allocated to departments or units dealing with investigation above; and
(iv) details of the numbers of prosecutions or the amount of tax recovered in each financial year listed in paragraph (a) as a result of the work of HMRC departments or units dealing with investigation and enforcement matters in relation to tax evasion in those financial years.”
Sir Edward Garnier
I shall be relatively brief in introducing this group of new clauses. In moving new clause 2, which stands in my name and those of a number of hon. Members on both sides of the House and which mirrors new clauses 3, 4, 14 and 15, I want to introduce a debate about the future of corporate criminal liability in this jurisdiction. I must declare an interest, as over the past few years I have been instructed by the Serious Fraud Office in a number of cases involving the prosecution of large international companies. One of the problems that prosecutors and, no doubt, investigators have found in this jurisdiction when dealing with the modern corporate landscape—to use that hideous jargon—involves trying to fix liability on a company suspected of criminal activity, as a matter of criminal law. It is not difficult to fix criminal liability on an individual if the evidence is there: the person either did or did not do it, and they either did or did not have the necessary criminal intent.
Under current English law, however, fixing criminal liability on a corporation involves resorting to what is called the identification principle. This involves finding someone of sufficient seniority within a corporation who can act as or be described as the directing mind of the company. Through that identified person, we can then move on to fix criminal liability on the corporation. That was fine in the Victorian era, when most companies had one or two directors. An example would be a small business in a market town in the 1860s or 1870s, which would have been owned and directed by two or three men—it was always men in those days. If a fraud was committed on behalf of the company, it would have been perfectly easy to find the directing mind of that company among the small group of directors.
As the industrial revolution and corporate legal development proceeded during the late 19th century and early 20th century, however, it became clear that companies were getting bigger. An increase in international trade meant that companies based in this country had offices, and directing minds, in other parts of the world. In 1912, the United States dealt with this by doing away with the identification principle involving the directing mind and, through case law, by developing a principle in criminal law that a company could be vicariously liable for the criminal acts of its employees on the basis that they were conducting criminal activities for the benefit and on behalf of the company.
We in this country reached the stage long ago at which we needed to reform the way in which we look at corporate criminal liability. The hon. Member for Dumfries and Galloway (Richard Arkless), with his Scottish legal experience, will no doubt inform us whether the situation is the same in Scotland as it is in England, but I believe that it is uncontroversial to say that the Victorian identification principle is no longer apt to deal with international corporations. I am not picking on the company that I am about to mention because I think it has committed a criminal offence; quite the contrary—I just want to use it as an example of a large international company. British Telecommunications is a huge company that employs hundreds of thousands of people all around the globe doing various things in the telecoms world, all of them entirely legitimate and beneficial to the company, its shareholders and our national economy. Surely, however, it is a matter of common sense to say that it would be extremely difficult nowadays to fix upon an individual or small group of individuals as representing the directing mind of that company if it was suspected that an offence had been committed many miles away from the main board and the headquarters of the company in London. I repeat that I have used British Telecommunications simply as an example of a large international company with operations right around the world.
Of course it would be perfectly possible to fix upon an individual, a human being, who had committed an offence. It might well be that that individual had committed an offence for the benefit of the international corporation, but unless that person was of sufficient seniority within the hierarchy of that great big international company, it would be very difficult to fix criminal liability for that person’s offence on the corporation as well. As I have said, the United States has been getting round that problem for more than 100 years by using the principle of vicarious liability, which we are used to dealing with in this country in civil law but not in criminal law.
I believe that there are two ways in which we can approach this question, and this is the whole point of the new clauses that I and others have tabled. First, we could use the American system of vicarious liability, and there are plenty of good arguments for doing so. Secondly, we could approach the problem—as we have done in the new clauses—by using the failure to prevent regime, in which, when a company fails to prevent someone or another body associated with it from committing a specified offence, it thereby becomes liable for the criminal offence itself. We already have that provision on the statute book in section 7 of the Bribery Act 2010, and it is about to be added to the statute book through the existing provisions in this Bill relating to tax offences. That follows David Cameron’s speech to the corruption summit at Lancaster House last summer.
In pushing forward these new clauses, I want to invite Parliament, in this House and the other place, and the Government—by which I mean not only the political Government but the non-political Government: the officials who run the Government day by day and advise on matters of policy—to consider whether extending the failure to prevent regime would be an easier and better way to deal with this than turning the whole thing on its head by adopting the vicarious liability principle wholesale.
There are plenty of arguments for and against the extension of the section 7 failure to prevent bribery model. I have attended a number of meetings with criminal lawyers who are far more experienced than I am. Indeed, I see one sitting just two Benches in front of me, behind the Minister. My hon. Friend the Member for Louth and Horncastle (Victoria Atkins) will know, as I have come to learn over the past few years since I have taken an interest in corporate crime, that a number of difficulties are created by the failure to prevent model. I will not rehearse them all now, but some of those difficulties were set out on Friday 13 January 2017 in the Ministry of Justice’s “Call for evidence” paper, which sets out five options for a failure to prevent regime.
I favour the failure to prevent model over the vicarious liability model because it is already set within our system. The new clauses would not extend the principle but merely extend the ambit of the criminal offences that could come within a failure to prevent system. The provisions will not be brought into this Bill because it is highly unlikely that the Government would accept any of them—albeit they may nod politely at them—when the Ministry of Justice’s call for evidence process is still open. However, I hope that the Government will look carefully at the shape and design of the new clauses with a view to considering vigorously whether what we have proposed as a matter of principle is worthy of greater thought.
The intention of new clause 2 is to create a corporate offence of failing to prevent economic crime, as defined by reference to the offences listed in part 2 of schedule 17 to the Crime and Courts Act 2013. Again, I will do my best to be brief. That schedule brought in the deferred prosecution agreement system for dealing with errant companies. I declare an interest, with both capital and small letters, in that not only have I been instructed by the SFO in two of the three deferred prosecution agreements that have so far taken place, but I brought the system into law when I was Solicitor General—at least I began it before I got the sack. There is a cloud in every silver lining, is there not?
Sir Edward Garnier
Very few. I am diverting myself, because I deliberately said “a cloud in every silver lining” not “a silver lining in every cloud.”
The short point is that schedule 17 to the 2013 Act contains about 50 economic and financial criminal offences that can be dealt with through deferred prosecution agreements between either the Crown Prosecution Service or the SFO on the one hand and corporations—that is to say respondents and defendants that are not human beings—on the other. Those offences are perfectly capable of being moved across into the failure to prevent regime. As I said, section 7 of the Bribery Act 2010 makes it an offence to fail to prevent bribery, and we are about to have an offence of failing to prevent a tax offence, so why not—I ask rhetorically on this occasion—extend the failure to prevent regime across to these other offences? New clause 3 does exactly the same, save that it limits the offences to those set out in its subsection (2).
New clauses 4, 14 and 15 contain provisions suggested by the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) that broadly address the same issue that I am discussing. I will not press new clause 2 to a Division, because these are probing amendments designed to create a public discussion, and I hope that they will inform the Ministry of Justice’s discussion paper. I also hope that they will encourage the Home Office and the Minister, with whom I have had some useful discussions about this and other matters to do with the Bill, to consider carefully and positively the extension of the failure to prevent regime.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
I start by thanking the Security Minister and the Government for responding to the campaign on Scottish limited partnerships in which I have been involved for about a year. We are all grateful that the Government recently announced that they will conduct a review, which means that the amendment that I have regularly been tabling to Bills over the past year is no longer necessary. However, I have found myself having to table a different new clause; I will explain why and why it troubles me greatly that I am forced to do so.
For Members who are unfamiliar with why my colleagues and I have been so concerned about these things called Scottish limited partnerships, let me point out that they do remarkable reputational damage to Scotland and probably to the UK’s financial sector. They are a front for some of the worst international crime, money laundering and hiding of criminal assets to be found. Without going into great detail of how they manage to do that, it might interest the House to know just a few of the types of crime for which they have been used.
SLPs have been at the centre of Ukrainian arms deals, kick-backs and a major Moldovan banking fraud. They have been at the heart of a major corruption scandal in Latvia involving the nephew of Uzbekistan’s President Islam Karimov. They have been used to run international mail frauds, including that of a French psychic who has been targeting vulnerable elderly people with offers of spiritual insights for significant amounts of cash. They are involved in a $1 billion copyright infringement case that is taking place in the United States. They have been involved in criminal activity such as setting up paedophile websites and raising money through such horrible activities. The list goes on and on. SLPs, and other limited partnerships to some extent, have been utilised as a way of hiding billions of pounds of criminal money. Often that money does not necessarily come here, as we find it in tax havens. The legitimation of a UK or Scottish limited partnership is used as a means of hiding the beneficiaries of such criminal activity.
For those reasons, I am particularly grateful that the Minister has been willing to speak seriously about this. He has done more than any other Minister to move the Government to respond to some of our concerns, so why did I table new clause 10? I did so because SLPs and limited partnerships are based on a 1907 Act, of which probably few people are aware, that amended the Partnership Act 1890, of which even fewer people are aware. By some chance, I sit on the Regulatory Reform Committee, which is so popular that in December it held its second meeting since I joined it in January 2016. Why did we have our second meeting in December? Because we were told that the Treasury was introducing a legislative reform order. And what was that legislative reform order for? At the same time as the Government announced a much-welcomed review of limited partnerships, the Treasury sought to create a new form of limited partnership—private fund limited partnerships —not on the Floor of the House, but through a device that is supposed to be used only for non-controversial matters of legislative reform. I can hardly think of anything more controversial than a mechanism that has been used for international criminal assets and money laundering, but I have even greater concerns.
I will have to leave the debate in about an hour to attend a meeting of the Regulatory Reform Committee to take evidence on the Treasury’s proposals—[Interruption.] I hear Members suggesting they are jealous, but I am sure that they are not. Under the proposals, there are four areas with which even SLPs have to comply that these new private fund limited partnerships will not. For example, the jurisdiction in which the general partners are registered no longer needs to be divulged. The registration numbers of the general partners no longer need to be divulged. The jurisdiction in which the limited partners are registered no longer needs to be divulged, and the registration numbers of the limited partners, if they are corporations, no longer need to be divulged.
Not only are we creating a new form of limited partnership, but we are doing so with considerably less regulation than is in place for existing limited partnerships that have been a front for international criminality. As I have such great faith in the Minister for Security, our new clause would require the Home Office to conduct a review before the Treasury introduces any legislation to create a new form of limited partnership so that we can ensure that those limited partnerships will not be subject to the type of criminal abuse and illegality that we have found with Scottish limited partnerships.
There is also a broader question to be answered. Why are this Government using a device such as a legislative reform order to try to quickly establish something in such a controversial area? Surely this is something that should be fully and properly debated on the Floor of the House. That is why, when I go to the Committee shortly, I will certainly not be agreeing that the proposal makes progress. I will do my best to require that this matter is brought back to the Floor of the House so that it can receive proper and urgent scrutiny. In the light of my arguments, I commend new clause 10 to the House.
Nigel Mills
It is a pleasure to speak in this debate. I rise to address the new clauses that my right hon. and learned Friend the Member for Harborough (Sir Edward Garnier) spoke about and new clause 6. I will begin by speaking to the new clauses tabled by my right hon. and learned Friend and the measures tabled by the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), who co-chairs the all-party group on anti-corruption, on the failure to prevent economic crime.
The hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) knows far more about such things than I do, and he made his argument well, but I reinforce the point that there is a strong feeling among the public, because if large companies are seen to be part of some very serious criminal activity, people are confused about why those companies and the senior people within them have not been prosecuted for those serious offences. If people look across the Atlantic, they see that America does manage to prosecute senior bankers for such offences, so they think, “We see all our banks being fined in America for being guilty of rigging various markets, yet why are no senior directors of those companies being prosecuted here? Why are those banks not being prosecuted?” That exposes the fact that our law, as the hon. Gentleman explained, has become out of date. It seems horribly unfair that the Serious Fraud Office finds it comparatively easy to prosecute very small companies and their directors, when it is clear who the controlling minds are, but that when we see far more serious offences being committed by, on behalf of, or for the benefit of much larger companies, we cannot quite find enough evidence to prosecute those companies or their very senior directors.
Mark Field (Cities of London and Westminster) (Con)
In the US context, does my hon. Friend accept that there is often a political element there, despite the division of power? The prosecutor is often looking to make a name for himself by taking on a big bank—often, it has to be said, a big non-US bank. It is a particular concern—not just in the banking world but beyond—that overseas companies tend to be fair game as far as prosecutions are concerned. There is actually a rather different regime there, and it might not necessarily point to a desire and a need for a change in UK law.
Nigel Mills
I agree with my right hon. Friend’s point. It is interesting that the United States seems to favour prosecuting large banks and large companies that are internationally owned rather than US-owned. I am sure that the Foreign Office is trying to work out whether that is an unfair, anti-competitive move by the US. He is right that we should not try to read too much across from the US system into ours, but I was trying to make the point that people are confused about why people are prosecuted in the US but not over here.
That takes me back to the point that it seems unfair that while we can prosecute directors of small businesses, we cannot prosecute when we see much more serious offences in large businesses. That is why I support extending the model of the failure to prevent that we already have in place for bribery and that we are adding for tax evasion. We are talking about other very serious economic crimes, and it is hard to make a distinction as to why we would rank some of these offences as less important or serious such that we do not take the power to prosecute so that we prevent serious fraud, for instance.
I welcome the Government’s consultation on those issues, and it is right that it would be somewhat premature to legislate before we get the outcome of the consultation, as that might make a mockery of the idea of consulting. It is a real pity that although this Bill is the ideal vehicle in which to act, we cannot, because of the timing, make the change that we want. We will be relying on another relevant Bill being introduced later in this Parliament so that we can finally make the change. As my right hon. and learned Friend the Member for Harborough said, it would be helpful if the Minister would make some encouraging noises about how seriously the Government take such matters and when we might expect to see some progress following the consultation, if the Government were minded to proceed with legislation.
I will take a bit of a leap from that topic to the subject of new clause 6—our grouping is interesting. For quite a long while, I thought that I was supporting Government policy by encouraging our overseas territories and Crown dependencies to adopt the same transparency regarding beneficial ownership that we are putting in place for the UK through the Bill. The previous Prime Minister was absolutely right to make efforts to get those territories and dependencies to agree to having transparent registers. I think that we all welcome the fact that the territories have moved a fair way in agreeing to have registers and reliable information on the beneficial owners of companies operating there. We all congratulate them on that, and look forward to that being in place; we all recognise that it will be a great step forward for various law enforcement authorities to be able to get that information relatively speedily to help prosecutions here. However, that does not go far enough, and we recognise that by saying in new clause 6 that we want a transparent register.
Mark Field
My hon. Friend makes a strong and powerful case, but does he not recognise the distinction between privacy and secrecy? No one wants an entirely secret element, but most people who indulge in banking, whether in an overseas territory or anywhere else, expect a certain amount of privacy. There is no question but that we would expect law enforcement, the police and the tax authorities to have access to these registers. My hon. Friend has been fair in making the point that ultimately a lot of these issues should be constitutional questions for the territories; these measures should not be imposed on them by the UK. On the notion that anyone should have access to that information beyond the authorities I mentioned, as they would in his Tajikistan example, surely he can understand the reluctance for that to happen, particularly in the globalised financial world in which we live, and particularly if the same does not apply elsewhere.
Nigel Mills
I accept that we hear the privacy argument a lot—I am sure that it is made in the UK context as well—but we have taken the decision to have transparent registers so that we know who the ultimate beneficial owners of these entities are. If I think through the scenarios in which people would have a right to privacy, I can perhaps see that there might be a good reason not to publish if there is a real issue of individual safety, but I struggle to find many other situations for which there is a good argument for people being able to establish entities or other bodies in the overseas territories without being clear about who the ultimate owner is. If someone owns a company here or is a shareholder, that has to be public. That transparency exists for any kind of entity here, so I am not sure why a different argument ought to apply for our dependencies. In weighing the right to privacy against the right to ensure that we are not letting dirty, corrupt, criminal money into the system, we have to err on the latter side of the equation.
Mr Wallace
My hon. Friend gave the example of a toll road in Tajikistan. Because of where we are now, with a commitment to central registers and automatic access for our law enforcement agencies to those registers in countries such as the BVI, we could investigate his example and those responsible could be tracked down. Because it is an offence under the Bill to encourage tax evasion, even in another country—I guess the people who siphon off the toll money are not paying taxes in Tajikistan—we could take action if the BVI bank had a British nexus. We have now gone a long way towards tackling that type of crime because of this Bill and where we have got to since David Cameron’s summit.
Nigel Mills
I am grateful to the Minister for making those points, but we should be careful that we do not focus only on one example. There might be good commercial reasons in that case and it might just be a rumour from that country. I was highlighting the question of whether there are sufficient resources in the various law enforcement bodies, either here or elsewhere, to pursue inquiries through the labyrinth of corporate structures that tend to be involved when it comes to the most complex money-laundering or corruption situations.
The advantage of transparency, and one reason why we have chosen to have it here, is that it puts the information into the public domain so that various NGOs or other bodies can do some of the initial investigation, piece together the corporate chains and links, break the corporate veils, and thereby work out where this money is coming from and where it has got to. I am a little sceptical that our law enforcement bodies will ever have the resources to start that process in the vast majority of cases. If we can get the information into the public domain and give people the chance to trace it all the way through and find the answers, that new information can be used by the law enforcement bodies. That is what we are trying to achieve, because enabling transparency will make it much harder to hide the money through a complex structure going through multiple territories and however many different trusts and entities.
It is entirely right and welcome that law enforcement bodies will have timely access to information, but that will not be enough to enable the full tackling of this scourge that we would like to see. That is why I support the effort that has been made with new clause 6 to find a way to send a very strong signal to our territories that we want transparent registers. That is the right thing to do and it is the right direction of travel for the regimes in question. We want our territories to take the lead, rather than waiting for everybody else to do something first. Let us set an example and move first, and not wait for the herd.
Caroline Flint (Don Valley) (Lab)
It is a pleasure to follow the hon. Member for Amber Valley (Nigel Mills). I almost feel like not making a speech and sitting down now—but I will not—because he made such excellent points about why public registers of beneficial ownership in our overseas territories are so important. I look forward to working with him on this issue and on public country-by-country reporting, as well as with the many other colleagues from both sides of the House and from eight political parties who support new clause 6. Despite some Government pressure, several Conservative MPs support the new clause, including the former International Development Secretary, the right hon. Member for Sutton Coldfield (Mr Mitchell), who I understand hopes to catch your eye, Madam Deputy Speaker. I also pay tribute to my right hon. Friend the Member for Barking (Dame Margaret Hodge) for her hard work on this important amendment. I am really sorry—and she is too—that she cannot be here today to speak in this debate. I hope that, on this occasion, Members will not mind me dubbing new clause 6 “the Hodge amendment”.
I welcome the Government’s Criminal Finances Bill. Its aims of tackling corruption, tax evasion and terrorist financing are really important and should be commended. However, the absence of any mention of the overseas territories is remarkable. As Christian Aid has said, the No. 1 thing that the Government can do to tackle corruption, money laundering, and tax evasion is to ensure transparency in their overseas territories. Unfortunately, the secrecy that those territories trade in facilitates the corruption and the aggressive tax avoidance and tax evasion that we are all trying to stamp out.
The amendment is supported by the all-party groups on responsible tax and on anti-corruption, Christian Aid, Global Witness, Transparency International, Action Aid, Publish What You Pay, Save the Children, Oxfam and many others. We all know from numerous polls that this matter is something that the British public really care about. Two thirds of them want the Government to insist on public registers of beneficial ownership in the overseas territories.
As the hon. Member for Amber Valley mentioned, we have, with this amendment, responded to concerns raised earlier at different points of debate on this Bill. We are focusing purely on the overseas territories where the constitutional issues are more clear cut. We recognise that the overseas territories are taking steps towards private registers of beneficial ownership, so we have allowed a generous timeline for them to move from that to make these registers publicly accessible.
The overseas territories need to have these private registers in place by June of this year. This amendment would give them another two and a half years after that, which is within the lifetime of this Parliament, simply to make those private registers public. Such a move would be a major step forward.
New clause 6 is important not only for us in the UK, but for developing countries, which is why so many NGOs are supporting it. According to the UN Conference on Trade and Development, developing countries lose at least $100 billion every year as a result of tax havens. Around 8% to 15% of the world’s wealth is being held offshore in low tax jurisdictions, many of which come under our jurisdiction. A World Bank review of 213 big corruption cases found that more than 70% of them relied on secret company ownership. Company service providers registered in UK territories were second on the list in providing these companies. Oxfam has said recently that around one third of rich Africans’ wealth is currently sitting in offshore tax havens. If all that wealth was held in Africa and taxed properly, we would be able to pay for enough teachers to educate every child in Africa.
It damages our reputation, as the hon. Member for Amber Valley said, that the British Virgin Islands was the most mentioned tax haven in the Panama papers. We know that future leaks are coming, so why cannot we get ahead of the game and ensure transparency now?
In a recent debate on the Commonwealth Development Corporation Bill, the Minister of State, Department for International Development, the hon. Member for Penrith and The Border (Rory Stewart), said that the CDC would never invest through Anguilla or the British Virgin Islands. If a DFID Minister and the CDC can say that, what does it say about our responsibility today to change that reputation—British Ministers are clearly considering this—and do something to help those territories become more transparent?
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
My right hon. Friend is making an incredibly strong point. I, too, was pleased to add my name to new clause 6—I am sorry that I have not been able to join her for much of this debate. Does she agree that this is all about the consistency of approach? We talk about trying to reduce the need for aid in certain countries, and a key way in which to do that is to ensure that countries can generate their own revenues by having tax paid properly in their own jurisdictions?
Caroline Flint
I absolutely agree with my hon. Friend and I thank him for his support and for putting his name to new clause 6. Aid is important, but more important is the question of how to create self-sufficiency so that more countries that are recipients of aid can stand on their own two feet. Transparency regarding overseas territories and our own system is an important part of that, as is good governance in the countries in question. Unfortunately, some countries to which we supply aid could do a hell of a lot more to help their own citizens. This is an area where we can have a direct impact and start making significant changes right now.
Stephen Doughty
Does my right hon. Friend agree that there is a conflict here? On the one hand, different Labour and Conservative Governments have been very sensible in supporting tax systems and tax authorities in many developing countries. However, if transparency of information—on companies, how they are incorporated and so on—is not available, even if we are giving them support, they cannot get to the bottom of where their taxes are actually going.
Caroline Flint
If we do not have the tools to make the difference, we are not going to see the change that I think everyone across the House wants to see. Without full access to transparent information, investigators will not know what information to request through these agreements, and that is fundamental. That is why public access to the data is important and why David Cameron was exactly right to demand it.
When the Minister responds, I expect him to say that the overseas territories are making real progress on this agenda and that including them in the legislation is not necessary. Let us be clear about the progress that has been made since the former Prime Minister first asked the overseas territories to consider public registers of beneficial ownership back in October 2013. More than three years on, just one overseas territory, Montserrat, has committed to a public register. Hooray for Montserrat! The rest have delayed at every step. Is the Minister satisfied with that outcome, and how does he account for why progress has been so slow?
In April 2014, the then Prime Minister wrote to overseas territory leaders, asking them to consult on public registers. Not all of them even did that. In July 2015, the current Chief Secretary to the Treasury, the right hon. Member for South West Hertfordshire (Mr Gauke), asked those overseas territories with financial centres to develop plans for central registers by November 2015. That deadline was not hit. Press reports last year said that the overseas territories were ignoring Foreign Office Ministers’ letters and meeting requests. At the most recent meeting with overseas territories’ leaders in November 2016, public registers of beneficial ownership were not even mentioned in the final communiqué. That raises the question whether we would have made as much progress as we have if the Panama papers had not been released.
Mr Wallace
The right hon. Lady is not being very charitable. Actually, we have achieved an awful lot since David Cameron’s summit. While the registers are not public, we will this year achieve a central register of beneficial ownership in all the overseas territories and Crown dependencies, and where they have needed help in getting there, we have given them help. The hon. Lady said that the issue of the public register had not even been raised. I can tell her that I had a meeting with the overseas territories and Crown dependencies two weeks ago, and I raised it then.
Caroline Flint
I thank the Minister for that information, because I did go and read the final communiqué from the meeting in 2016, and while there was some mention of beneficial ownership and private registers, nothing in the communiqué mentioned any journey from private to public registers—the point I made a little earlier. I do welcome the progress that has been made, but, as I will go on to suggest, unless we link the efforts being made on private registers to the endgame of public registers, I fear that we will still have some of the problems that so many people on both sides of the House and outside it have been worried about for some years.
Mark Durkan (Foyle) (SDLP)
The Minister has just told us that he did raise the issue of making the register of ownership public. If he was prepared to raise that issue two weeks ago, and if he is prepared to adopt that role of encouragement, would it not be better for him if he was supported in future by this Parliament through the very new clause we are debating?
Caroline Flint
I thank the hon. Gentleman for his intervention. Part of having this debate, and part of looking at ways to rephrase the original amendment, is about strengthening the arm of Ministers to say, “Look, we welcome the efforts on central registers, private registers and the automatic exchange of information, but we are on a journey. This is not the endgame; this is part of a journey to where we want to get to.” It would be helpful to hear from the Minister what the reaction was to the discussion of public registers at the meeting he mentioned.
The issue of central registers is important because, while there may be private registers, information may be held in different places. Private central registers are important because it helps to make things clearer, even in the private situation, if those who ask for information are able to get it. Also, if we do not have central registers, it will be even harder to make that journey to public registers if we want to do that in the future.
So how many of our overseas territories will provide central registers? Will the British Virgin Islands register be central? Not all of the overseas territories have indicated that this is the route they want to go down. That is why Ministers should be talking to them now about the journey to public registers. This is about the journey we are on. The way the private registers are put together, how they are held and how easy it is to access them for those who are going to have to ask for access are all pertinent to a future where public registers are available.
When the Minister responds to the new clause, I expect him to say how complicated this all is constitutionally. None of us who has signed the new clause wants the Orders in Council to be used. They are there as a backstop if the Government are unsuccessful in persuading the overseas territories to publish their registers. As I have said before, the new clause gives the overseas territories until the end of 2019 to act on their own.
However, the fact is that we cannot remove the possibility of using Orders in Council if we want to see more progress on the transparency agenda. The constitutional position on the overseas territories is very clear. A 2012 Government White Paper said:
“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”
There are multiple examples of the UK legislating for its overseas territories. In 2009, the UK imposed direct rule in the Turks and Caicos Islands, following allegations of corruption. In 2000, the UK Government decriminalised homosexual acts in the overseas territories using Orders in Council. In 1991, the UK Government, by Order in Council, abolished capital punishment for the crime of murder in Anguilla, the British Virgin Islands, the Cayman Islands, Montserrat, and the Turks and Caicos Islands. The exception was Bermuda, which is generally considered the most autonomous overseas territory, but the UK Government threatened to impose change, which had the desired effect of ensuring changes in domestic legislation.
On Second Reading and in Committee, the Minister was very clear that he wanted to see public registers in the overseas territories and was working to get them, so why has he scaled back on his ambitions in recent weeks? Undoubtedly, the UK Government need to work closely with our overseas territories to help them to diversify their economies away from a unique selling point of secrecy, and that will require a great deal of support.
As we look ahead to a global, post-Brexit Britain, let us seek to lead the world rather than just follow. Let us ensure that transparency is increased. Let us ensure a fair playing field for businesses and individuals across the world. Let us ensure that tax cheats, corrupt individuals, terrorists and organised criminals have nowhere to hide. For the benefit of UK taxpayers, for people in the developing world, and for the UK’s reputation and that of our overseas territories, let us not miss this opportunity. For all these reasons, I urge the House to support new clause 6.
Mr Mitchell
New clause 6 is an important probing amendment. I very much look forward to hearing what the Minister says before I decide whether to vote for it. One of the most important aspects of the Bill is tackling corruption and standing up for openness and transparency. The Government deserve enormous praise for the work that they have done—landmark work, really—not only here but in the G20, in trying to tackle corruption. That is what this new clause is about.
Conservative Members join the right hon. Member for Don Valley (Caroline Flint), who spoke to the new clause very eloquently, in saying how much we regret that the right hon. Member for Barking (Dame Margaret Hodge) cannot be here today. Given the reason for that, I hope that she will send the right hon. Lady the House’s best wishes. I should correct her on one point. She said that Back Benchers signing this new clause might have been leant on by the Government or were signing it in spite of being leant on. I am happy to confirm to the House that no one has tried to lean on me in this respect.
I think that the Minister will have to do a little better than in his response to my hon. Friend the Member for Amber Valley (Nigel Mills) on his Tajikistan bridge example, because my hon. Friend was absolutely correct. The Administration of Tajikistan may well be colluding with the owners of the bridge, but that is not the point—the point is to enable civic society to hold the powerful to account. That is why we support transparency. That is why, when I had the privilege of being Secretary of State for International Development, we introduced the transparency initiative. We put everything we possibly could into the public domain. It is why we should all support a free press. Although it may be rumbustious and unruly from time to time, a free press is nevertheless a bastion of our liberties. Sunlight is the best disinfectant. A lot of the stuff that is the subject of this new clause leaks out anyway in the back pages of Private Eye or whatever. It is much better to put the whole thing on a formal setting and have it made public. The Government, particularly the former Prime Minister and the former Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), and my right hon. Friend the Member for Brentwood and Ongar (Sir Eric Pickles) in his capacity as the anti-corruption tsar, have made huge progress on this.
Will the Minister give us the flavour of the Government’s thinking on the slightly differing treatment of the overseas territories and the Crown dependencies? It would be helpful for the House to understand that. During the run-up to the tabling of this new clause, I was visited by officials of no fewer than five of the dependent territories, supported by the Falkland Islands, although I think that that was a matter of solidarity rather than direct interest. They made some very important points, which no doubt we will hear about from my hon. Friend the Member for North West Norfolk (Sir Henry Bellingham), who chairs the all-party British Virgin Islands group. First, they say that if they have an open public register, they will suffer a competitive disadvantage—and that is true. Their answer is that if they are going to do it—they do not have an objection in principle to doing so—they think that everyone else should do it as well. They point out that the potential effect on their income, which could reduce quite substantially, might well push them back into dependency. That is a fair point. The Government’s answer should be to try at all times to narrow the footprint of the areas that can hide behind secrecy.
Robert Neill (Bromley and Chislehurst) (Con)
It is a pleasure to follow my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), who speaks with great authority and commitment on these matters. I will come on to a practical matter on which I disagree with him, although I do not disagree with the objective that he seeks to achieve.
I endorse the thrust of the Bill, as my right hon. Friend has just done, and the observation—it is worth repeating, and it is all the more important as we look towards the world as it will be after we have left the European Union—that Britain is a world leader in transparency and effectiveness at dealing with financial crime. My right hon. and learned Friend the Member for Harborough (Sir Edward Garnier) was right to stress the value of the Serious Fraud Office’s work. It is extremely successful and highly regarded the world over, not least because it is operationally independent of any investigating authority. Many of us believe that it would be quite wrong to do anything to change that arrangement. The SFO works well as currently constituted, and it has an international reputation as a leader precisely because of that important independence.
I turn to new clause 6. I have much sympathy with what the right hon. Member for Don Valley (Caroline Flint) has said, but I do not think that new clause 6 is an appropriate or proportionate way to achieve the desired objective. Let me set out why. Before I do so, I should declare an interest as the secretary of the all-party group on Gibraltar, one of the British overseas territories, and I am also a member of the all-party group on the Channel Islands, which are Crown dependencies. Crown dependencies are not covered by new clause 6, but they are covered by other new clauses.
My concern is that the way the argument is put assumes that all the overseas territories should be lumped in together, which I do not think is fair. I particularly want to address the position of Gibraltar. Its position is different, first, because of the nature of its constitution and, secondly, because unlike other overseas territories—I do not criticise or make any comment about them—it is, in effect, part of the European Union. As part of the European Union, it has had to comply, and has done so willingly, with international and EU standards in the same way as the UK.
It is important not to lump Gibraltar in with other jurisdictions where there has been controversy. I say that specifically—it is important for the House to have this on the record—because I am afraid that some politicians on the other side of the land border in Spain unscrupulously seek regularly to slander Gibraltar and its constitutional and legal arrangements, doing so wholly unfairly to advance an unjustified claim against Gibraltar. I would not want anything said in this House in any way to give comfort to people seeking to do down a loyal and effective British territory, so we need to draw such a distinction.
There is a twofold point to be made about Gibraltar. Although I accept the 2010 White Paper’s observations about what can be done, I argue that it is undesirable to contemplate legislating, certainly in Gibraltar’s case, because to do so, even by Orders in Council, would have the effect of abrogating the 2006 Gibraltar constitution. The constitution gives Gibraltar, and the democratic and elected Gibraltar Parliament, entire home rule in matters relating to its economy and domestic legislation, save only those matters reserved to be exercised by the Governor on behalf of the British Crown.
Caroline Flint
I apologise to the hon. Gentleman, who should be “right honourable”. I absolutely agree that it is very welcome that Gibraltar has complied not only with the EU initiative, but with the OECD as well. I would gently ask him, however, why Gibraltar is not in favour of following the UK route of having a public register of beneficial ownership?
Robert Neill
The reason was very properly and sensibly set out by my right hon. Friend the Member for Sutton Coldfield. There is a risk of a competitive disadvantage, and as I have said, we must bear in mind the situation in which Gibraltar finds itself. I suggest it would be inappropriate for it to be at a competitive disadvantage compared with other Mediterranean jurisdictions, some of which are not well disposed towards it.
Gibraltar has done a great deal, and continuing dialogue is a sensible way forward. It would not be appropriate to legislate, particularly as undermining Gibraltar’s constitution, even if it was legally possible theoretically—I suspect it would be challenged in the courts—would be most undesirable politically, because our commitment to Gibraltar must be made particularly clear as we leave the European Union.
It is worth adding that Gibraltar has taken very considerable practical steps and has been recognised internationally for doing so. It is worth simply saying that it has transposed all the necessary EU directives into its law—perfectly willingly, without any difficulty and of its own volition—and it has also complied with all OECD initiatives in this regard. It has gone beyond that to establish a central register, under the terms of the fourth anti-money laundering directive, for which the deadline is this June. It has entered into an exchange of notes to accelerate access to all UK authorities for investigative purposes. It has agreed to the EU5 proposal for the automatic exchange of beneficial ownership with participating countries, covering all EU countries, including Spain. Gibraltar has therefore been extremely willing to co-operate, even with countries that do not always behave well towards it, and that needs to be recognised. The Gibraltar Government are actively looking at the 5 July 2016 EU proposal to amend the fourth anti-money laundering directive by introducing a register, and that ought to be their decision. As I think the Minister would confirm, Her Majesty’s Government have worked very closely with Her Majesty’s Government of Gibraltar on this issue. A constructive dialogue is taking place, which is the right way to deal with it.
Finally, before I move on to Crown dependencies, it is worth saying that Gibraltar’s record of effectiveness in the exchange of information was recognised by the 2014 OECD “Phase 2” review, when it was ranked as largely compliant. That is actually a very high ranking, which ranks Gibraltar as being as good in terms of compliance as the United Kingdom, the United States and Germany. Gibraltar, therefore, is doing the job. That really needs to be stressed, so that others do not misuse the linkage, which, in Gibraltar’s case, is not borne out by the evidence: it has some 135 tax information exchange mechanisms with some 80 countries; it has already implemented the Financial Action Task Force recommendations with the United States and the United Kingdom; and it is implementing common reporting standards, the global standard, along with the UK and other countries. I therefore suggest it would be heavy-handed and inappropriate to involve Gibraltar in this approach when it is already doing so much.
I would like to touch on the Crown dependencies, as did my right hon. Friend the Member for Sutton Coldfield. Frankly, I think the constitutional position is more difficult because they are not, and never have been, subject to the United Kingdom. Their allegiance is purely to the British Crown, not the United Kingdom. The difficulty of attempting to legislate for them would be real and profound in constitutional terms. That is why the relationship falls under the Ministry of Justice and their legislation is signed off by the Privy Council. The new clauses that seek to bring them into the position here are not well-conceived legally in that regard. That is the key issue.
It is also worth observing, since the Justice Committee recently visited all three Crown dependencies as part of an inquiry, that they, too, are up to the highest standards of reporting and ensuring information is readily available to the authorities. It is worth saying in relation to Jersey, but it applies to them all, that a report by Moneyval, an established body of international repute, stated:
“Jersey’s combination of a central register of the UBO with a high level of vetting/evaluation not found elsewhere and regulation of TCSPs of a standard found in few other jurisdictions has been widely recognised by international organisations and individual jurisdictions as placing Jersey in a leading position in meeting standards of beneficial ownership transparency.”
Similar provisions, in different legislative forms, have also been made in the two other Crown dependencies. Again, it would be unfair, inappropriate and disproportionate to lump the Crown dependencies in with this issue.
We all share the same objective. We want to make sure there is maximum transparency and honest money in our system. For the reasons I have set out, however, I hope those who support the new clause, and other new clauses that have not yet been moved, will reflect and conclude that this is not the appropriate legislative vehicle to achieve that objective.
Sir Henry Bellingham
I, too, would like to say a few brief words on new clause 6. I declare an interest: I chair the all-party British Virgin Islands group and I am a former Minister with responsibility for the overseas territories.
I am well aware of the challenges in Africa. My right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) mentioned the Democratic Republic of the Congo. He and I will remember when Tullow Oil had its licences expropriated by the Kabila Government. It transpired that the interface company was a BVI-registered shell company in which Kabila, and part of Zuma’s family, had shares. It would have been very useful if we had been able to confirm that at the time.
I entirely accept that looking to the future and envisaging public registers across the world makes a lot of sense. What I am very worried about—this is the only point I am going to make—is that if new clause 6 is passed and territories like the BVI lose their business model, there would be a massive exodus by legal services, accountancy firms, banks and so on. They would have to then rely on tourism, and it could well be that they move back to being dependencies.
The other issue is this: would it solve the problem? No. The companies registered in the BVI, the Cayman Islands or the Turks and Caicos Islands would simply register elsewhere in countries that do not have public registers. They would go to Panama or Colombia. Indeed, I saw recently that the United States, Hong Kong and Singapore have said specifically that they will not bring in public registers until the rest of the world moves on. New clause 6 is well intentioned, but we should be very mindful of the unintended consequences.
Apart from the BVI losing its business model, those unintended consequences would include, above all else, the loss of some excellent intelligence and exchange of information arrangements. For example, the BVI has in place a beneficial ownership secured search system that enables our crime and fraud agencies to co-operate immediately and confidentially to get the information required. If these companies were registered elsewhere in the world, we would lose that crime-busting capability.
Nick Herbert (Arundel and South Downs) (Con)
I rise to support new clause 6, to which I added my name in the full confidence that I was merely endorsing what I understood to be Government policy on ensuring transparency on these matters in the overseas territories, that policy having been announced by the previous Prime Minister. I find myself genuinely puzzled, therefore, about why that is apparently no longer Government policy, and I wish to raise some issues and put some questions that I hope the Minister can answer so as to reassure me and other hon. Members who have supported the new clause in good faith that there are good reasons why it should not go forward.
First, I thought that the argument about transparency had been established. My right hon. Friend the Member for Cities of London and Westminster (Mark Field) suggested that transparency would, in itself, be an undesirable thing for the overseas territories to have to undertake, but it seems to me that we might well have applied that argument to the position in the UK. Had we accepted that argument, we would not have taken action here in the UK to require transparency.
Mark Field
It is fair enough that I be allowed to defend myself. I was making the point that while I favoured full transparency towards law enforcement agencies and the tax authorities, I did not support there being a full, open and public register at this stage, because I supported the idea of banking privacy.
Nick Herbert
I am grateful to my right hon. Friend for clarifying what he said, but my point still stands, which is that we have taken action in the UK to require such publication. Why is it right in the UK but wrong in the overseas territories? That was the point I was seeking to make. Perhaps the Minister can explain.
Secondly, I understand that constitutional objections have been raised to the new clause. The argument is that it would be wrong to insist that the overseas territories take action. If so, why did we propose it in the first place? As a result, hon. Members like me now find themselves on the wrong side of the Government’s opinion, when we thought we were supporting a policy in our manifesto. If there is a constitutional objection, was it not surprising that the previous Prime Minister announced the policy of transparency for the overseas territories?
Is it even right that the British Government never impose policies on our overseas territories? In 2000, the Government, by Order in Council, decriminalised homosexuality in the overseas territories. I doubt that many Members would oppose that policy, although I suspect it was opposed in many of the overseas territories. Do hon. Members say that the British Government were wrong to do that? Murder might still be a capital offence in some of the overseas territories had the Government not insisted on the abolition of such capital crimes in 1991. The principle is established that the Government are constitutionally entitled and have in practice, where there is an overriding public policy justification, legislated in relation to the overseas territories.
The third argument advanced against this measure is that the overseas territories are doing it anyway. We are told that it is not necessary to back new clause 6 because the overseas territories are well on their way to doing the right thing, but that takes us back to the question of what it is that they are doing. If they are producing registers, that is welcome, but my question still stands: why did we think transparency was a good thing, but now no longer believe that it is a good thing? We have reset that bar. We are now saying that the overseas territories are on their way to doing the right thing, but the right thing is now defined merely as the register, and it is no longer transparency.
I think the reason this has happened has been revealed by some of my hon. Friends for entirely honourable reasons, and it is that some of these overseas territories and therefore some of my hon. Friends fear that there will be a competitive disadvantage for the overseas territories if they are required to produce a public register as the new clause suggests, in the way they will eventually be required to do, and as the Government suggested at one point that they should.
However, let me say simply that if we accept the argument that being at a competitive disadvantage is an obstacle to taking measures against tax evasion or corruption, this House would do very little on those issues. It can always be argued that we could be putting our own banking arrangements or those of other countries at risk by taking steps deemed to be in the public interest on the grounds that they could produce corruption. To turn that around, if we accept the argument on competitive disadvantage, there would be no reason why the House should not reverse all the measures taken on banking transparency and establish some sort of regime that used to pertain in countries like as Switzerland where there would be wholesale banking secrecy, because that would be good for business and it would place us at a competitive advantage by comparison with other countries. It could be argued that such a thing would be entirely acceptable.
Clearly, that would not be acceptable. We have taken the opposite view: there is a reason to demand transparency and that transparency is essential in order to tackle corruption. We are talking about measures that are necessary to protect not just the UK taxpayer but the poorest countries in the world, which are disadvantaged and penalised because people are able to siphon off funds unlawfully and immorally and shelter them in various regimes. We are apparently saying that we are willing to accept that, because if we take action against it, some other regime will perform that immoral task. That seems to me to be a wrong position for the House of Commons to take, and if it were accepted, we would not have a Bill such as this one or any transparency measures at all.
I therefore hope that the Government will reconsider their position. New clause 6 is entirely reasonable, providing a period of time for the overseas territories to comply with the transparency requirement. I, for one, will take a great deal of convincing that something that was held by the Government to be desirable and that we hold to be desirable and right in our own country is wrong for the overseas territories.
Mark Field
I have spent the last 16 years as the Member for Cities of London and Westminster, and six of those years as an adviser to an international law firm with a substantial Isle of Man presence—Cains. Over the last two years, I have been the vice-chairman for international affairs for my party and have therefore had many dealings with and much knowledge of these sorts of issues.
I fervently agree with the right hon. Member for Don Valley (Caroline Flint) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) that there has been a significant journey—indeed, a massive change—with respect to the mentality around beneficial ownership, getting registers together and having a certain openness about those registers. It is a journey that is ongoing.
I think it realistic to believe—my hon. Friends the Members for Bromley and Chislehurst (Robert Neill) and for North West Norfolk (Sir Henry Bellingham) presented some powerful arguments in this regard—that there is a real risk of competitive disadvantage applying to a number of the overseas territories. As my hon. Friend the Member for Bromley and Chislehurst pointed out, and as was recognised by the right hon. Member for Don Valley, the Crown dependencies are in a different legal and constitutional position. They are not part of the United Kingdom. They have their own legitimate and democratic Governments, and I think it would be quite wrong for the Government to railroad them, whether by means of Orders in Council or through the Bill.
My instinct is that we shall return to these issues. I support the Government: I do not think that the time is ripe for a provision such as new clause 6. It would, however, be wrong to assume that a huge amount of work has not been done quietly behind the scenes. I know from my own experience, and the experience of many other people, that in recent years there has been a sea change in the attitudes of a number of the overseas territories, and certainly in those of the Crown dependencies, many of which are ahead of the game when it comes to elements of the transparency agenda. I think there is a real risk—which was very well described by my hon. Friend the Member for North West Norfolk—that if we were to impose this provision on the overseas territories in such short order, a huge amount of business would leave those shores. Some would say, perhaps with some legitimacy, “We do not want to have this business here.”
I believe that we should continue the work of recent years, and consider global protocols that would prevent competitive disadvantage from coming into play. Surely that would be a better regime. I think it entirely wrong to perceive all our overseas territories as terrible tax havens where illicit work goes on. They have an astonishing amount of technology, which I have seen at first hand in, among others, the British Virgin Islands and the Cayman Islands, to enable them to co-operate instantaneously with law enforcement and tax authorities in the event of any suspicious transactions.
I hope that new clause 6 will not be pressed to a vote, or that the Government will win if it is. However, I also hope that the Minister will give us some idea of how he sees the future, given the ongoing conversations about a global protocol that we could all support.
Richard Arkless
It is an honour to follow the right hon. Member for Cities of London and Westminster (Mark Field). His homeward commutes on Thursday evenings fill me with the utmost envy. Perhaps he would enjoy my regular seven-hour journeys up and down. However, he made a very interesting speech. Indeed, the contributions from Members on both sides of the House have been very informed and enlightening.
I do not want to take up too much time, but I want to touch briefly on some of the new clauses before I hand over to the other Front Benchers. New clauses 2, 3, 14, 15 and 4 extend the principle of corporate economic crime, which has been discussed at length today. The Bill incorporates a failure to prevent such crime, but only in relation to tax evasion. As others have said, it would appear sensible, given the current climate and the public mood, to extend that provision so that the liability reaches the tops of organisations.
I have mentioned this in the House before, but, as a lawyer who had some in-house experience working for a large retail bank, I can say with the utmost certainty that sticking one’s head above the parapet and telling the bank that it is wrong is not the course of action that is most conducive to one’s career. I did not fall foul of that myself—I avoided that particular pitfall—but I think that I probably would have done so at some future time.
I think the public would demand that the concept of corporate economic crime be extended beyond tax evasion. I think they would be surprised to learn that the bank would not be held liable for LIBOR-rigging, for instance. Of course, the individuals concerned were prosecuted under different laws, but there was no corporate criminal liability for the boards of directors or for the banks themselves. I do not think the public would thank us for a corporate economic offence that extended only to tax evasion. It is tax evasion, for goodness’ sake. I think the public would expect companies such as banks and other large organisations to be held criminally liable for something as obvious as tax evasion. It is a great shame that the Bill has not grasped the nettle. The Minister may, of course, have something miraculous to say. I suspect, however, that we are not going to have an extension of corporate economic crime, which is a real shame.
Dr Huq
This group of new clauses contains a fair few of ours, so I shall take a bit longer than I did last time. I want to speak to new clauses 6, 16 and 17 and I want to press new clause 17 to a vote.
Tax evasion was big news in 2016 following the publication of the Panama papers, which threw light on certain opaque offshore companies. Following the leaking of those papers, the overwhelming sentiment was that something needed to be done, and this Bill is that something—or rather, it introduces a set of somethings to deal with the problem. It introduces new corporate offences that will no longer be reliant on the defunct guiding mind principle, it creates unexplained wealth orders and it contains some other eye-catching stuff including the failure to prevent offences under the category of a politically exposed person. It also makes necessary amendments to our pre-existing anti-terrorism legislation. The Minister has pointed out that the Bill builds on a raft of Labour-initiated legislation, including the Proceeds of Crime Act 2002, the Bribery Act 2010 and the Terrorism Acts of 2000 and 2006. On the whole, we support the Bill, and all this stuff is not to be sniffed at.
I also want to mention the new additional monitoring, which the Minister announced on the spot a little earlier, relating to the human rights abuses mentioned in our debate on the first group of new clauses.
As the Bill has progressed, however, it has become apparent that there are chinks in the armoury for fighting money laundering. We welcome what is in it, but concerns are being expressed not only in my party but by a range of charities and non-governmental organisations such as Amnesty International, Christian Aid, Traidcraft, Transparency International, CAFOD and the ONE Campaign. They are concerned about what the Bill does not contain, and the elephant in the room is the issue of beneficial ownership and the UK’s inaction in tackling the financially secretive companies and practices that lie at the heart of the economies of many of our overseas territories and Crown dependencies. Beneficial ownership is entirely not present in the Bill. It is conspicuous by its absence. In other words, I am referring to our “tax havens.” The silence seems bizarre given that we are talking about money laundering, tax evasion and terrorist financing. Whether the Government like it or not, the matter must be addressed. The issue falls within the Bill’s remit because overseas territories are facilitating, aiding and abetting financial crime. The last time I was at the Dispatch Box I said that the UK, along with its overseas territories and Crown dependencies, is the biggest secretive financial jurisdiction in the world, so we have a special responsibility to act and to lead on this agenda, not to be slightly less bad than everyone else. The UK is facilitating some of the largest and most well-known tax havens, so we should be leading not following.
When the Government have been told that they need to “get real” not just by me in Committee but by the court of public opinion after the scandalous events of last year, they need to toughen up and get a grip on overseas territories and Crown dependencies because they facilitate illicit financial activity on a global scale, but the same excuses follow and have been trotted out today: the UK does not have the constitutional legitimacy for the overseas territories and Crown dependencies; and the territories are supposedly adhering to international standards anyway, so making them adopt public registers of beneficial ownership is not necessary. We are also told that the Government do want the territories and dependencies to adopt such registers, that they are working towards that, and that in the light of the progress made the threat of an Order in Council is unnecessary.
The Government say that the time will be right when the rest of world follows the UK’s lead and that they will set a global benchmark for financial territories. At the sixth sitting of the Bill Committee, the Minister told us that only when the time is right and only when there is an international standard for public registers of beneficial ownership will it be imperative for our overseas territories and Crown dependencies to follow suit. He actually claimed that the Crown dependencies and overseas territories with financial centres are already way ahead of “most jurisdictions”, including most G20 nations, on tax transparency. We were told that they are doing enough and that now was not the time to upset the applecart with public registers, particularly when they have agreed to adopt centralised registers. The Minister may recognise his own words from Committee in response to an amendment of mine that was pretty much identical to new clause 6:
“I certainly think that these places”—
the overseas territories and Crown dependencies—
“have come 90% of the way, and we should see whether that works for us. We all have the intention”—
to adopt public registers—
“and the United Kingdom is leading by example.”
In response to our threat of an Order in Council, he said:
“The new clause is a very strong measure. We should not impose our will on the overseas territories and Crown dependencies when they have come so far.”
This is the interesting bit:
“It is important to recognise that we have got where we have through cajoling, working together and peer group pressure, which…makes a real difference.”––[Official Report, Criminal Finance Public Bill Committee, 22 November 2016; c. 199-200.]
That already seems slightly contradictory.
On the one hand, we hear that we cannot legislate for the dependencies. In fact, I remember the Minister calling me—someone whose parents suffered the worst excesses of the British empire—a neo-imperialist. It was certainly the first time that anyone has called me a neo-colonialist or whatever it was. At the same time, however, we clearly are able to do something and have the option to stop turning a blind eye and to turn inactivity into activity. The Minister himself insisted that the proposal was a “strong measure” that is less preferable to his own formula of cajoling and behind-the-scenes pressure.
Mr Wallace
Will the hon. Lady recognise for once that through cajoling and peer group pressure all Crown dependencies and overseas territories will by this year have central registers of beneficial ownership or similar? That is ahead of many G20 countries that do not even have central registers. We have actually come a long way and a lot further than when Labour was in government.
Dr Huq
I listened carefully to what the Minister said, and he said something similar in response to my right hon. Friend the Member for Don Valley (Caroline Flint). I will literally eat my hat—not that I am wearing one—if that happens. The registers must be in a format that is easily convertible to public registers.
We are not there yet. As someone who conducted empirical social science research, I wonder where the 90% figure came from. I know such things are often said across the Dispatch Box—in this case, it was in a Public Bill Committee—on the hoof, in the heat of the moment, and I would not want to label the Minister as a purveyor of fake news, but does he really think that we are 90% of the way there? Even if Government Members say that we do not normally do this, there is always a time when, if needed, we can step in, and the Labour party would argue that that time is now.
Mark Field
The specific problem is about legislating for the overseas territories rather than the Crown dependencies. I think it is understood across the board that this does not apply to the Crown dependencies. We all recognise that significant progress has been made in recent years, so will the hon. Lady pledge at this juncture not to press new clause 6 to a Division? Let us see further progress in the months and years to come that will hopefully ensure that we move towards a global protocol that keeps everyone happy.
Dr Huq
First, I would like to finish what I was trying to say. I was coming to the Crown dependencies and overseas territories, which I realise are two different things. I would also like to hear what the Minister has to say, because at earlier stages of the Bill he was conciliatory and we backed down on some things.
We are dealing with not just new clause 6 but new clause 17. We are looking at both overseas territories and Crown dependencies because, internationally, the UK will be able to lecture and persuade others to adopt transparent finance practices only if its overseas territories and Crown dependencies stop engaging in—
Dr Huq
I will carry on for the moment because I want to make some progress—I am not able to get a sentence out at the moment. The hon. Gentleman will be referenced later in my speech. We worked well together under his excellent stewardship of the Justice Committee.
The previous coalition Government’s White Paper on the overseas territories has already been quoted by my right hon. Friend the Member for Don Valley. It referred to how, as a matter of constitutional law, the UK Parliament has unlimited power to legislate for the overseas territories. The phrase “unlimited power” is pretty clear. On the Crown dependencies, which the right hon. Member for Cities of London and Westminster (Mark Field) mentioned, it appears that not only the Government but the SNP, given the remarks of the hon. Member for Dumfries and Galloway (Richard Arkless), who was a member of the Justice Committee with me, have accepted, or been cowed into believing, that the Crown dependencies are somehow untouchable.
I want to quote from a report by the hon. Member for Bromley and Chislehurst (Robert Neill). The Justice Committee’s 2010 report on the Crown dependencies stated:
“the restrictive formulation of the power of the UK Government to intervene in insular affairs on the ground of good government is accepted by both the UK and the Crown Dependency governments”.
A list of examples was given, but the hon. Gentleman probably knows it better than I did, because he wrote it.
Robert Neill
It would not be unreasonable for the hon. Lady to note that I was not Chair of the Justice Committee at that time. Can she give me any example of a time when the United Kingdom has specifically legislated for a Crown dependency, as opposed to acting under the prerogative power through the lieutenant governors, which indeed itself has not been done in many years? The overseas territories are not the same as the Crown dependencies legally. I honestly urge her to reflect on that, because she is genuinely on shaky legal ground.
Dr Huq
As I have said, there seems to be a lack of will. The hon. Gentleman talked at length about Gibraltar—[Interruption.] If he will listen to what I say back to him, that might be useful. There is a lack of will to act. People have been lobbying all of us, probably including him. The fact that we have the power to make a change is more significant than examples—if this is needed, it can be done. New clause 16 does not coerce anyone to do anything, but it sets out steps that would facilitate matters.
Richard Arkless
Given the principle of parliamentary sovereignty, it is of course open to this place to legislate on Scotland. Is the hon. Lady suggesting that she would legislate on matters that are devolved to the Scottish Parliament?
Several hon. Members rose—
Dr Huq
I would like to make progress. I will not take any more interventions, because I am still at the very beginning of my speech and the Whips are telling me that they want me to conclude.
The question is not, “Can we do this?” but, “Is it right to do this?” It will come as no surprise that I think that the answer is yes. The Government’s White Paper made it clear that when the law is not working, or there has been a breakdown in order—corruption was mentioned —the UK has the power to act.
Dr Huq
It would help if Members were listening to me. How many times have I given way? Numerous times—more than anyone else in our proceedings, which have been going on for many hours—so I would like to make some progress.
Even if, as has been mentioned, it is the British Virgin Islands and the Cayman Islands that are prolific offenders—I think that the British Virgin Islands come up the greatest number of times in the Panama papers—it does not completely absolve the Crown dependencies. Several Members have tried to untangle the difference between Crown dependencies and overseas territories. The Isle of Man managed to rack up 8,000 entries in the Panama papers and is being singled out by the Canadian revenue authorities for investigation. Let us not forget that in October 2015, HMRC defeated the Isle of Man on a tax avoidance scheme that took place from 2001 to 2008 and left a hole in our finances of £200 million. That is a not insignificant sum, and it is money going from our Exchequer. How many hospitals and schools could we have built for that? I do not know the precise answer; it is a rhetorical question. In 2007, the tax havens of Guernsey and Jersey were investigated by our Serious Fraud Office in one of the biggest corruption investigations in African history. These things often join up; the money moves around.
The point is clear: the very structure of the laws pertaining to finance in these places, coupled with their deliberate adoption of complex and opaque institutional structures, is crying out for reform. Globally, these dependencies are at the heart of undermining the rule of law—something that we hold dear—in other countries due to the corruption that they facilitate. Their laws therefore clearly need to be changed, and there is undeniable scope for us to change them. As my right hon. Friend the Member for Barking (Dame Margaret Hodge), who is sadly absent, has said, there is a moral case for us to act, even if there might not be an identical incident in which we have so acted. My right hon. Friend the Member for Don Valley referred to polling that shows enormous public support for such an approach—some 80% of people in a recent poll.
The Bill Committee was told that public registers are not an international norm and that our Crown dependencies and overseas territories are somehow exemplars because they have adopted closed registers of beneficial ownership. Lamentably, that might look like a bit of an alternative fact—dare I say that. I have here a piece of paper—in fact, it is three sheets stapled together—with a list of 46 jurisdictions. Those countries are all dependencies of G20 nation states, so they are in a similar constitutional position to our overseas territories and Crown dependencies, and they all have centralised registers of beneficial ownership. Shall I read out all 46, or does the House want just a smattering? They are: the Ashmore and Cartier Islands, Christmas Island, the Cocos Keeling Islands, the Coral Sea Islands—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. The hon. Lady is not going to read out all 46, is she? She has made her point most eloquently, so there is no need to list all 46. We do not read long lists in this Chamber, and the House has got the point she is making.
Dr Huq
I am most grateful for that clarification, Madam Deputy Speaker. Some of those on the list are the DOM-TOMs—the départements d’outre-mer and the territoires d’outre-mer—so there is a long list, including Guadeloupe and Martinique, but I shall move on.
It is a bit of a nonsense for the Conservative party to claim that the overseas territories and Crown dependencies are leading the world in financial transparency because of the creation of central registers if 46 other dependencies are doing that already. Not only have some been incredibly slow to catch up with the aforementioned countries, but some of our Crown dependencies and overseas territories are among the worst offenders and have not adopted centralised registers, let alone made them public. More accurately, they have adopted platforms.
The Government ask us to believe that the British Virgin Islands or the Cayman Islands will be able to police their own financial businesses by relying on those businesses, which facilitate crime. It is asking them to mark their own homework and to be judge and jury. Call me a cynic, but I doubt that that is a workable solution. Do we really believe that anonymous companies in the British Virgin Islands—which, for example, allowed the former wife of a Taiwanese President to illicitly purchase $1.6 million of property in Manhattan—would be capable of policing themselves?
There are several other examples. Would Alcoa, the world’s third largest producer of aluminium, be capable of policing itself when it has used an anonymous company in the British Virgin Islands to transfer millions of dollars in bribes to Bahraini officials? Would the anonymous British Virgin Islands-based company used by Teodorin Obiang, the son of the President of Equatorial Guinea, really be capable of policing itself when it allowed him to squirrel away $38 million of state money to buy a private jet? It was thanks to the US Justice Department that he was caught. The Government’s protestation that we are working with the territories and dependencies, and that we are 90% of the way there, is at best highly questionable.
Dr Huq
No, there is more.
The main point I want to make is that our Government should be at the forefront of the push to cast off the cloak of secrecy under which terrorists have previously been able to fund their attacks and gangsters have stored their ill-gotten gains. We should not be dragging our feet on this. Some of these jurisdictions, including the British Virgin Islands and the Cayman Islands, have hidden behind the fig leaf of the consultation.
I shall dispense with the rest of what I was going to say, but we wish to press new clause 17 to a Division—[Interruption.] If anyone had listened to me, they would know that I was largely talking about the Crown dependencies.
In conclusion, we could have gone all the way and become the gold standard for other Governments to follow. We could also have dealt with the public disquiet over perceived levels of tax evasion, which the former Prime Minister, to his credit, wanted to tackle. This massive oversight undermines not only the claims made by the former Member for Witney, but citizens in some of the poorest developing countries of the world, which are at the end of these complex supply chains of criminality. Those citizens are the main losers in all of this.
The Home Office’s press release that accompanied the publication of the Bill said that the new offences were aimed at
“sending out a clear message that anyone doing business in and with the UK must have the highest possible compliance standards.”
Although we agree with large parts of the Bill, it does, none the less, fall short. New clause 17, which Her Majesty’s loyal Opposition wish to press to a Division, would go some way towards addressing a number of these issues.
Mr Wallace
It is a pleasure to follow the hon. Member for Ealing Central and Acton (Dr Huq). I will take this opportunity to respond to the many points that have been raised in this debate. It is a regret that the right hon. Member for Barking (Dame Margaret Hodge) is not in her place, but it is for fully understandable reasons. I pay tribute to her for the work she has done in campaigning for tax transparency, and I send her my best wishes at this time.
Let me now turn to the main thrust of this debate. What has dominated our proceedings is this question of whether our British overseas territories and Crown dependencies should have public registers of beneficial ownership. I am a supporter of transparency. I was the first Member of this House to publish my expenses—long before that was required. It was not a popular thing to do at the time, but I am a great believer in transparency. I learned that from my time in the Scottish Parliament, because I am also a great believer in respecting devolution and respecting constitutional arrangements.
Let me say to my right hon. Friend the Member for Arundel and South Downs (Nick Herbert) that we have not changed our ambition. Our ambition is still to have public registers of beneficial ownership in the overseas territories and Crown dependencies. I repeated that to the leaders of those territories and dependencies just two weeks ago, but how we get there is where there are differences. We must recognise that, ever since David Cameron held that anti-corruption summit, we have come a long way—I am not sure whether it is 90%, 89%, or 85%. I do not know the percentage—I did not do the same course as the hon. Member for Ealing Central and Acton. None the less, we now have a commitment to keep either central registers or linked registers. My hon. Friend the Member for Amber Valley (Nigel Mills) needs to recognise that it is perfectly possible to link registers and to interrogate them centrally. We aim to fulfil that commitment by June 2017.
We are also committed to allowing our law enforcement agencies to have automatic access to those registers. We already do that in some of those territories, with requests coming back within hours. As a Home Office Minister, I am charged with ensuring that we see off organised crime, tackle corruption, and deal with money laundering. I believe that our arrangements do allow us to deal with potential crime and tax evasion. If I did not think that, I would not be here making the point that now is not the time to impose that on our overseas territories and Crown dependencies. I have faith that, at the moment, the capabilities of our law enforcement agencies enable us to interrogate those systems and to follow up and prosecute those people who encourage tax evasion not only in this country, but in other countries. This Bill gives us that extra territorial reach that many other countries do not have.
Ian Paisley (North Antrim) (DUP)
Can the Minister give the House a categorical assurance that none of the money made from ill-gotten gains of criminal activity, through fuel fraud in Northern Ireland and the Republic of Ireland, is illicitly put into those countries?
Mr Wallace
We find criminals using banking systems all over the world to hide their money, whether that is in Northern Ireland, London, the Republic of Ireland, Crown dependencies or elsewhere. Such places have agreed to work with our law enforcement agencies, and we will allow their law enforcement agencies access to our databases in order to follow up such activity.
The hon. Member for Ealing Central and Acton underplays the success of the United Kingdom’s leadership role. Without imposing on democratically elected Governments in those countries and without imposing our will in some sort of post-colonial way, we have achieved linked registers and access to registers for our law enforcement agencies across many Crown dependencies and overseas territories. We might compare ourselves with our nearest neighbours, the major economies—with all due respect, I do not mean Christmas Island—such as Germany and other European neighbours such as Spain. We are the ones with a public register and we, not them, are the ones ready to have a unified central register. Perhaps we should start by looking at the major economies, rather than sailing out on a gunboat to impose our will on overseas territories that have done an awful lot so far in getting to a position in which I am confident that our law enforcement agencies can bring people to justice. That is the fundamental point of this principle. We have not abandoned our ambition. We have decided that the way to do it is not to impose our will on overseas territories.
The Labour party’s new clause 17 is probably constitutionally bankrupt, if I may use that phrase. It would certainly cause all sorts of problems, although I am not sure that we can actually impose our will on a Crown dependency like that. All the good words of the hon. Member for Ealing Central and Acton seem to have disappeared because the new clause leaves out overseas territories and would apply only to Crown dependencies. If Labour Members think that such a provision is right for Crown dependencies, why is it not right for overseas territories? I do not understand why they have left that out, although I suspect it is because, when it really comes to it, Labour Members do not know what they are talking about. If the Labour party wanted to be successful with this, it might have done it in its 13 years in Government.
I respect devolution and constitutional arrangements, and it is important to do that at this stage. Crucially, if we do this in partnership, we will get there. When we see people being prosecuted and the system of information exchange between law enforcement agencies working, we will have arrived at a successful point. I am confident that we will get there. I do not shy away from telling the overseas territories and Crown dependencies that our ambition is for transparency but, first and foremost, our ambition is for a central register that is easily interrogated by our law enforcement agencies.
Nick Herbert
I welcome my hon. Friend’s restatement that the Government remain committed to transparency. Will he give some kind of indication of a timetable, once his policy of registers is fully in place, by which he expects the overseas territories to be able to move to full transparency?
Mr Wallace
The first commitment is for the central register to be in place by June this year. Where overseas territories have trouble fulfilling that—for example, they just do not have the capacity to do it—we have offered help to allow them to do so. Hopefully that means that we will keep on target. As for setting a date for the public register, we first have to complete our own, and get it up and running. Once we know what challenges are involved in doing that and seeing how it works, we can have a grown-up discussion with our G20 partners about when they will do that. We should not just focus on the overseas territories and Crown dependencies. Major economies, including our own, are guilty of allowing people to hide illicit funds, which is why we introduced this Bill. I suspect we will find many funds laundered not in those small overseas territories, but in some major economies in the G20. That is important.
Mark Durkan
A number of the Minister’s hon. Friends used the argument of competitive disadvantage when speaking against new clause 6. That is not an argument that the Minister has addressed at the Dispatch Box. Will he assure us that he is not saying that, when the time might be right in the future, and as long as any of the territories cite concerns about competitive disadvantage, the British Government would just back off?
Mr Wallace
We do have to recognise that there is a difference between secrecy and privacy; we have to respect that and to understand when privacy is an advantage and when it is being used secretly, to create a disadvantage or to avoid detection. So the difference between secrecy and privacy is not as straightforward as it would seem. In our lives, we all deserve some element of privacy. Shareholdings in some very major private companies, for example, are not listed—they have to be declared—and that has been established for many years.
Mark Durkan
Just to clarify the point, some of the Minister’s hon. Friends said that their grounds for not supporting new clause 6 were that these territories would be put at a competitive disadvantage if they had to move to public registers. Is that the Government’s case, or is that argument being made by his hon. Friends, but not from the Dispatch Box?
Mr Wallace
The United Kingdom Government do not think they are at a competitive disadvantage, and that is why we are progressing with a public register ourselves. However, we will lead by example and by peer-group pressure; we will not lead by imposition. That is fundamentally the difference between the Government and some Members of the House. That is how we are going to get there.
Mr Wallace
No, I have to press on. I am sorry.
The damage caused by economic crime perpetrated on behalf, or in the name, of companies to individuals, businesses, the wider economy and the reputation of the United Kingdom as a place to do business is a very serious matter, and it comes within the area of corporate failure to prevent economic crime.
The Government have already taken action in respect of bribery committed in pursuit of corporate business objectives, and the Bill will introduce similar offences in relation to tax evasion. Both sets of offences followed lengthy public consultations, as is appropriate for such matters, which involve complex legal and policy issues.
That is why I confirmed in Committee that the Government would be launching a public call for evidence on corporate criminal liability for economic crime. That call for evidence was published on 13 January and is open until 24 March. It will form part of a potentially two-part consultation process. It openly examines evidence for and against the case for reform, and seeks views on a number of possible options, such as the “failure to prevent” model. Should the responses we receive justify changes to the law, the Government would then consult on a firm proposal. It would be wrong to rush into legislation in this area, but I hope hon. Members will recognise that the Government are looking closely at this issue, and I encourage them to contribute to the consultation process.
Let me move on to the issue of limited partnerships, which was raised by the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) and more generally by members of the Scottish National party. I am grateful for the work they have done alongside the Glasgow Herald in highlighting the abuse of the Scottish limited partnership by criminals internationally and domestically, and it is important that we address that issue. We take these allegations very seriously—only recently, the hon. Gentleman highlighted another offence to me—and that is why a call for evidence was issued on 16 January by the Department for Business, Energy and Industrial Strategy on the need for further action.
The “Review of limited partnership law” is an exciting document—I am afraid the graphics man was clearly not in on the day it was created—but I urge members of the Scottish National party to respond to it, and I know they have already done so. They will be interested in one of the questions, which asks:
“What could the UK government do to reduce the potential of Limited Partnerships registered in Scotland being used as an enabler of criminal activity, whilst retaining some or all of the aspects of those Scottish Limited Partnership structures which are beneficial?”
I know the Scottish National party will respond to that.
Richard Arkless
What can the Minister tell us about the mystery Committee that is sitting for one hour today and proposing a new type of limited partnership that will, in theory, step into the place of SLPs? That is the sticking issue for me. Is there anything he can say on that point?
Mr Wallace
Well, apart from asking the hon. Member for Kirkcaldy and Cowdenbeath how he has enjoyed his hour on the Committee, which he has gone off to attend, I think we should look at this in chronological order. The review is taking place now. Whatever it produces will, of course, be responded to. If it is responded to in legislation, that will succeed whatever is being discussed in that Committee now.
I come now to the issue of tax evasion and the Opposition’s new clause 11, which returns us to the question of corporate transparency in overseas territories. I should stress that the new offences in part 3 of the Bill already apply in those jurisdictions. First, the domestic tax evasion offence applies to any entity based anywhere in the world that fails to prevent a person acting for it, or on its behalf, from criminally facilitating the evasion of UK taxes. The overseas offence applies to any entity that carries out at least part of their business in the United Kingdom. The only circumstances in which a company is outside the scope of these offences is where there is no connection to the UK: no UK tax loss, no criminal facilitation from within the UK, and no corporation carrying out any business. In those situations, it is for the country suffering the tax loss, and not for the UK, to respond. The corporate offences are by no means a one-size-fits-all solution for every country. However, I am pleased to report that Government officials have spoken to revenue authorities, regulators and businesses from across the world about the new corporate offences, and there has been significant interest in them.
Caroline Flint
I will not press new clause 6 to a vote. I do not believe that the Minister has really answered the points that have been made by hon. Members across the House. I am sure that this matter will be picked up in the other place, and I reserve the right to pick it up once again with my right hon. Friend the Member for Barking (Dame Margaret Hodge) when it returns to this place.
Sir Edward Garnier
My new clause 2 was drafted and tabled before Christmas. Since then, I have had a number of meetings with my hon. Friend the Minister and we have also seen the Ministry of Justice’s call for evidence in relation to corporate criminal liability. In the light of what he has said this afternoon, I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 17
Public Registers of Beneficial Ownership of Companies registered in Crown Dependencies
‘(1) In Part 1 of the Proceeds of Crime Act 2002 (introductory), after section 2A, insert—
“2AA Duty of Secretary of State: Public registers of beneficial ownership of companies registered in Crown dependencies
(1) It shall be the duty of the Secretary of State, in furtherance of the purposes of—
(a) this Act; and
(b) Part 3 of the Criminal Finances Act 2017
to take the actions set out in this section.
(2) The first action is, no later than 31 December 2017, to provide all reasonable assistance to the Governments of Crown Dependencies to enable each of those Governments to establish a publicly accessible register of the beneficial ownership of companies registered in that Government’s jurisdiction.
(3) The second action is, no later than 31 December 2019, to publish legislative proposals to require the Government of any Crown dependency that has not already established a publicly accessible register of the beneficial ownership of companies registered in that Government’s jurisdiction to do so.
(4) In this section—
“a publicly accessible register of the beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006.
“legislative proposals” means either—
(a) a draft Order in Council; or
(b) a Bill presented to either House of Parliament.” —(Dr Huq.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Sue Hayman (Workington) (Lab)
On a point of order, Mr Speaker. I wonder whether you could advise me. I have been to Downing Street today, along with a constituent who had travelled all the way from west Cumbria to hand in a petition. Unfortunately, we were turned away at the gates. I was told that I would not be allowed to go to Downing Street to hand in a petition that had been booked in through the proper procedures. We had been offered a time to hand in a petition about health services, so it was understood what the petition was about. However, when I asked the security officer from No. 10 Downing Street why I was not allowed to hand in the petition, as had been agreed, he told me that today was “not a good day”. When I pressed him, he told me that I could hand in the petition “after Thursday”.
I am concerned that I have been prevented from handing in a petition that was properly booked in, through the proper procedures, because of a by-election, and that this has been politicised. Can you advise me, Mr Speaker, on what is my best course of action?
Mr Speaker
I am grateful to the hon. Lady for her point of order and for giving me a moment’s notice of it. She is clearly concerned and aggrieved. My initial response is to say to her that this is not a point of order for the Chair, or, for that matter, a subject for the House authorities. I understand her concern, not least in terms of personal inconvenience, and I trust that her point of order has been heard on the Treasury Bench. It is very much a matter for Ministers, with whom it has not been registered, but I repeat that it is not a matter for the Chair.
Third Reading
Mr Wallace
I beg to move, That the Bill be now read the Third time.
Financial profit is at the heart of almost all forms of serious and organised crime, which directly affects the most vulnerable in society. The Bill will significantly improve our ability to tackle money laundering, corruption, tax evasion and terrorist financing. It is a key part of the Government’s critical work to reduce the flow of dirty money into the City and to cut off the funding streams to the fraudsters, money launderers and kleptocrats.
This country is the largest centre for cross-border banking. The UK is, and will remain, a good place to do business. However, the National Crime Agency estimates that up to £90 billion may be laundered here each year. I have made it clear—as has my right hon. Friend the Prime Minister and, indeed, her predecessor—that we need to make the UK a hostile environment for those seeking to move, hide and use the proceeds of crime and corruption. In an increasingly competitive international marketplace, the UK simply cannot afford to be seen as a haven for dirty money. We must not turn a blind eye to the money of corrupt officials that flows through businesses, banks and property, and that is why the Bill is so important.
I thank the shadow Home Secretary, the right hon. Member for Hackney North and Stoke Newington (Ms Abbott), and the hon. Member for Ealing Central and Acton (Dr Huq), as well as the hon. Members for Dumfries and Galloway (Richard Arkless) and for Kirkcaldy and Cowdenbeath (Roger Mullin), for their input throughout the Bill’s passage so far. Other hon. Members have also brought considerable knowledge and expertise to the proceedings.
The Government, and I as the Minister concerned, have been determined to be open to input from all parties, and I am pleased that we have made some concessions towards addressing the issues raised. I know we have not dealt with all the concerns raised, but I hope that I have made sure that the Bill leaving this place is better than when it was introduced and that it has taken on the points raised by both the Labour party and the SNP, and indeed by my hon. Friends on the Conservative Back Benches.
We had further detailed debate of the Bill on Report today, with many well-informed contributions from all parts of the House. The debate has covered the scope of the unexplained wealth orders and other powers in part 1 of the Bill, as well as the corporate offences regarding the failure to prevent the facilitation of tax evasion.
Of course much of today’s debate has focused on issues that were not part of the Bill itself, notably the new clause in the name of my hon. Friend the Member for Esher and Walton (Mr Raab) and the right hon. Member for Barking (Dame Margaret Hodge) and others, which sought to impose sanctions on those involved in gross human rights abuse or violations overseas. The strength of feeling on this issue is clear, and the treatment of Sergei Magnitsky was undeniably deplorable.
This Government are committed to promoting and strengthening universal human rights globally. Our approach focuses on holding to account those states responsible for the worst violations of human rights and working with those states determined to strengthen protections against abuse. But we have listened to the House, and our amendment will allow for the recovery of property connected with torture or cruel, inhumane and degrading treatment overseas. This sends out the strong message that those seeking to profit from torture and other serious abuses will not be able to do so in the UK.
The House also debated the commitments made by the overseas territories to tackling corruption and money laundering in their financial systems. The UK is at the forefront of the global approach to increasing corporate transparency and tackling tax evasion and corruption. That work started under David Cameron, and it continues.
I share the desire for the Crown dependencies and overseas territories to take further steps towards full corporate transparency. That is why this Government continue to work closely with them towards that goal, but we must recognise the significant progress they have already made, putting them well ahead of many other jurisdictions.
The Bill and the wider package of measures of which it is a part will give agencies the powers they need to ensure that crime does not pay in a Britain that works for everyone. It is important that these powers are available to all parts of the UK, but, as I have said, we will await the outcome of elections in Northern Ireland before we commence the provisions there.
The need for this legislation is significant and particularly timely as we negotiate our future relationship with the European Union. Now, more than ever, we must showcase the UK as one of the best places in the world to do business, as we form new ties with international friends and partners.
Serious and organised crime costs the UK at least £24 billion annually and deprives people of their security and prosperity. We task our law enforcement agencies with combating the evolving threat from both criminals and terrorists, and I pay credit to those agencies for all the work they do on our behalf, but without the necessary powers to pursue and prevent these illicit activities, they fight a losing battle.
This Government have done more than any other to tackle money laundering and terrorist financing, but the scale of the threat is clear and we must do more. This Bill sends the clear message that we will not stand for money laundering or the funding of terrorism through the UK, and I commend it to the House.
Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)
We in the Opposition broadly support the thrust of this legislation, and we have noted that the Minister has proved to be a listening Minister, which we welcome.
Tax avoidance and money laundering are the opposite of victimless crimes. In the first instance, there are inflated asset prices in the territories where the money is laundered, and there is no bigger example of that than the housing market in this country, particularly in London. In some of the most expensive parts of London, we can walk down streets where most of the houses are completely empty. Some might be empty because it is the wrong time of year for their owner to be there, and others because they have been bought as an investment, but increasing numbers of those properties are being used to launder money, and if this legislation can bear down on that, it will be of value not least to people who are victims of the wildly inflated London housing market.
Tax avoidance and money laundering mean a loss of tax for some of the poorest communities in the world. I was in Ghana last year looking at tax avoidance and evasion, and I was struck by the fact that a woman selling drinks by the side of the road could pay proportionally more tax than some of the biggest drinks manufacturers in the world. These are distorted systems of taxation, and if this legislation can bear down on that type of tax avoidance, it is to be welcomed. I was pleased to hear the Minister say that we are beginning to return money to some of those territories, notably Macau. I believe that we have also signed an accord with Nigeria. Above all, this legislation is important for suppressing corruption. It is not just a law-enforcement measure; it is also, indirectly, an anti-corruption measure.
I remind the House that the genesis of the Bill was the Panama papers, which revealed extremely widespread and highly lucrative avoidance of tax on an industrial scale. There were 11 million leaked files, and Britain was the second most prominent country in which the law firms’ middlemen operated. It was second only to Hong Kong. One British overseas territory, the British Virgin Islands, was by far the most popular tax haven state used by the firms in the documents. The Minister has said that we are at the forefront of taking action on tax avoidance and money laundering, and so we should be. The UK has sovereignty over one third of tax havens internationally.
We welcome the Government’s new clause 7, which will bear down on money recycled as a consequence of human rights abuses elsewhere. We still believe that there is insufficient scope for the civil recovery of assets, and the enforcement powers in the civil recovery provisions could be improved. There are particularly important omissions regarding the penalties for offences relating to the facilitation of tax avoidance, involving middlemen such as lawyers, accountants and straightforward spivs such as those identified in the Panama papers.
On the disclosure of beneficial ownership, we feel that there is a major problem, as the lack of disclosure can help to facilitate money laundering and corruption. Let us take an example. In the Department for Business, Innovation and Skills consultation paper published in March 2016, the Government said that between 2004 and 2014, more than £180 million-worth of property in the UK was being investigated by UK law enforcement agencies as it was suspected of being funded by the proceeds of corruption. Moreover, more than 75% of those properties had offshore corporate ownership. That is believed to be the tip of the iceberg in terms of scale and of the proceeds of corruption being invested in UK property through offshore companies.
On the British overseas territories and Crown dependencies, I understand the technical argument that we cannot apply the same regime to those areas, but the moral issue is substantially the same. Some Members have spoken as though the populations of those territories as a whole benefit from financial services, but that is not the case. Only in recent years has the financial services industry been open to employing people born and bred on those islands in advisory, legal and management positions. Just because the political elites in those countries argue for light-touch regulation, let us not delude ourselves that financial services are helping the territories as a whole. We believe that the argument that we cannot impose proper standards on those territories is false. UK jurisdiction applies in all matters of defence and security, and the House has a right and a duty to see how best to impose those laws.
The people who are benefiting from the secrecy and the lack of regulation are the tax evaders and avoiders, the money launderers, the major criminal enterprises and the terrorist networks. We urge the Government to move forward on those issues. If legislation is required for onshore activity here in the UK, most reasonable people would argue that it is even more pressing to include overseas territories and Crown dependencies.
The Opposition are calling for a wide-ranging review of the UK tax gap, including an assessment of the loss of income tax due to tax evasion. As several Members on both sides of the House have said, if the legislation simply rests on the statute book and does not result in commensurate prosecutions, it will be a dead letter. We note that the Minister has listened thus far, and I hope that the Government and the appropriate Departments are listening when I urge them to ensure that the legislation amounts to more than just good intentions and that it is actively used to bear down on tax evasion, money laundering and corruption.
Mr Speaker
This debate has been concluded with notable speed.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Criminal Finances Bill
Wednesday 22nd February 2017
(7 years, 2 months ago)
Lords ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 21 February 2017 - (21 Feb 2017)
Criminal Finances Bill
Thursday 9th March 2017
(7 years, 1 month ago)
Lords ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 21 February 2017 - (21 Feb 2017)
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, serious and organised crime threatens our national security and prosperity, but for the victims the greatest impact is the harm that it inflicts on their lives and personal well-being. This criminality can affect anyone: from those caught up in gang warfare to the slaves forced to work or subjected to abuse by human-trafficking gangs, to the victims of scams and cyberattacks designed to steal their money and that of their friends and families. It is all-pervading—it undermines our safety, prevents prosperity and corrodes communities. The perpetrators of these crimes do so largely to make money—that is almost always their primary motivation. The Government have therefore brought forward the Criminal Finances Bill to combat the money laundering that allows criminals to fund their lavish lifestyles and reinvest their illicit gains in their criminal enterprises.
The origins of this legislation lie in the Government’s 2013 Serious and Organised Crime Strategy, which sets out a clear goal of working with the private sector to make the UK a more hostile place for financial criminals. More recently, last year the Government’s Action Plan for Anti-money Laundering and Counter-terrorist Finance identified how to build on the UK’s risk-based approach to addressing these parallel threats. As noble Lords may well be aware, the tactics used by serious criminals are often employed by those seeking to fund terrorist-related activity, so the police and others must use similar methods in their response to both. The Bill will give effect to the legislative aspects of the action plan, making it a key part of one of the most significant changes to our anti-money laundering and counterterrorist finance regime in over a decade.
Specifically, the Bill will help law enforcement officers to tackle money laundering, recover the proceeds of crime and international corruption, and, where possible, return these assets to victims. Part 1 provides for unexplained wealth orders, or UWOs, as I will refer to them—a valuable new device to investigate those suspected of money laundering, requiring them to explain the source of their wealth to a court. Where they cannot do so, law enforcement agencies can look to recover those assets. I recognise that there may be questions about the operation of this power and it may help noble Lords if I briefly clarify how it will work.
If a law enforcement agency suspects someone of involvement in serious crime where their wealth appears to exceed their known income, it can apply to the court for a UWO. The power can also be applied to non-European politicians or officials who may be involved in corrupt activities but where evidence of their links to criminality is not easily available. The individual would then need to satisfy the court that their property had been lawfully acquired. If they did not provide an adequate explanation, the authorities could seek to recover their property. Crucially, these orders are only an investigative tool; the tests for any further legal action, including prosecution or civil recovery, would still need to be satisfied.
The Bill will also enhance the existing seizure and forfeiture powers in the Proceeds of Crime Act 2002, also known as POCA. Although the police can currently seize cash, they cannot do likewise with money in bank accounts or where criminals store their profits within other items of value, such as casino chips, precious metals and jewels. As criminals adapt, so must we, and we are extending these powers accordingly. The provisions seek to extend the use of another useful investigative tool—disclosure orders—to money-laundering investigations.
This Government are committed to working in partnership with business on these crucial issues. A key element of this partnership will be the changes that we are making to the suspicious activity reports, or SARs, regime, which allows regulated companies such as banks to provide critical intelligence to our law enforcement agencies. In particular, the Bill will create a specific gateway to allow the sharing of information between regulated companies so that they can submit better-quality reports.
This approach has been piloted under the Joint Money Laundering Intelligence Taskforce, otherwise known as JMLIT, and I have heard first hand from both banks and the NCA about the positive results that it is delivering. For example, from May to July 2016 the JMLIT helped to deliver 37 arrests of individuals suspected of money laundering, the closure of 114 suspicious bank accounts and the restraint of £145,000 of suspected criminal funds.
In addition to these measures on money laundering, Part 3 of the Bill creates vital new offences of corporate failure to prevent tax evasion. This means that we will be able to hold to account companies which unreasonably fail to prevent their staff criminally facilitating the evasion of taxes, either in the UK or overseas. These measures will ensure that anyone wishing to do business here must have the highest possible standards of compliance and enforcement, helping the UK to maintain our place as a world leader in tackling corruption and tax evasion.
I have spoken primarily about criminal activity but, as I have said, we must also address the vulnerabilities in our financial system that are exploited by terrorists. As such, Part 2 of the Bill makes complementary changes to ensure that relevant measures being provided for money-laundering investigations will also be available for investigations into terrorist financing. By starving terrorist groups of funding, we aim to take away their ability to buy weapons, plan attacks and fund the propaganda that incites others to follow their evil ideologies.
Throughout the Bill’s scrutiny in the House of Commons, the Bill was the subject of notable cross-party support. There is consensus that these measures will make a real difference in the fight against money laundering and terrorist finance, and I trust that noble Lords will reach the same conclusion. However, there have been, as ever, some areas where we have been pushed to do more. I am pleased to say that the Government have listened and we have amended the Bill on Report in the Commons to allow for the civil recovery of any proceeds of gross human rights abuse overseas. This amendment was prompted by the horrific treatment of Sergei Magnitsky, a Russian tax lawyer. I have read about this case; Magnitsky’s treatment was truly shocking, and it is only one example of the many atrocious human rights violations committed globally every year. I welcome the fact that we have taken action, sending a clear statement that we will not allow human rights abusers to launder their criminal assets through the UK.
I am also sure that noble Lords will be interested in the issue of company ownership transparency in the British Overseas Territories and Crown dependencies. I stress that this Government have led the way in the fight against global corruption and we remain committed to working with these territories on this agenda.
I know that these topics, and others, will be of interest to many noble Lords and I look forward to debating them today and over the coming weeks. This is an important piece of legislation. It will make a significant contribution towards tackling the twin threats of money laundering and terrorist financing. The men and women of our law enforcement agencies do great work in combating those threats, and many in the private sector are dedicated to helping with this effort. The Bill will help provide them with the powers and legislative framework they need to do so more effectively. We continue to work closely with law enforcement agencies, the regulated sector and the devolved Administrations on the provisions and may bring forward some further technical, but essential, amendments in Committee. I will, of course, keep noble Lords updated.
The UK is a great place to do business. We should be proud of our status as a global financial centre, and we must protect it. We are a world leader in the fight against global corruption: this is important work and it must continue. We must do all we can to protect the most vulnerable in our society, to keep everyone safe and prosperous. I beg to move.
Lord Rosser (Lab)
My Lords, I thank the Minister for setting out the purpose and provisions of the Bill and for her earlier letter which covered the same ground. The Government’s Explanatory Notes on the Bill state that it makes,
“the legislative changes necessary to give law enforcement agencies, and partners, capabilities and powers to recover the proceeds of crime, tackle money laundering and corruption, and counter terrorist financing”.
The notes go on to say:
“The measures in the Bill aim to: improve cooperation between public and private sectors; enhance the UK law enforcement response; improve our capability to recover the proceeds of crime, including international corruption; and combat the financing of terrorism”.
This Bill has already been through the House of Commons, where we supported its aims and objectives but pursued points which reflected our feeling that the Bill did not go as far as it could have done in providing statutory and other backing for investigating and combating money laundering, tax evasion, corruption and the financing of terrorism in this country and overseas. Our approach in this House will be very similar.
As the Minister has said, the Bill provides for new orders and powers and enhancements to existing orders and powers: in particular, a new unexplained wealth order; increasing the scope of disclosure orders to cover money laundering investigations; an extension of existing seizure and forfeiture powers; a strengthening of suspicious activity reporting; a widening of investigatory powers into the funding of terrorism; and an extension of facilitating tax evasion offences to companies involved in such activities.
In her letter to which I referred, the Minister said that this Bill had been described by Transparency International UK as,
“one of the most significant pieces of anti-corruption legislation in the past few decades”.
However, unless I am mistaken, Transparency International, in expressing its concerns about the UK’s role as a safe haven for corrupt assets, has also said that,
“The UK’s Overseas Territories should require company beneficial ownership information to be made public, in a format that is free and searchable”—
an issue that this Bill does not address. The United Kingdom publishes a central register of beneficial ownership—why not our overseas territories as well? Surely we have a responsibility to ensure transparency in our tax havens.
The British Virgin Islands was by far the most widely used tax haven in the Panama papers, with over half of the 214,000 corporate entities that came to light in the Panama papers being registered in the British Virgin Islands. More than 75% of corruption cases involving property investigated by the Metropolitan Police’s proceeds of corruption unit involved anonymous companies registered in secrecy jurisdictions, 78% of which were registered in the UK’s overseas territories or Crown dependencies.
Three years on from the first request from then Prime Minister to our overseas territories to consider public registers, only Montserrat has so far committed to introducing such a register. The only agreement so far has been to create central registers of beneficial ownership and provide UK law enforcement agencies with access within 24 hours. Yet, in 2014, the then Prime Minister wrote to the overseas territories stating that,
“beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion”.
What do the Government intend to do about this situation?
Unfortunately, the Government have confirmed in the letter of 6 March sent to Members of this House that they have significantly changed and weakened their previous stance to which I have just referred. Their stance now, as the letter says, is simply:
“It remains our ambition that public registers become a global standard. If and when they do, we would expect the Overseas Territories and Crown Dependencies to follow suit”.
The United Kingdom, along with its overseas territories and Crown dependencies, is the biggest secrecy jurisdiction in the world, and yet there is no question now, as far as the Government are concerned, of expecting our overseas territories and Crown dependencies to follow us and establish public registers of ownership. Instead, the Government’s approach is that if public registers become a global standard, they would expect our overseas territories and Crown dependencies to follow suit. If public registers do not become a global standard, then that presumably is the end of the matter as far as the Government are concerned.
As long ago as 2011, a World Bank study found that 70% of over 200 corruption cases involved the use of anonymous shelf companies to launder funds and conceal the identity of corrupt politicians. Anonymous companies are also used to launder corrupt and illicit funds into the UK, and transparency about the beneficial owners of these companies—companies which can be created in a matter of hours—has been identified as an important part of the solution to tackling the laundering of such funds.
The OECD has estimated that tax havens may be costing developing countries a sum of up to three times the global aid budget. Corruption hits developing countries very hard: around $1 trillion flows out of developing countries via illicit financial flows every year. Africa is a net creditor to the world. Private registers of beneficial ownership will not be accessible to people in developing countries, which is where people suffer the most from the financial secrecy that tax havens offer. The reality, surely, is that, as more registers of beneficial ownership become public—as has happened in this country—the quicker that will become the norm and universally accepted. The EU Parliament has now voted for public registers of beneficial ownership to be in place across the EU.
Maybe there is some overwhelming reason why action cannot be taken in regard to our overseas territories. If so, no doubt the Government will set that out in responding at the end of Second Reading. It certainly does not appear that there is a bar in legislating, because, as I understand it—perhaps incorrectly—as a matter of constitutional law the UK Parliament has power to legislate for the overseas territories.
While this Bill addresses the issue of corporate liability, amendments were nevertheless tabled in the Commons to extend the application of a “failure to prevent” approach in the Bribery Act 2010 to other forms of economic crime, such as fraud and money laundering. The Government have called for evidence on this issue, but there needs to be sufficient deterrence to corporate misconduct, and arguments have been put forward that there should be a strict, direct corporate liability offence, along the lines of, I believe, Section 7 of the Bribery Act 2010. Perhaps the Minister can respond to that point when she replies to the debate.
A case can also be made for saying that the ability to prosecute companies should be extended not only to economic crimes but also to cases of severe harms caused to individuals, including those overseas. The Business & Human Rights Resources Centre recorded over 300 allegations of human rights abuses made against 127 UK-linked companies between 2004 and 2014. Despite evidence that some companies were potentially repeat offenders, there have been no corporate criminal prosecutions. Nearly half of the allegations were made against extractive companies. Are the Government looking to extend the terms of this Bill to enable prosecutions to be made more feasible against companies, as opposed to individuals, for crimes of this kind?
Billions of pounds in corrupt money comes into this country every year. The National Crime Agency has indicated that the amount of money laundered in this country each year could be as high as £90 billion. It is not clear, though, what provisions in this Bill are intended to address the effectiveness, or otherwise, of our anti-money laundering system. There are a large number of supervisory bodies in the relevant sectors, which leads to a fragmented approach over identification of risks and their mitigation and the approach to enforcement. It also raises the question of whether some of the 27 supervisory bodies have conflicts of interest when 15 are also lobby groups for the sectors they supervise, for example. Once again, it would be helpful if the Minister could address this point about the need to overhaul our anti-money laundering system if we are to stop billions of pounds of corrupt money coming into this country each year, and indicate how this issue is addressed in the Bill.
On the enhancements to the suspicious activity reporting regime, will there also be, for example, a system for prioritising suspicious activity reports in order to help ensure that the resources of the law enforcement agencies are deployed to maximum effect and benefit? There were over 380,000 suspicious activity reports in 2015, ranging from the theft of small amounts of petty cash to suggestions of serious organised crime. What are, and will be, the procedures for ensuring that scarce resources are not spent processing minor crime reports coming via the suspicious activity regime at the expense of investigating more serious activity reports?
If the measures provided for in the Bill—which we support, albeit that they could have gone further—are to be effective and made to bite, the necessary resources will need to be provided. Whether we are talking about the new offences and powers in the Bill or the extension of existing powers, further resources, not least financial and staff resources, will surely be required. What are the Government’s intentions in this regard, and which agencies will be responsible for implementing and enforcing the new powers set out in the Bill, apart from the National Crime Agency? For example, will Border Force be involved, or the many individual police forces in this country, and if so, in what way? What is the Government’s assessment of the impact of this Bill on the forces and agencies, including our security and intelligence agencies, which will be responsible for implementing its provisions?
I have indicated our support for the aims and objectives of the Bill, but as I have also stated, there are areas where we think that more could be done than appears to have been provided for. There is also the issue of resources and the effectiveness of our systems and processes, not least in relation to combating money laundering. As the Minister has said, the Bill is not seeking to address victimless crimes. We want it to prove to be about more than just good intentions. Instead, it should play a key part in the process of ending the situation where this country appears to be a money-laundering hub so that we show what can be achieved, in particular on coming down hard on money laundering and the purposes for which it is used, as well as on tax evasion through schemes and arrangements that have not been cleared by revenue and customs. We want to ensure that we can show the wider world what can be achieved in this regard.
Baroness Kramer (LD)
My Lords, like the Labour Benches, we are supportive of the overall purpose of the Bill and the majority of its clauses, in particular as amended by the Magnitsky amendment with its powers to freeze the UK assets of those suspected of abusing human rights. Our goal both at Second Reading and in the stages that follow will be to strengthen the Bill. We have a number of what I would say are relatively small but significant issues that we want to tackle, but most of our conversation will be about issues that are not in the Bill but which we think it should address. I will just say in this context that several of my colleagues are speaking in this Second Reading debate and so quite a number of issues, from corporate governance to POCA, will be covered by them. We thought that the House would appreciate not hearing repetition where it is avoidable.
As we all recognise, the purpose of the Bill is to crack down on both corruption and tax evasion. It seems impossible to address those issues without looking at the overseas territories and Crown dependencies. I do not want to repeat what was said by the noble Lord, Lord Rosser, but we all understand that everybody’s ideal would be a central register of beneficial ownership that is publicly available in every location.
We on this side feel that this is an opportunity to push the issue further and we hope that the Government will consider taking advantage of that, but we also recognise that the overseas territories and Crown dependencies are in different positions both with regard to the authority of the UK Government and in the degree to which they have progressed along this track. As I understand it, all three Crown dependencies have a central register, which, although not publicly available, can be examined by UK tax and law enforcement authorities—but the picture is much more varied for the overseas territories, while the particular issues with regard to Gibraltar are made even more complex by our upcoming exit from the EU. But we all recognise that the Panama Papers were a serious wake-up call for anybody who was complacent in this area and we look to the Government to treat this as an opportunity to act.
We also want to raise questions with the Government about our capacity to investigate and enforce, both under the relevant clauses in this Bill and more generally, across the area. Only today OLAF, the anti-corruption body of the EU, made it clear that the UK may be liable for a €2 billion fine for its failure to crack down on customs fraud by Chinese clothing importers—an issue that apparently has been brought to the Government’s attention on many an occasion.
I do not know the rights or wrongs of that, but when we look at the range of issues we are all aware that many people are concerned about the mechanisms of property ownership, in particular the ownership of high-value properties in areas such as central London. The All-Party Parliamentary Group on Anti-Corruption has drawn our attention to more than £4 billion-worth of properties that have been bought with suspicious wealth. That surely has to be an area of concern.
Some have raised concerns over the care sector and the structure of its ownership. I remember the shock in this House in 2015 when Barclays, which you would think would be totally aware of these issues, was fined £72 million by the FCA over what was known as the “elephant deal”, a £1.9 billion deal in which it elected to provide confidentiality for politically exposed people engaged in that deal by outrunning its own procedures. As I remember, the documents were typed on a typewriter so that they would not be in the computer and internal compliance system, and the cash was put in a safe brought in to the team’s offices for that purpose. How any institution would think it should be able do that is quite shocking and reflects the lack of respect in many areas for our actual capacity to enforce. That must surely be addressed.
An issue very close to my heart that I want to engage with in the Bill is the protection that we offer—or rather, do not offer—to whistleblowers. It seems entirely pertinent across the whole range of issues covered by the Bill. When I was a member of the Parliamentary Commission on Banking Standards, we looked at whistleblowing, but I do not think that we came out with recommendations that were strong enough or pushed hard enough for action on this front.
For anybody who doubted it, the issues with RBS and its global restructuring group will underscore the risks that whistleblowers face. As many in this House will know, the whistleblowers who exposed what was happening with RBS and its GRG typically found that it was a career-ending move. They lost their jobs, suffered great personal stress and personal crisis and have not received protection as a consequence. Others will be very well aware that in the United States the career-ending impact of whistleblowing is widely recognised. That is why compensation schemes for whistleblowers who expose real fraud or misuse are in place. That is an area we have to explore.
Every one of us will agree, I think, that profiting from crime, funding terror and evading tax have absolutely no place in the UK. It is our purpose to row in behind the Government and then strengthen the Bill, which provides an opportunity to tackle those egregious and completely unacceptable forms of behaviour and criminality.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, if my speech appears somewhat bland, as I fear it may, it is not for any want of enthusiasm for the Bill, but rather because I have not yet had time to give it the full and detailed scrutiny that it undoubtedly requires.
I applaud the Bill’s intent: in broad terms to strengthen and widen our powers to strip international and domestic criminals—fraudsters, money launderers, terrorists, tax evaders, gross human rights abusers and so on—of their ill-gotten gains. I am in no position to criticise, but I regret the Bill’s length and complexity at 171 pages. This is in the context of an existing regime essentially based on the Proceeds of Crime Act 2002, the subject of a leading Oxford University Press textbook, which itself is more than 700 pages. There have been a large number of reported cases on POCA over the last 15 years, all of which resulted in lengthy judgments—alas, not all easily reconcilable. Indeed, I had the misfortune to sit on several of them, though fortunately not on one of the last leading cases, Waya, heard in the Supreme Court in 2011-12. The first hearing, before five justices, failed to produce any coherent judgment, even by a majority. It had to be relisted some months later before nine justices, including the then Lord Chief Justice, my noble and learned friend Lord Judge. The judgment then took a further nine months to prepare. I mention these matters only to emphasise the inherent complexity of this area of the law and the absolute need to produce clarity and, wherever possible, simplicity in the provisions being introduced by the Bill.
That the Bill is highly desirable in principle cannot be doubted. The May 2013 foreword by the then director of the Serious Fraud Office to the OUP book I mentioned referred to the huge improvement effected by POCA on the very limited scheme, first introduced in the Criminal Justice Act 1988, for ensuring that crime should not pay, but it also recognised remaining weaknesses and gaps in the POCA scheme. The editors of that book suggested, in their preface, the need to re-examine the existing regime and for new and reinvigorated emphasis to be placed on the recovery of ill-gotten gains.
On the statistics, the editors pointed out the regrettable failure of POCA to have made any effective breakthrough in terms of recovery—rather the reverse. The annual proceeds of crime in 2013 were estimated, very roughly, at between £19 billion and £48 billion a year. Annual recovery by way of all measures—cash forfeitures, criminal confiscation, civil recovery and, indeed, penal taxation—amounted in each of the five years from 2006-07 to 2010-11 to between only £125 million and £161 million. It is greatly to be hoped that, with the enlarged enforcement powers provided by the Bill, a very substantially higher proportion of criminal gains will be recovered by the state and, to my mind altogether more importantly still, stripped from the criminals.
There is much to be welcomed in the Bill. Of course, it goes well beyond curing the deficiencies in the existing POCA scheme. A number of the individual measures positively gladden the heart. Prominent among them, surely, are the unexplained wealth orders, the enhanced and improved suspicious activities report regime, forfeiture of assets of gross human rights violators—the so-called Magnitsky amendment—corporate responsibility regarding facilitating tax evasion, measures to combat terrorist financing and so forth. Close scrutiny of these and much else will, of course, be for another day—or, rather, days—but for now I simply put on record my necessarily preliminary but otherwise full support for the Bill and wish it well.
Lord Faulks (Con)
My Lords, the Bill is largely a legislative reflection of the Action Plan for Anti-Money Laundering and Counter-Terrorist Finances published jointly by the Home Office and HM Treasury in April 2016. The objectives of both the plan and the Bill are to be welcomed. This country has a remarkable reputation for the rule of law, the independence of the judiciary and the integrity of our law enforcement agencies, but we face significant challenges from money laundering, financing of terrorism and major fraud. At a time of significant change in our international role, it is vital that we maintain this reputation. To do this we need to work with international groups and with the private sector. We should also ensure that our enforcement agencies have the resources they need. The Bill should help considerably, although legislation on its own will not be enough.
The National Crime Agency estimates that serious and organised crime costs the United Kingdom at least £24 billion annually and that money laundering could be taking place at a scale between £36 billion and £90 billion per annum, as the noble Lord, Lord Rosser, suggested. For understandable reasons these latter figures are rather vague.
The Bill was broadly welcomed when it was introduced and debated in the House of Commons. Some useful amendments expanding the definition of cash were made and, as we have heard, the Magnitsky amendment. The definition of cash to which the amendments referred was that in the Proceeds of Crime Act 2002—I have always pronounced the acronym “pokka” rather than “poker”; we may get into the same debate that they had in the Supreme Court about the pronunciation of “De Keyser”.
The amendment was introduced by a cross-party group of Back-Bench MPs led by my former ministerial colleague, Dominic Raab. The new provisions, although not as robust as those who put forward the amendment would have liked, nevertheless provided that the High Court could make an order to freeze the UK assets of individuals implicated in gross human rights abuses. A number of MPs emphasised that it was important that the new clause be actually used. The Minister in the Commons, Ben Wallace MP, agreed that the Government would collect data on the exercise of the new clause. I am glad about that confirmation, since it will enable Parliament to see whether the clause does not remain simply an aspiration.
UWOs mean that an individual or company will have to explain the origin of the assets that appear to be disproportionate to their known income and if they are suspected of involvement in or association with serious criminality. There are safeguards for this power and the decision to make an order will be made by a High Court judge. The orders have been widely used in Australia, among other jurisdictions, and are broadly considered to have been successful, although there was some pushback from the courts there where it was felt they had been used as a trigger response by enforcement agencies. It seems to me, however, that there are sufficient safeguards to ensure that the power is not resorted to in lieu of normal investigations. I understand that there will be a statutory code of practice, about which the House will no doubt want to hear.
In a sense, because the burden of proof will be on the individual or company to explain the origin of the assets, there will be very little that can be done to conceal matters, but one should not underestimate the ingenuity of lawyers who may be involved, at considerable expense, in representing wealthy individuals and companies that may be the subject of UWOs. I have seen the helpful Home Office flowchart indicating how the UWOs will work in practice, and my one concern is what happens if the subject responds with some sort of explanation but not much of one. It is suggested that the law enforcement agency will then decide whether the issue has been resolved or further investigation is required. I can imagine there may be something of a stonewall response; is it anticipated that the agencies will go back to court, or how will matters proceed generally?
Criticism of the Government was made in the House of Commons—and by the noble Lord, Lord Rosser, here—about the absence in the Bill of provisions covering overseas territories and Crown dependencies. I should declare an interest, having been the Minister at the Ministry of Justice with responsibility for the constitutional relationship between the United Kingdom and the Crown dependencies. I know that Jersey, Guernsey and the Isle of Man have been anxious to work effectively with the United Kingdom to assist in the international efforts to increase corporate transparency and to tackle tax evasion and corruption. All three have agreed to hold company beneficial ownership information in central electronic registers, or similarly effective systems, with near real-time access for UK law enforcement. Jersey has a non-public central register, accessible to UK law enforcement on request. Both Guernsey and the Isle of Man have agreed to establish a central register or similarly effective system, and work is under way to ensure implementation. In the case of the Isle of Man, legislation will be introduced in 2017; as to Guernsey, work is under way to ensure implementation by 2018.
The cost of taking measures to obtain the proceeds of crime from individuals and companies, or indeed to prosecute for fraud or related offences, can be very considerable. It is necessary sometimes to be pragmatic about these things and in this context I pay tribute to the Government for accepting the use of deferred prosecution agreements. These were introduced following an initiative by the former Solicitor-General, Sir Edward Garnier QC, and have been used effectively to obtain significant sums of money and to avoid the costs of prosecution. Most recently, the SFO entered into a DPA with Rolls-Royce, which was approved by Sir Brian Leveson, the President of the Queen’s Bench Division. The total sum in the UK settlement was £497.25 million plus interest and the SFO’s costs of £13 million.
We will no doubt discuss in Committee the provisions about terrorist financing, disclosure orders and suspicious activity reports. I accept the point made by the noble Lord, Lord Rosser, about not being obsessed by de minimis provisions in SARs. They will assist in the overall strategy that lies behind the Bill. Most of the changes seem sensible.
I cannot sit down before mentioning a story published in the Observer last Sunday about the enormous price the super-rich pay to keep their privacy. It appears that they are prepared to pay some £218,000 a year in tax rather than declare who owns the £20 million-plus megamansions in which they live—or do not live. The Government introduced this so-called envelope tax. The idea, presumably, was to crack down on dirty money. It has certainly brought in tax. The story suggests that tax receipts on all envelope properties worth more than £1 million came in at £178 million. Privacy is one thing, but this sort of tax deal seems contrary to the underlying philosophy which informs the Government’s approach, or certainly should. There may be respectable reasons for privacy, but equally, there may be some very far from respectable reasons. As many noble Lords know, large parts of the most expensive areas of central London are dark at night, and I suspect that many of these properties are owned by rich international financiers, some of whom will not have obtained their money honestly. Are the Government happy with this state of affairs? Perhaps the Minister can tell the House.
With some difficulty, and with the invaluable assistance of the Printed Paper Office, I managed to obtain a revised impact assessment in relation to UWOs. It suggested that perhaps 20 UWOs a year might be obtained. This was based on practitioners’ experience, presumably with freezing orders. This seems a rather modest ambition. Are UWOs going to be considered as simply part of the investigative toolkit, as the Minister seemed to suggest, or are they likely to be the basis of a major initiative? There are clearly opportunities, as I have indicated, but the agencies may have to be ready for expensive legal tactics to frustrate them.
I hope that some modest improvements in the Bill may be effected. The Minister always displays a willingness to listen, and she can count on my support in taking this Bill through your Lordships’ House. However, I ask all those who may be contemplating amendments to bear in mind what the noble and learned Lord, Lord Brown, said about the complexity that these provisions have previously involved and the risk that further elaboration may be required by the courts, so I hope amendments can be kept as simple as possible.
I hope that the legislative ambitions are reflected in an increase in the recovery of assets from criminals and in the enhancement of our reputation both nationally and internationally.
Lord Rooker (Lab)
My Lords, I pay tribute to our colleagues in the Commons for their work on the Bill. I will single out Dominic Raab, Margaret Hodge and Tom Brake.
The Bill does not reach all the parts that need reaching on financial crime, but it is progress. It remains the case that not a single UK financial institution has faced any criminal charges as a result of the 2008 financial crisis. Only individual employees have been charged. The employers—Barclays, USB and Deutsche Bank—have not faced charges, and we have the ludicrous position that it is still not illegal under current UK corporate liability law for companies to mislead their auditors.
I shall say one word on Brexit. As we seek new trading arrangements and relationships, it is crucial that our corporate liability regime is broadly equivalent to that of our major trading partners. In this respect, it is very worrying that the recent case, already referred to, of Rolls-Royce, reported extensively in the Financial Times on 21 and 22 January, might affect our trade deals. For directors to use nearly £700 million of shareholder funds to escape personal liability for their actions or the actions of those they supervise is questionable. The Serious Fraud Office must clean this up—but in view of my previous parliamentary run-in with Rolls-Royce in 1980, I will say no more.
I shall make four brief points. The first is on unexplained wealth orders. They are proportional and measured and are subject to judicial oversight. In respect of overseas politically exposed persons, they are really useful as they do not require suspicion of serious criminality. The key issue is the laundering of money from overseas in the UK. As the noble Lord said, it should be easier for UK law enforcement to investigate and act on the wealth of kleptocrats and corrupt officials.
In February last year, I was on the first UK kleptocracy tour. I was the only parliamentarian amongst the researchers, campaigners and journalists—but it was on a Thursday. The tour was specifically in respect of Russians and Ukrainians buying property in London. I will give two examples from the eight tour stops. We started in Whitehall at the property lying above the Farmers Club at 4 Whitehall Court. Flats 138A and 138B were purchased by Igor Shuvalov, ranked the fifth most powerful official in Russia, for a sum of £11.44 million—some 80 times his salary. The Russian register of companies shows that he and his spouse have the beneficial ownership of the company, Sova Real Estate, which owns the apartments. They operate care of Tulloch & Co., Hill Street, London.
We were treated at each address to the story of who allegedly lived there, how much was paid, who owned it, where the money came from, and a magical mystery tour through the British Overseas Territories and local authority files on planning applications. We parked outside Witanhurst Place, Hampstead; a home second only to Buckingham Palace in size. It was built originally by a British soap merchant in the 1920s and is now worth £300 million. It was purchased through a British Virgin Islands company by Andrey Guryev, then a Russian senator, who in 11 years never included it in his asset declaration.
My second point is on the anti-money-laundering rules. The new corporate offence of failure to prevent tax evasion in the Bill, which has already been referred to, should be applied to economic crimes such as money laundering. This is an essential next step. I often wonder why more attention is not paid to the lawyers and estate agents involved in property sales such as those to which I have just referred. They are usually smart, blue-chip operations that do not like the searchlight of sunshine on their activities. As far as I know, no bank has ever been prosecuted in the UK for laundering corrupt wealth from another country.
We need to catch up with the United States’ anti-money-laundering legislation regime and—wait for it—the EU directive on human trafficking and money laundering, which has a corporate liability formula stronger by far than the current UK regime. The UK Government promised to catch up but never have. Is it not ironic that we are going to catch up with the EU as a result of Brexit?
On 18 June 2015, I initiated a short debate in Grand Committee on the Transparency International report on how corrupt capital is used to buy property in the UK. I want to remind the Minister of just one recommendation in the report. This is not the first time I have raised this with the Government—these are not new issues. The recommendation was touched on by my noble friend from the Front Bench. It is that there should be greater co-ordination between the 27 anti-money-laundering supervisors in the UK.
I got nowhere with the Minister in the Moses Room or with his letter afterwards. This issue still needs to be addressed. The lack of co-ordination means that there is a failure to identify risks; the approach to enforcement is inconsistent, and is not transparent or effective; and there are conflicts of interest. As my noble friend said, 15 of the supervisors are lobby groups for the sectors that they supervise. Only seven control for institutional conflicts of interest and, in a survey, one even admitted to carrying out no targeted anti-money-laundering legislation monitoring at all during 2013. What are the Government doing about this and why is it not in the Bill?
Public procurement—this is my third point—is not in the Bill and ought to be. The Government appear to have a blind spot regarding corruption in public procurement. However, the NHS and local government are potential massive risks in the awarding of contracts. In the local government case, of course, it owns very substantial physical assets. At the Government’s anti-corruption summit in 2016, they committed to introduce a conviction check process to prevent corrupt bidders winning public contracts. This promise has not been implemented. Furthermore, there is no public information on its progress.
I have a proposal—I have come with a positive suggestion. The Government should ask their own anti-corruption champion, Sir Eric Pickles, to conduct a review at national level to assess the risks of corruption in local government and the NHS, with particular reference to procurement. Very high standards are observed by councillors and officers, but they are undermined by cases of misuse of position.
A Transparency International report on the conditions for local government corruption found that the following were present: low-level transparency, poor external scrutiny, networks of cronyism, lack of resources to investigate, outsourcing of public services, significant sums of money in play, a decline in the robustness to resist corruption and the reduced capacity of our local press. Sir Eric should be asked to look into this area.
My final point is to pay tribute to Bill Browder, chief executive of Hermitage Capital and author of Red Notice. I have not met Mr Browder, although I was present at a meeting in the Commons in 2015 where he spoke. I had previously read Red Notice and said at the meeting that I shed a tear as I read the part of it relating to the death of his lawyer, Sergei Magnitsky. I cannot see how anyone would not need a tissue as they read the account of his murder in a Russian prison.
I salute Mr Browder for his dedication and perseverance in trying to bring those guilty of the murder of his lawyer to justice—and for his sheer bloody-mindedness. Chasing them legally around the world, and now in this Bill, is a must. The Minister must also confirm what was said in the Commons: that the Government will use the powers in the Bill. I support it.
Baroness Bowles of Berkhamsted (LD)
My Lords, I will address the corporate liability aspects of the Bill, and therefore declare my interests in the register, in particular as a company director of companies large and small. I welcome the Bill, but it should go further to establish transparency on the beneficial ownership of companies in overseas territories, to enable corporate liability over a wider range of economic crimes in the future and to provide a less circuitous procedure for considering disqualification of directors when a company has already been found guilty of an economic crime.
The UK has made progress on tackling economic crime and improving transparency, but it is hard to get credit for that in the international arena when we are still seen as sponsoring tax havens. I was directly reminded of my country’s record many times—with varying degrees of friendliness or otherwise—while I was chair of the European Parliament’s Committee on Economic and Monetary Affairs, including in a public hearing with the OECD. We have not gone far enough yet. The bottom line is that people have a right to know who owns companies—not only would I say that is part of the incorporation licence and the fundamental bargain with society, but it would tackle tax evasion, money laundering and other offences.
We have had plenty of experience recently of how hard it can be to pin blame on large companies. The “directing mind and will” or the “identification doctrine”, as it is called, of responsibility is straightforwardly applicable to small companies, but for large companies it becomes almost impossible to find a chain of responsibility up to the board. Even if you do, collective failure does not count: you have to pin it on an individual. It is completely unfair, and divisive, for the law to bear down on small companies but not on multinationals. Sometimes the issue may be negligence more than criminal intent, which makes it entirely appropriate to address it with a “failure to prevent” offence. However, it is rather disappointing that only bribery and now tax avoidance are to be covered. I am aware that the Government have launched a call for evidence on corporate liability for economic crime, and that document usefully draws together several strands. The culture breakdown that led to the financial crisis brought about the senior managers and certification regime for banks, soon to be implemented for other financial institutions as well. There is a case to say that all large companies should have something similar. However, not all companies are regulated, and we do not have a proper company regulator—at least not yet—and a senior responsibility regime will have to attach to something.
We already have a list of financial and economic crimes elaborated in Part 2 of Schedule 17 to the Crime and Courts Act 2013, and there must be a strong case to say that all those should be treated consistently. The call for evidence puts forward some other liability options than the failure to prevent an offence, but in every liability option it suggests that a due diligence defence should be considered, rendering them very similar. The other options are fixing the identification regime, which needs doing separately anyway, or sectoral regimes such as the senior managers regime, which again falls into the “also needed” rather than the “instead” category.
Since Brexit makes a further Bill unlikely, why not enable further economic crimes to be introduced to this Bill through statutory instrument, enabling account to be taken of the call for evidence? Economic crimes can already be added to the Crime and Courts Act by order, so why not have something broadly similar in this Bill, with some safeguards about which I have some ideas? Companies should already have measures in place to prevent crimes done in their name, so for good companies it should not be a burden. For others it should engender a change in culture so that economic crime procedures are properly implemented and overseen. We must get rid of protective ignorance. You cannot get away with it in the US, so why here?
That leads me to the point about director disqualification. Section 8 of the Company Directors Disqualification Act 1986 enables the Secretary of State to instigate disqualification procedures in the public interest. These procedures then go to the court to determine whether a director is unfit. This recently expanded scope is a powerful backstop. That is all well and good, but if a company is found to be in breach of serious legislation, why should it need the intervention of the Secretary of State to activate review of the directors? That could be resolved at the time the company is found to be in breach. I do not see why it has to go around the loop of the Secretary of State being tipped off somehow, picking it up and then sending it back to the court, which is the main area that is going to tip the Secretary of State off in the first place. The court has more expertise and would have got a long way towards the answer already.
Section 9A of the Company Directors Disqualification Act, regarding competition policy, already adopts a straight-through consideration of the directors, if that appears appropriate. I cannot see the justification for economic crime being a follow on, always requiring the intervention of the Secretary of State.
The Lord Bishop of Oxford
My Lords, I join other noble Lords in thanking the Government for introducing this Bill. I support it. The Government have led on tackling corruption since the then Prime Minister set the issue of tax transparency at the heart of his G8 summit in 2013. He should also be thanked for hosting the anti-corruption summit in May last year. The Bill follows this good record and takes some further welcome steps to try to tackle corruption. The unexplained wealth orders will provide stronger powers for UK law enforcement to seize and repatriate the proceeds of grand corruption. The new corporate offences of failure to prevent the facilitation of tax evasion should be particularly praised because they will apply all over the world. I hope that in due course these offences will apply to all economic crime.
As bishops, we often travel to our linked dioceses all over the world. The global church is present in many developing countries, where corruption can often be a real problem. Some estimates say, as we have heard, that around $1 trillion annually leaves the developing world in illicit financial flows. That is a scandal. The secrecy enabled by tax havens across the world costs developing countries at least $100 billion a year, according to the UN. Along with other noble Lords, I press the Government to go further and faster in this area for the sake of the very poorest. Until the UK Government go further in tackling the secrecy that is still enabled by UK tax havens, we cannot claim to be doing all we can to tackle corruption. As we have heard, Ministers have made some progress in recent years in getting overseas territories and Crown dependencies to list who owns which company within their jurisdiction, but unless these registers are published—as the UK’s now is—people in developing countries, who are losing out the most, will never be able to see where their money is going.
Christian Aid and other charities have campaigned vigorously on these themes over a number of years. They tell me that a relative of one African president took and spent $38 million of his country’s money on a private jet using an anonymous company in the British Virgin Islands, according to the case against him made by the US Department of Justice. Without a public central register of beneficial ownership in the British Virgin Islands, we would not know what that company is or who benefits from it, and we would have no guarantee that UK law enforcement would be making the right request to get the information needed. Public registers of beneficial ownership will put this information out into the open, and people in developing countries will be able to see the information that is important and relevant to them, which should be their right.
I urge Ministers and others to aim still higher. We should aim to have public registers of beneficial ownership in the UK’s overseas territories, at the same time as getting the private registers in place by June. I shall be supporting noble Lords who try to use this Bill to put in place a timeline for when we will have that transparency.
I urge all noble Lords to reflect on the scale of the problem. Tax havens are costing developing countries at least $100 billion a year, according to the UN. I read a recent statistic that said that around one-third of rich Africans’ wealth is currently held in tax havens. If this money was held in Africa and taxed properly we would be able to employ enough teachers to educate every child on the continent. That is the scale of the problem we are looking at here and the scale of the good that can yet be done. I welcome this Bill and urge Ministers to act while the Bill is in the House of Lords to ensure that these issues are further addressed in this legislation.
Lord Flight (Con)
My Lords, I first declare my interest as in the register, and in particular as director of Metro Bank and as a regulator in Guernsey. I very much echo Dominic Raab’s comments on this Bill in the other place. I want Britain to be a competitive and successful global hub open to international talent, as it has been for 400 years, and I want us to be known the world over for our integrity, our commitment to the rule of law and our adherence to moral principles. We need to stop turning a blind eye to the blood money of despots that may flow all too freely through London and other UK businesses, through banks and into properties. The new sections in Clause 1 are designed to address the weakness in the current UK asset-freezing regime.
I briefly make the point that I do not actually agree that compulsory public registers are going to help with the issue, particularly in Guernsey and Jersey. The law enforcement agencies do not support public registers. David Lewis, head of anti-money-laundering standards in the Financial Action Task Force has made the point that incomplete and unverified public registers are not nearly as useful as law enforcement agencies keeping the right and detailed information. Tax authorities do not support public registers, as they reduce the candour of reporting in central platforms. UK intelligence and law enforcement is a key foreign policy asset, and will be undermined. The proliferation of standards hurts multilateralism, and the OECD reported, when the UK announced its own plan, that,
“proliferation of inconsistent models is in nobody’s interest”.
The most positive organisational aspects of the Bill are the greater contact and interaction that it facilitates among the various entities working in the area, in both public and private sectors. It has been the absence of this to date which is largely responsible for a pretty poor showing in terms of actual success of anti-money-laundering activities.
I support particularly the objective of stronger partnership with the private sector. I am pleased to report that Metro Bank has signed up to be part of the Joint Money Laundering Intelligence Taskforce and I believe that that entity can be much more effective in increasing the volume of discoveries. The BBA will create a register of the business specialities of particular banks and make it available to the Joint Money Laundering Intelligence Taskforce, to bring the relevant experience into JMLIT to work on money laundering and terrorist financing. The BBA, Home Office and Treasury will operate a public private partnership to educate consumers and businesses about the risks of becoming involved in money laundering.
The Bill will create some key new relevant instruments, particularly the unexplained wealth order. The noble Lord, Lord Rooker, raised that issue. It is an extremely important instrument and I believe that huge use will be made of it in the future. Part 3 creates an offence of corporate failure to prevent tax evasion. If the person acting on behalf of a company criminally facilitates a tax evasion offence by another person, that company would be guilty of the offence. There are various other measures which, in the main, will be effective in increasing the volume of money laundering discovered.
However, I have concerns that the additional costs created versus the likely cash recovery will continue to be unsatisfactory. As others have pointed out, the NCA estimates that the amount of money laundered in the UK could be up to £90 billion. In the period 2014-15 the NCA received 381,882 suspicious activity reports, but the amounts of money that have been recovered look pathetically poor. In 2015-16 only £255 million was recovered under the Proceeds of Crime Act. In the whole period between 2010 and 2016, £2 billion was recovered using all powers in the Proceeds of Crime Act. In 2015-16 HMRC secured 1,135 charging decisions and collected £2.7 billion in additional tax and penalties, but that was significantly less than forecast and anticipated. The BBA estimates that its members are now spending £5 billion annually on core financial crime compliance. A lot of that seems to me to be pretty wasted. I accept the problems that are presented, but what is missing are more effective and determined policies to deal with the real criminals.
Let me also raise the issue of PEPs, which is relevant to this House. The Bill defines a PEP as an individual who is or has been entrusted with prominent public functions by an international organisation or by a state other than the UK, another EEA state or a family member of that person. Yet the FCA requires banks to treat domestic UK politicians as PEPs. I would be grateful if the Minister could clarify the law. At a personal level, I was somewhat surprised to discover that the bank where one of my daughters banks was inquiring about her boyfriend’s income as part of a PEP inquiry, arising from my political involvement. That struck me as somewhat inappropriate; the time and effort might have been better spent somewhere else.
The key objective should be to improve the identification of those involved in corruption overseas and the laundering of the proceeds of their crimes in London. That is why collaboration is so important, to enable law enforcement agencies to satisfy demands at the outset of such investigations, given that all the relevant information may be outside the UK. An unexplained wealth order made in relation to a PEP living overseas does not require a suspicion of serious criminality. This should be particularly helpful in cleaning up the UK money laundering activities of corrupt overseas politicians. The Bill also provides for the civil recovery of assets belonging to those involved in or profiting from human rights violations.
As I said, I am concerned that the Bill will add substantially to costs, so it will be important that it achieves a major increase in the amounts recovered from money laundering and terrorist funding activities. I believe that the most useful change will be that of allowing entities within the regulated sector, such as banks, to voluntarily share information on suspected money-laundering activities—subject, that is, to informing the NCA. The private sector holds data on financial transactions and related personal data. The law enforcement agencies hold details of criminals and intelligence on crime. When these data have been shared in the past under the Joint Money Laundering Intelligence Taskforce, there have been positive outcomes for both sectors. Although existing data protection legislation allows for the sharing of information for prevention and detection of crime, regulated companies are understandably concerned that there should be express legal cover directly related to the anti-money-laundering regime to reduce the risk of civil litigation for breach of confidentiality.
It is the Government’s intention that allowing entities to share information should allow so-called super SARs to be submitted to the NCA which would draw on multiple sources of information on suspected money laundering. At present, I feel that the NCA is just weighed down with hundreds of thousands of reports which often amount to little more than many banks protecting themselves.
Baroness Whitaker (Lab)
My Lords, I declare an interest as a member of Transparency International UK and a former member of its advisory council.
I welcome this Bill in general. I simply follow the noble Lord, Lord Flight, with a note of disagreement and a few remarks in support of unexplained wealth orders. These could make considerable inroads into combating the injustice of the enjoyment of the profits of crime, which, as has been said, run into billions of pounds. At present, according to the OECD’s Stolen Asset Recovery initiative, we freeze the equivalent of only $225.5 million a year.
I also commend this proposed measure because, as a civil rather than a criminal provision, it bears on the asset not the individual, and because a High Court judge needs to be satisfied that there are reasonable grounds that the asset has not been lawfully acquired. I agree with TI UK that this accords with human rights obligations.
I welcome the Government’s assurance in the other place that figures on these orders will be included in the annual statistics of asset recovery and that there will be an updated code of practice enjoining co-operation between the agencies concerned. I ask the Minister: which will be the first year for the inclusion of these figures, and when will the code of practice be available?
As my noble friend Lord Rosser said powerfully, echoed by the noble Baroness, Lady Kramer, the right reverend Prelate the Bishop of Oxford and others, among the matters which remain to be dealt with are public registers of beneficial ownership in the overseas territories and Crown dependencies, as well as strengthening the capacity to repatriate seized funds. Can the Minister tell us how the Government propose to pursue the highly desirable obligation to declare beneficial ownership in these tax havens?
Further measures to repatriate the illegal gains looted from developing countries are necessary. This has been a scandal for years. I hope that the Minister can offer us some comfort.
That said, the Bill as a whole will not only improve justice but will enhance to a degree the reputation of the UK as a serious fighter against corruption. I hope that we can enable it to do even more in Committee.
Baroness Stern (CB)
My Lords, I begin by declaring my interest as an officer of the Anti-corruption APPG. My involvement in this Bill arises from my concern about corruption—and I am most grateful to the right reverend Prelate the Bishop of Oxford for his remarks about the effects of corruption in poor countries. I have in past years visited a number of countries where grand corruption has penetrated deeply into the administration. The outcomes are hugely damaging to the majority of people in those countries.
For many, corruption can mean, for example, living through a harsh winter with only a few hours of electricity per day, because the money that should have been invested in the electricity company has gone into a bank account somewhere far away from that country. It can mean many babies dying because there is no money for maternal health services. This can happen in an oil-rich country earning a lot from its oilfields, but where the money that should have gone into mother-and-child health has been diverted by corrupt politicians or officials to banks outside their country. The money is then used to buy penthouses in western capitals, or works of art, or jewellery.
The victims of grand corruption are too many to count. We are debating this Bill because a lot of the money that is not going to the electricity company, or to maternal or child health, is ending up illicitly in banks in the UK and in places such as the overseas territories—places where the UK has a special responsibility. So I warmly welcome the Bill.
Grand corruption is one of the major destabilising forces in the world today. It creates extreme poverty and misery. It deprives millions of education and healthcare that could lead to a fulfilling life. It makes a mockery of the rule of law. It prevents countries from developing healthy economies, and it leads to violence and insecurity. Only last month, Transparency International UK published a report linking corruption to the growth of violent extremism. Grand corruption also stands squarely in the way of the realisation of the United Nations’ sustainable development goals, which we in the UK strongly support.
The Government, and the coalition Government before them, have done a great deal to take corruption seriously. Many examples come to mind, such as: the anti-corruption summit, held in May last year, which was very successful; the introduction of a public register of beneficial ownership in the UK; the appointment of an anti-corruption champion, Sir Eric Pickles MP, who is doing a sterling job; and the Action Plan for Anti-money Laundering and Counter-terrorist Finance, which should bring about real improvements.
Now we have this Bill, which comes to us after receiving cross-party support in the other place for what is in it, and for some things that are not yet in it. There are many important measures in the Bill, as the Minister has explained to us. Strengthening the suspicious activity reports regime is essential. The Magnitsky amendment represents a huge step forward and I was very glad to hear the Minister talk about human rights abuses around the world in this connection. Some argue that grand corruption should be classified as a human rights abuse; I find that argument convincing.
The unexplained wealth orders, which Transparency International has described as a “valuable tool”, are very welcome. It is to be hoped that these orders will make it possible to take action when the prosecution route is not available, either in the country of origin or in this country, because of the complexity of operating in different legal systems.
In this context, the case of Maxim Bakiyev is relevant. He is the son of the overthrown President of Kyrgyzstan. After the overthrow, he sought refuge here and bought a house in Surrey for £3.5 million. He was convicted in absentia in his own country of embezzling millions from the state. I am sure the Minister will know that the Government of Kyrgyzstan are rather disappointed that the United Kingdom has not been able to take any action to help them recover some of the missing millions.
I hope that we can make progress in your Lordships’ House by revisiting the question of public registers of beneficial ownership of companies registered in the overseas territories. There is substantial disappointment in many quarters about the Government’s more cautious approach to moving to transparency and having public registers. The noble Lord, Lord Rosser, made the case for that very strongly. I must read the same newspapers as the noble Lord, Lord Faulks, because I too read about the people who were happy to pay £218,000 to keep their ownership of a property secret. I echo the question posed by the noble Lord: why do we allow this?
Finally, I put on the record comments made by Mr Nick Herbert MP on Report in another place. He was responding to the argument that, although transparency is a good idea in theory, it is not always practical, because if one place has open registers, those looking for a safe haven for a lot of money will choose another haven where secrecy still reigns. He said:
“We are talking about measures that are necessary to protect not just the UK taxpayer but the poorest countries in the world, which are disadvantaged and penalised because people are able to siphon off funds unlawfully and immorally and shelter them in various regimes. We are apparently saying that we are willing to accept that, because if we take action against it, some other regime will perform that immoral task. That seems to me to be a wrong position for the House of Commons to take”.—[Official Report, Commons, 21/2/17; col. 940.]
No doubt we in your Lordships’ House feel the same.
I end by saying to the Minister that she must be very happy today to be responsible for a Bill which has such profound implications, covering huge wealth and grinding poverty, shameless and unimaginable greed, and the heroism of campaigners such as Bill Browder, and which, when implemented, will surely make the world a slightly better place.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I begin by drawing the House’s attention to my entry in the register of interests of your Lordships’ House.
It is always a pleasure to follow the noble Baroness, Lady Stern, who, as ever, has introduced an informed and incisive view. Like her, the right reverend Prelate the Bishop of Oxford, who is no longer in his place, had some very valuable things to say about the role of this Bill and its impact on the developing world. In an earlier part of my life, I had a chance to hear a spellbinding lecture by Professor Peter Bauer—later Lord Bauer, a Member of your Lordships’ House. He revolutionised the way the world thought about development economics.
In that lecture he pointed out that, in his view, the single thing that most held back undeveloped countries in achieving their potential was the prevalence of corruption, and that if you could root it out, many countries that suffered from underdevelopment would move forward quite swiftly. It seems to me that what applies to underdeveloped countries has an application in a developed nation such as ours. That is why I instinctively have sympathy with a Bill like the one before us today which has the strategic aim of reducing criminal activity and corruption.
However, I do not believe that that support and sympathy should be slavish. More regulation is not always the answer to every problem because any measure, including measures such as those in the Bill before us, come at a cost—a point raised by my noble friend Lord Flight. I refer not just to the cost of establishing the necessary enforcement powers but to the increased costs for those affected by the regulations.
More worrying for me, however, is that too widespread an approach can include a drag on, or an impeding of, innovation in the development of our financial services. Why is that so important to us in this country? The City of London has become a world financial centre—probably second only to New York in size. Surprisingly, it has achieved this despite being backed by only a medium-sized economy, and the country as a whole has benefited greatly from the City’s success.
That success has had to be based on innovation and acceptance of new ideas. Bigger economies such as that of the US and, increasingly, China can rely on weight of money and the volume of economic activity to carry them forward. The UK cannot. We have to be nimbler, quicker and more entrepreneurial, and being nimbler, quicker and more entrepreneurial is a concept that can worry regulators. Regulators are, appropriately and rightly, risk averse. They can be concerned that novelty automatically hides malfeasance, and thus they block or slow the development of new ideas and new approaches. However, if novelty becomes a dirty, suspicious word, the City and the country will be the long-term losers.
To summarise what I see as the dilemma, on the one hand, too low a standard of behaviour damages the City’s reputation and drives business away; on the other hand, an unreasonably high bar drives businesses away because of the costs, problems and time taken to complete transactions, and the unwillingness to adopt new ways of working. That seems to be the delicate balance we have to strike when we look at proposals such as those in this Bill.
Therefore, as we go to the Committee stage of a Bill whose strategic aims I entirely endorse, the test that I wish to apply is: will what we are proposing encourage good standards of behaviour, or merely mindless compliance whereby forms are filled and boxes ticked?
I turn to a couple of provisions of the Bill, both of which have already been mentioned, so I shall be very brief. First, I support the proposal of unexplained wealth orders and I thank the Minister for her further explanation in her opening remarks. My noble friend Lord Faulks raised a couple of points about them, and I was interested in receiving the White Collar Crime Centre report, which suggests that the enforcement of UWOs will present challenges. Where state officials and politically exposed persons are concerned—two categories that are particularly in the target zone for UWOs—it will be hard to prosecute because of what the White Collar Crime Centre calls “personal immunity” and “financial immunity”. I look forward to hearing in the wind-up or in Committee how those two immunities will work, and whether they will have implications for or impede the way this provision is used. As my noble friend Lord Faulks said, we shall need to look at the Australian and Irish experiences to date.
My second question about the Bill concerns the overseas territories. A number of noble Lords, including the noble Lord, Lord Rosser, raised this in his opening comments. We have a particular responsibility in this country. White collar crime is very flexible: it is like a balloon—you squeeze it in one place and the air pops out somewhere else. Therefore, we have to explore our links with our overseas territories and Crown dependencies. I look forward to hearing the views of other people, because I am not sure that we have the situation quite right yet, and the noble Lord, Lord Rosser, obviously has some important points to make about that.
For the rest of my speech I want to return to the idea that new regulation should be formed to encourage quality behaviour and not mindless compliance. I do so because I firmly believe that it is only by engaging the widest possible range of people in the fight against criminal financing that we can ultimately hope to have a high degree of success. It is interesting to note that when Security Service chiefs talk about their successes, they always emphasise how much they have benefited from the notifications that have come from members of the public.
I regret to say that I do not think that the authorities responsible for the detection of criminal financing have so far managed to engage the interest and support of the public—particularly those who work in the City—in the same way. Why is this? First, it is because many people believe that the existing regulations, both on money laundering and SARs, gather together a vast mass of data—much of which is irrelevant—which the public believe is then put in a file and never examined. They have no reason to believe the contrary. I hope the Government and the authorities will develop a regime which encourages the use of the precision of a rifle shot, not the blunderbuss approach of a shot-gun. Under that regime, the authorities should connect better with the general public about their objectives and how they are being achieved.
Secondly, there are concerns among the public about effectiveness and the value for money that the present regime provides. Regulators always seek more powers, usually with more money to enforce them. We need to be careful to ensure that, before more powers are granted, all existing powers are being used effectively. I was interested to note that at Second Reading, Sir Edward Garnier, the Member for Harborough and an experienced lawyer, said:
“I have noticed that in the past with confiscation orders. Very often, the courts make an order, and either the order is never put into action or very little of the amount required from the offender is ever recovered”.—[Official Report, Commons, 25/10/16; col. 208.]
Is this true and, if so, what are the statistics? Is the Minister confident that other existing powers are being fully used?
Finally, I turn to the point made by the noble Lord, Lord Brown of Eaton-under-Heywood. In 2015-16—the last full year for which figures are available—the National Crime Agency, which cost £478 million to run, seized £26.9 million of assets. Am I alone in feeling that, when billions of pounds are supposed to be passing through the City of London, that is not an adequate performance? There are some 27 different bodies engaged in this, so it would be helpful if, before Committee, the Minister could give noble Lords a little schedule of each body’s costs and asset recovery in the last year for which figures are available. I support the Bill, but we need to make sure we are creating an effective, lean crime-fighting machine and not just adding to the bureaucracy.
Lord Watson of Invergowrie (Lab)
My Lords, I start by apologising to the Minister for the discourtesy of missing the first minute of her speech. I was in the Library and the Bill started too quickly for me.
The Bill is certainly a step in the right direction to strengthen the capacity of the UK’s law enforcement agencies to address dirty money, whether it is connected to corruption, money laundering, tax evasion or terrorist financing. In particular, I am happy to support measures such as the unexplained wealth orders and the new corporate offence of failure to prevent tax evasion. The Bill highlights why the integrity of the UK’s financial system is so important. This goes to heart of the UK’s global reputation for its commitment to clean business and fair play, and of public confidence in business and corporate behaviour domestically.
I was pleased to hear the Minister echoing the Minister for Security, Ben Wallace, who remarked, at Second Reading in the other place, that the Government’s aim is,
“to combat money laundering, terrorist finance and corruption—here and overseas”.—[Official Report, Commons, 25/10/16; col. 195.]
That is most welcome but, rather like the Bill itself, the Ministers did not go far enough. The elephant in the room with this Bill is the overseas territories. The Government are not doing enough to persuade them to adopt public central registers of beneficial ownership. Why has the Government’s stance on this weakened during the passage of this legislation?
My noble friend Lord Rosser highlighted the pathetically weak wording in the letter sent by the Minister to noble Lords this week. For those who have it to hand, it was the third paragraph from the end. I will not repeat his critique, but the Government simply have to do better on the overseas territories. We all know that they will not voluntarily take meaningful action on transparency. Requiring transparency in the overseas territories would be one of the most effective things the Government could do to tackle corruption and money laundering.
Introducing provisions for public registers of beneficial ownership in the overseas territories would fulfil the Government’s stated aims and support the measures in the Bill. I was pleased to note the cross-party support on this on Report in the other place. It was led by the All-Party Group on Responsible Tax with the support of a large number of NGOs. The All-Party Group on Anti-Corruption—I declare an interest as its vice-chair—also supported and continues to support campaigning on this issue.
I acknowledge that there are some constitutional and jurisdictional sensitivities as far as the overseas territories are concerned, but that is not a reason to delay meaningful action in this area. Progress has already been made with some private registers, allowing information sharing between law enforcement agencies. That is welcome, but the wider, and crucially important, issue of the need for public registers cannot be overstated. I urge the Minister to commit to a deadline by which we can expect to see public registers of beneficial ownership in the overseas territories in place and operating. I also urge the Government to continue their dialogue with the territories and to support them in achieving this objective.
There is a strong, responsible business case for transparency on beneficial ownership at a public level. Companies carrying out due diligence need access to this information so they can be confident that they know who they are doing business with. This supports sound, clean, competitive business practice. A survey of companies in 2016, conducted by Ernst & Young, showed that 91% of respondents believe it is important to know the ultimate beneficial ownership of the entities with which they do business. The only surprise about that outcome was that 9% apparently believe it is not important—and we can only speculate as to who they might have been. Transparency on beneficial ownership is also really important for developing countries, where illicit financial flows, often channelled through anonymous companies, have a significant and damaging impact, leading to the loss of millions of pounds needed for schools, hospitals and other public services.
Other noble Lords have referred to this matter, but it is a powerful argument for registers of beneficial ownership being made public. Developing countries and their civil society organisations must have access to the information needed to combat the vast amounts of money siphoned off by corrupt politicians or officials and redirected to private foreign bank accounts. The UK needs to remain a leader on this issue, ideally in partnership with other members of the G20. Under David Cameron, the UK forged a leading role in tackling corruption and criminal financial activity. I am not usually one of his cheerleaders, but by hosting the anti-corruption summit last May he sent a clear message that his Government were serious about the issue—and not just on a global scale. He also believed that it was essential that the UK should shed its image as a major repository for dirty money.
I also want to focus on the importance of bringing the law on corporate liability for economic crime up to date with current business practices and structures. The noble Lord, Lord Faulks, mentioned his experience as a Minister in respect of overseas territories and Crown dependencies—but, regrettably, he had nothing to say on corporate liability. Noble Lords will be aware that the Ministry of Justice’s call for evidence is currently open on this issue. That is welcome, but it represents a rather timid approach by the Government, because one commitment of the anti-corruption summit was a full consultation on corporate liability. Perhaps the Minister will announce that the intention is to move on to that—and, I hope, ultimately to legislative reform.
We can no longer tolerate Victorian era law which means that large companies can insulate themselves from liability via evasive internal structures enabled by their size and complexity, while small companies have fewer places—or perhaps just fewer people—to hide and thus are more likely to be prosecuted. That does not accord with the Government’s stated commitment to a level playing field and fair competition. This must operate not just internationally but domestically as well.
This also goes towards protecting the UK’s reputation as a key financial centre. I will quote another Tory now. Sir Edward Garnier stated in the other place last month that the UK’s global reputation was connected to our financial services industry. He was right: companies in that sector, and their employees, need to know that there is a real risk of a criminal conviction if they step beyond the line of honesty and acceptable behaviour. I do not see this as an area in which regulatory oversight and fines should be the sole means by which we address corporate malfeasance. There should of course be a role for regulators, but there needs to be more. It is widely understood that companies can and do plan contingencies for fines into their budgets. That is no disincentive to criminal activity—or even to just looking the other way, which can amount to the same thing.
The key point is that companies must abide by, and act in accordance with, the values of the society of which they are part. Free market economics often exists in a universe parallel to the power imbalances and social norms of society that it helps to perpetuate. Most people want business to be open and fair, with genuinely deterrent sanctions for those who feel that the rules do not apply to them and that they can get away with it. A vibrant but openly honest financial services industry is vital to build and maintain public trust in UK business, both at home and abroad.
My closing point is that public registers of beneficial ownership in the overseas territories and reform of corporate liability for economic crime are very reasonable additions that would complement the valuable measures already set out in the Bill.
Lord Thomas of Gresford (LD)
My Lords, I welcome the Bill generally but in particular the provision in Clause 15, which inserts a new Section 303Z5 into POCA, giving the court the power to release frozen funds to pay legal expenses. That was a matter I argued many times in this Chamber, particularly during the coalition Government when there was a reduction in legal aid generally. At about that time I had a wealthy client whose assets were frozen and consequently he had legal aid. At the end of the trial, when he was acquitted, he was awarded his costs but, as legal aid had paid his legal team, all he had to pay for were the parking charges for his Rolls-Royce, which he had parked a mile away from the court in case it influenced the jury.
Money-laundering legislation has had a major impact—for business, the cost and time of introducing systems; for individuals, the struggle to prove identity. It is quite something when you have to produce a utility bill not less than a month old to prove who you are to a bank where you have been a customer since the age of 15. You wonder where all this information goes. What happens to it? Who deals with it? Yet, at the same time, as the noble Lord, Lord Hodgson, pointed out, there is a general feeling that prosecutions do not match the considerable efforts and discomforts that we have to suffer. As the noble Lord, Lord Flight, pointed out, compliance is not cheap—£5 billion annually is the cost assessed by the British Bankers’ Association for the way in which banks have to deal with core financial crime.
My experience of the POCA proceedings which occur when a trial is over has not been satisfactory because they are lengthy and complex. I have not been involved in many because, as usual, experts jumped up to capture the market in such proceedings. The reversal of the burden of proof, with the defendant having to prove where the assets came from, was not satisfactory because the trial judge was almost certainly bound by the view of the jury of the facts and the veracity of the defendant. So, from that point of view, it is not a fair procedure.
As the noble and learned Lord, Lord Brown of Eaton-under-Haywood, and the noble Lords, Lord Flight and Lord Hodgson, have pointed out, the figures are not very satisfactory for recovery. They have commented on various years and I will comment on 2014-15 for additional reasons, which I shall point out. In that year, the agency collected £155 million; the National Audit Office reckoned that the cost of collection was £100 million; but—this is the important figure—the confiscation orders made by the courts that were outstanding was £1.61 billion. I call that failure, and the Bill may go a long way towards rectifying the failure that has existed so far.
I was pleased to hear from the noble Baroness, Lady Whitaker, who is a distinguished member of the board of Transparency International. A task force examined the efficacy of money-laundering controls in this country in May 2015 and it came up with important and key findings: first, that the levels of asset recovery in the UK are small compared with the likely amounts of corrupt wealth being laundered; secondly, that only a small minority of suspicious activity reports, SARs, relating to grand corruption are acted on by law enforcement agencies; and, thirdly, that the timeframe moratorium period of 31 days for responding to SARs is generally inadequate to investigate and achieve asset restraint for grand corruption cases.
In July 2016 the Home Affairs Committee was shocked when it heard oral evidence from Robert Barrington, the executive director of Transparency International UK, who said that,
“it seems likely that in terms of money laundering going through the UK system every year, it is at least £100 billion”.
We are always talking about the corruption in Panama, but the committee pointed out that in Panama £100 billion is twice the size of its entire economy. So, given the amount of money passing through the UK system, we are much more involved in money laundering than Panama.
A number of noble Lords, including the noble Lord, Lord Rosser, my noble friend Lady Kramer, and the noble Lord, Lord Watson, a moment ago, underlined another of Transparency International’s conclusions. Mr Barrington said:
“Clearly one of the things that makes the UK attractive as a centre for money laundering is its historic links with the Overseas Territories and Crown Dependencies, because you can move money very quickly to jurisdictions that are very well-linked and for whom your bank of lawyers and accountants will have very close connections and can easily set up shell companies and so on”.
I was interested in what the noble Lord, Lord Faulks, said about that. He believes that legislation is going through the Crown dependencies but I wonder what is happening with the overseas territories.
On the question of corporate liability, the Government are following Section 7 of the Bribery Act 2010. I was involved in the Select Committee that looked at that Bill and afterwards when the legislation went through. I was later asked to give a talk in the premises of a well-known firm of solicitors to some very important clients about the effects of the Bribery Act. I was so shocked to hear other speakers winding up these companies about the amount of compliance that would be required that I thought it necessary to say, “Look, you are not all going to go to prison immediately”. Indeed, of course, under the Bribery Act there is not such a liability as they were saying at that time.
I was at a dinner last night in Threadneedle Street—not a place I go to frequently—where I was sitting next to a young lady who is involved in asset management. She said that the department in her company that is expanding without any obvious horizon is the compliance department. I can see that compliance departments will expand in all these companies and that lawyers will have a new industry of advising people on this Bill which is an effect of the Bill that I would not like to see.
There is much to discuss. The thrust of the Bill is right and I hope that we can refine it in certain important areas.
Lord Dear (CB)
My Lords, coming in to bat as late as I am in a debate like this, almost everything I wanted to say has already been said. I shall try to be brief but my brevity does not signify any lack of sincerity or support for the Bill. I welcome it warmly, as I have made known before.
In the 1990s I was HM Inspector of Constabulary, carrying at that time a special responsibility to satisfy the Home Secretary of the day about police activity against organised crime and money laundering—was it adequate? At that time I found that the response to arrests was reasonably good but the response to the recovery of cash was downright poor. All too often those at the top of the criminal tree were getting off scot free. They were not being arrested or inconvenienced, and certainly none of their assets was being recovered. In other words, if you got to that position, life was something like a bed of roses. The amounts then, much exaggerated now, were eye-watering—absolutely staggering amounts of cash, of property, of assets and of works of art. To have seen the product of some of those investigations and listened to some of the intercepts from deep-cover operations showed to me—and I thought I knew everything about it—just how deeply rooted this was. The 2013 Act has gone a long way towards improving that 1990s position, but there is no doubt—and it has been implicit in everything that we have said so far—that the very top end of crime, which we are concerned with in this debate today, is all about status, power, hedonism, violence and cash. If you take the cash away, most of the rest falls away, almost into insignificance. It is quite clear that this Bill has almost universal approval; there is nothing very contentious in it except perhaps to criminals, and we are not too concerned about them in the sense that we have been debating today.
One of the things that will clearly develop from this is the much closer working relationship between HMRC and other agencies, and properly handled that is to be welcomed. I will not go into some of the particular things that interest me in the Bill: unexplained wealth orders, which have been mentioned already, the much-strengthened investigatory powers against fraud and money laundering, and the improved facilities for helping SARs—suspicious activity reports. After I came to your Lordships’ House 11 years ago, I very shortly joined the Home Affairs Select Committee. We carried out an in-depth, searching inquiry into money laundering and its effects. One of the things we looked at was the way in which SARs were being handled, and even then they were handled very well. We spent a fascinating day at the London offices looking at the way in which the huge amount of information from all the various agencies and bodies was collected. They said, “We put so much in, they can’t possibly look at it”. In fact, there was a great deal going in. What was really becoming apparent was that it was being computerised in a very sophisticated way and whole patterns of criminality were being developed, leading one very quickly to see who was involved and where the money was going.
This clearly will help drive down crime. Although we have not mentioned it much today, it would certainly help to slow down, if not stop, terrorist funding. I say, not jocularly, that the days of terrorists rattling tins for collections in central European cafés have very long gone—they disappeared before the First World War. Terrorists now are highly sophisticated in the way they draw down the funds for operations.
I want to mention just three things. The first was touched on by the previous speaker, the noble Lord, Lord Thomas of Gresford, just before he sat down. He is quite right: we have a very poor record in recovery of assets. We talk about large sums but, in proportion, they are very small. Law enforcement has to start supporting this legislation and I hope it will be encouraged—if not encouraged, certainly pushed very hard—to do so. The root of that is that the law-enforcing agencies—certainly police and others working similarly close to them—are judged on what are called “results”, and the results are arrests: “Get the person into custody and before the court. We know we need to chase the stolen property and need to chase the assets, but we are too busy because we have other things coming up and we are being judged on results”. That has to change quite considerably.
We have heard this very hackneyed story about the way the FBI, during the prohibition era in America, took down very high-level criminals by using tax-evasion legislation. That is very close and in parallel to this legislation. I hope to forecast confidently that through the use of this legislation we will move away, in selected cases, from chasing the criminal through the criminal courts and simply go for the asset. The damage it does to him—or her, but usually him—and his organisation is massive and total. Chasing to try and get the conviction is often counterproductive.
I gloss over the second thing very quickly, although I feel very strongly about it. We have heard a great deal about the overseas territories and the Crown dependencies and I agree with everything that has been said. I certainly support public registers of beneficial ownership.
The third thing we have brushed on very briefly in this debate is Bill Browder’s book Red Notice, which I too have read. For those of your Lordships who are still not sure, the book is about Sergei Magnitsky’s death, which led to the Sergei Magnitsky Rule of Law Accountability Act 2012 in the USA. He was a lawyer who stood up against high-level corruption and money laundering in Russia. He was arrested and, in custody, was tortured over a long period and then beaten to death. Browder then pursued his case for many years, eventually getting that Act that I have just mentioned on to the statutory book in America. It is all about human rights abuse and money laundering, and preventing those contributing to that from getting visas to go into the United States. The big thing is about freezing their assets wherever they could be frozen—certainly in the USA. There have been various unforeseen consequences on that; it is a very delicate situation and the Act led to a tit-for-tat war between Russia and the USA, and one has to watch that very closely. Notwithstanding that, the thought of being able to draw human rights abuse and money laundering into this Act in this way has much to commend it for, so my heart and sense of direction supports that.
I repeat, in conclusion, that the Bill has my very warm support—it is very-long awaited and I welcome it. I am confident that it should have a profound effect in the areas we are discussing: humanitarian, social, counterterrorism and so on. I will certainly do my best to assist its passage through your Lordships’ House.
Lord Patten (Con)
My Lords, the UK, generally with all-party support, has an excellent leadership role internationally in efforts to combat financial crime and the terrorism that all too often feeds of it. For example, landmark measures were brought forward by the Labour Government. I would pick the then Bribery Bill, introduced in another place in 2009 by Jack Straw. That was a landmark on which much later policy has been developed, helping conceptually in the lead-up to the Bill before us. That steady, all-party drumbeat of support has brought me into very happy coalition with, for example, Diane Abbott, the shadow Home Secretary in another place. One finds these coalitions spring up in the most unlikely way. I also know the noble Lord, Lord Rooker, will take me seriously when I say that I join his coalition on kleptocracy in London, not just because of the money laundering that is probably involved, but because of the devastating effect it has on the occupancy of properties in so many London boroughs. Hear, hear to everything he has said.
Like the noble Lord, Lord Dear, I welcome so many of the provisions and tools made available by the Bill, such as the new unexplained wealth orders and the developing suspicious activity reports. There is nothing for any decent, honest person, foreign or British, to worry about in these. These provisions started in the Proceeds of Crime Act 2002—I spell it out in full to avoid the POCA/poker linguistic dilemma that my noble friend Lord Faulks pointed out. These have worked very well. In particular, I welcome the bringing together of public and private information sharing in a proper, public/private partnership against financial crime. This has not been noted thus far, but I think this is an international first, so the data held by UK law enforcement agencies can be brought together with that held by regulated entities in the private sector undertaken by banks and so on. This will help us in combating money laundering. It is certainly an international first and an approach that should be followed throughout in the battle against the ever mutating cybercrime, which is one of the biggest threats to international economic and indeed social peace on the globe.
That is all good macro stuff and I warmly support the Bill, as I guess my noble friend the Minister has noticed, but I would like to move from the macro to the micro picture and to a legislative dog in this context which has yet to bark, and I hope will not even whimper. I seek confirmation that there is no intention on the part of HMG to introduce provisions that would impose legislation in this or in any other way directly from Westminster on to Gibraltar. I hasten to make, as it were, a declaration of non-interest in this matter. I have no financial interests in Gibraltar and I do not intend to have any. My wife and I simply ended up there on a short holiday, but I was rather taken by the little place and that has subsequently spurred an interest in and contempt for the persistent, disgraceful and costly incursions by Spanish state vessels into our territorial waters there.
Financial services, in which, like others in this House, I have interests in and knowledge of here in the United Kingdom, have flourished in Gibraltar. I have gone into the matter in a little detail and I think that they are based on very high regulatory standards. It is my understanding that the relevant UK departments are content with the present arrangements. Indeed, back in December 2016 my right honourable friend the Prime Minister stressed this in the House of Commons following an exchange of notes between us and Gibraltar saying that we are content with the current arrangements and that the UK’s law enforcement objectives are being met. I believe that that has been confirmed by my noble friend Lady Anelay at the Foreign and Commonwealth Office.
Setting aside the undoubted legislative can of worms that would be opened by seeking for the first time to impose legislation from Westminster, and thus setting a precedent for those who have unfriendly feelings towards that little place and therefore could use it in a malign way, I stress that a great deal has gone on lately. Gibraltar has set up a register of beneficial ownership under the terms of the fourth anti-money laundering directive. This builds on Gibraltar’s record of effectiveness in the exchange of information. Indeed, the OECD has recognised that, admittedly using a phrase that is not a ringing endorsement, in a recent review and has classed Gibraltar with the UK, the US and Germany in the top category known as—they do not like to overspeak in the OECD—“largely compliant”, so Gibraltar is there with those other countries.
I simply seek a reconfirmation from my noble friend on the Front Bench, if confirmation is needed, that HMG have no intention of allowing the provisions of this Bill to extend by default to Gibraltar with its entirely independent legislative arrangements, curious though they are. If my noble friend does not have time to address this point during her wind-up remarks, I will fully understand. She may choose to write to me and place a copy of that letter in the Library of the House.
Lord Anderson of Swansea (Lab)
My Lords, like my noble friend Lord Watson I begin with an apology to the Minister. I had assumed that there was more substance in the earlier business and so I arrived only when she had already embarked on her speech. I welcome the Bill and I would make one preliminary proposition, which is that the strength of our credibility as a country in the field of tackling criminal finances will be much enhanced if we have clean hands. I believe that we do and that we are leaders in this field. Nevertheless, as the figures shared by a number of speakers have shown, including those referred to by the noble Lord, Lord Faulks, crime has paid. Asset recovery has been relatively small and sometimes attempts must be made against the wiles of clever lawyers and accountants to gain back as much money as we can. For example, there is still a suspicion that London is one of the centres in which international criminals find it easy to launder their money.
While much has been done about the London property market, as the noble Lord, Lord Faulks, pointed out, there are areas where the lights are always off. Let us think of a not too hypothetical example whereby a foreign individual buys several properties without even bothering to look at them and says that he is not going to live in them. I can give the noble Lord details of particular properties. Who is to blame for that? Should the estate agent tell the Government, or the accountants or the bankers? These are not hypothetical cases and they have national implications because they affect property prices right down the chain and are therefore of considerable public interest. There are many areas in which alarm bells should be sounded, but who will ring them? I therefore ask the Government again if they are satisfied that, even after the passage of this Bill, the instruments will be available to ensure that crime will not, as it has in the past, pay.
I have two further brief observations to make. The noble Lord, Lord Patten, has anticipated my comments in respect of Gibraltar. What is clear is that following the exchange of notes in April last year, the Government and those who had initially proposed amendments in the other place and then withdrew them are now satisfied. However, we need to look at this carefully. My noble friend Lord Rosser pointed out the revelations in the British Virgin Islands as set out in the Panama Papers. Surely there are lessons to be learned from that lax matter. I understand the constitutional position of Gibraltar, which has just been made clear by the noble Lord, Lord Patten. Gibraltar is fully compliant with current EU and OECD law, but I hope the Government will pledge to work as hard as they can to ensure that there is a public register—even though I heard a colleague say that the tax authorities and agencies are not pressing for public registers, fearing that the amount disclosed will be rather less than they currently receive.
My main point, however, relates to the so-called Magnitsky provision set out in Chapter 3, Clause 12, which will put in place freezing orders based on human rights abuses. Of course, there are key differences between this and the US legislation, but both have been triggered by the same outrage. I first came across this issue in 2013 at the Parliamentary Assembly of the Council of Europe. The background is well known. The noble Lord, Lord Dear, pointed out the full detail so I need not reiterate what he said so well. It concerned a massive fraud against the Russian tax authorities. Astonishingly, Mr Magnitsky was himself posthumously found guilty of fraud, and no prosecutions have been brought against the prison authorities responsible for the beatings and torture or those who benefited from the fraud, such as the former head of the Moscow tax office, Olga Stepanova, through whom the majority of the relevant fraudulent tax reimbursements were made. Funds from the fraudulent transactions were traced to her ex-husband. He and two of his deputies bought properties in Dubai shortly after the fraudulent refunds. It would be helpful if the Minister indicated the latest stage of the paper trail and said whether she was satisfied that no part of it leads to London, contrary to the assertions of Mr Bill Browder. I successfully moved an amendment to the resolution in the Council of Europe encouraging member states to follow the US lead, and I am delighted that we are now broadly doing so.
This is perhaps not the time to dwell on the Russian system of government because we have to work together in many fields. However, let us think of Alexander Litvinenko, the recent conspiracy against the Government of Montenegro and the doping scandal at the Olympics, although the latter shows that sanctions do in fact pay. All of these lift the lid on aspects of the Russian system. Therefore, the inclusion of Clause 12 is most welcome. The background, of course, is the campaign by the indefatigable Bill Browder of Hermitage Capital, but I must also praise Dominic Raab, the all-party group in the other place and, perhaps most of all, the Minister, Ben Wallace. There was clearly careful preparation for the debate on 21 February, which is well worth reading. The result is a welcome attempt to deal with abusers of human rights and torturers worldwide, which is a major step forward.
A number of concerns were expressed: about the exclusion of a visa ban, about the short term of the 20-year limitation and when it begins to run, and about the question of enforcement. However, the Minister was most positive and forthcoming in this respect, giving a commitment to a review and annual reporting. I therefore congratulate all concerned. I say again, the debate in the other place is well worth reading. The history of this clause shows Parliament at its best, working consensually and constructively to a very positive outcome.
Lord James of Blackheath (Con)
My Lords, I am deeply grateful to be allowed four minutes in the gap to comment on this very important Bill. The Minister is already aware, from our correspondence, of the thrust of my main concern, which is that the Bill does not do anything adequately at this stage to encompass and force the disclosure of the vast amount of information that, for reasons of either negligence or complicity, becomes available to executive structures within companies that have discovered things that ought not to have been done and which they ought to own up to and show.
I will give two examples of how and where this has occurred. In 1986, I went with a certain Dr David Kelly to the head office of Lloyds Bank in the Midlands district in order to inspect the paperwork it had for the payment arrangements for the Iraqi supergun. The papers had been set out by the local director. After about 10 minutes, he turned to Dr Kelly and said, “While you’re here, would you like to see the payment arrangements we’ve got for the manufacture of capacitors for the Iranian nuclear bomb development?”. Yes, he would. So the papers were produced and the whole of this was put into the hands of our senior military intelligence operation at that time. How on earth can that occur in a reputable bank, with an FT top 500 company manufacturing these extremely sensitive components for a very large sum of money? Whatever happened to end-user certificates? That ought to be somewhere in this Bill.
The other example is much more of commercial negligence and complicity. I was put into a company, again by the Bank of England, to try to sort out its horrendous problems. It was a specialist in manufacturing turnkey operations for industrial units to be built in foreign countries, and its main client was Libya. It was building a cola bottling operation at Aziziya, and the total cost at the end, when we sent the final invoice, was set at £126 million. There was no problem getting paid because the next day we got £128 million back. I said, “Send back the £2 million surplus immediately. We don’t want it”. My new colleagues—I had only just joined—said, “No, no, we have to keep it”. I said, “Why?”. They said, “If we don’t, we’ll never get another deal in Libya”. I said, “What’s it all about?”. What it is all about is that they want that £2 million to be used to open bank accounts in Naples and Rome, and they are providing all the details of how this is to be done. When I go back into the records, I find that they have already opened five bank accounts along the Mediterranean coastline for similar sums in the past. It is only on that condition that they get the business. In those circumstances, they claimed that they had done it for commercial reasons and would not have got the business otherwise. They were probably right, but somebody else would have done. That money is just being used for the availability of a turnkey operation for anybody to walk into Rome, and £200,000 buys you an RPG—a rocket-propelled grenade—that gets rid of a Popemobile at 180 yards very securely.
We need to stamp out this sort of thing and we need a wholly new set of standards for the disclosure of information that may be thought innocent or accidental but is not. There is so much of it. I have given noble Lords two examples but I could give a great many more. It is an outrage with a Bill as important as this if we do not crunch this once and for all. I thank noble Lords for my four minutes.
Baroness Hamwee (LD)
My Lords, when I first looked at this Bill, the first word I wrote down was “privacy”—which may be a legacy of recent Home Office Bills. Then I wrote down “housing market London” and then “reputation”. My noble friend Lady Bowles referred to the fundamental agreement with society. The noble Lord, Lord Hodgson, reminded us—picking up points made by my noble friend Lord Thomas of Gresford—of the importance of engaging the public without the deterrence of bureaucracy, which I am not alone in the Chamber in having suffered from. I should perhaps have first written “transparency”, which goes hand in hand with—I stress this—the accessibility of information, because the antithesis of transparency is not privacy but secrecy. So I will not be defensive if, from time to time during the passage of the Bill, I apply in a moderate way the lens of privacy.
What might seem, at first sight, a rather dry subject on only a very little reading turns out to be the stuff of a page-turning thriller—possibly accompanied by coffee and Sachertorte, as the noble Lord, Lord Dear, reminded us, as lunchtime comes and goes. Sadly, it is not fiction that apparently more than £100 billion of dirty money goes through the UK system each year, so far as one can tell—ironically, as my noble friend said, equivalent to twice the size of Panama’s economy.
The criminality that is the subject of the Bill does very real damage to the UK’s reputation and to individuals. The noble Baroness, Lady Stern, referred to the penetration of grand corruption and gave your Lordships a very vivid picture of the impact of corruption. The noble Baroness, Lady Whitaker, referred to the importance of the restoration of funds. We have been briefed by organisations outside this House on the evidence of the cost to developing countries of corruption and of the use of tax havens.
Of course, it is all around us. You do not have to go on a kleptocracy tour to see it in London. Transparency International said:
“For those in possession of corrupt funds, a property in the UK can provide a secure investment, but also help bestow prestige, respectability and a bolthole when the going gets rough at home. Most importantly, property in the UK can be acquired anonymously through companies registered in secrecy jurisdictions and anti-money laundering checks can be bypassed with relative ease”.
That is a pretty quick canter through many of the issues that this Bill gives rise to—one could quote very much more from Transparency International on this subject.
I resent, on behalf of those who struggle to find housing in London and those who are affected, perhaps slightly less directly but still pretty directly, by corruption, the fact that property in my city is available to corrupt individuals. There are some developers at the high end who are selling London. I welcome the steps taken to tackle the situation. I dare say that, from these Benches, we will be pressing the Government for more, while also unpacking how appropriate and effective the measures in the Bill will be. Some of this will be detail, but important detail. For instance, is £100,000 the right threshold for unexplained wealth orders? How big should be the identifiable tip of a possibly very substantial iceberg?
The noble Lord, Lord Faulks, referred to safeguards. I am sure that we will want to satisfy ourselves about those. I confess to feeling a little discomfort, which perhaps in the context is inappropriate, about a civil rather than a criminal standard of proof applying in this area. No suspicion is required in the case of a non-UK or EEA politically exposed person. That is a hook on which to ask about progress on the definition of PEPs domestically, possibly in writing, after this debate. My noble friend Lady Kramer alerted me to the possibility of guidance being given by the FCA, I think, under the recent Bank of England and Financial Services Act. It is quite clear that there are issues around domestic PEPs.
Like everything else, new legislation depends on enforcement. Would it be indelicate to inquire whether the Minister wants to say anything on the sharing of information and co-operation with other EU states, post Brexit? There are 27 states, of course, like the 27 fragmented supervisors who have been referred to. Comments have been made about the number of SARs now; quantity can hinder effectiveness. One must worry about the NCA’s capacity to deal with super SARs, though I note the reference of the noble Lord, Lord Dear, to the description of systems that are in use.
I am anxious about the extension of seizure and forfeiture powers, but not perhaps as the Minister may expect. Why extend them only to specified items? I appreciate that the list of items in question can be extended, but why not to all items now—certainly all items of personal property, if not real property, such as land?
I noted the extension elsewhere in the Bill of powers to immigration officers, which will take my noble friend Lord Paddick and me back to comments we have made on previous legislation about the disappearing distinction between immigration officers and the police. We may also want to probe a little on the supervision and powers of civilian counterterrorist investigators. My noble friend Lord Sharkey, who cannot be here today but will, I know, join us at a later stage, wants to probe the operation of deferred prosecutions and will have suggestions about money being held in escrow until the agreed sum is paid, given the problems of collection of cash—because it seems that pockets and wallets are sensitive to depletion in a way that, apparently, deprivation of liberty cannot match. Prison seems to be merely an occupational hazard to some people.
I mentioned the damage to individuals. Corruption and the infringement of human rights go hand in hand. I welcome the Magnitsky amendment. The Joint Committee on Human Rights, of which I am a member, commented on the issue. The committee is currently looking at business and human rights, including issues of strict liability, civil remedies and reporting and transparency. There is quite a lot of read-across here.
My noble friend Lady Kramer rightly mentioned the issue of whistleblowing, while the noble Baroness, Lady Bowles, the noble Lord, Lord Watson, and others mentioned corporate liability—but I will come back to where I started, with transparency. There is a clear will to spend some time in Committee on the implementation of public registers of beneficial owners in British overseas territories. It was the focus of the speech of the noble Lord, Lord Rosser, though we heard a contrary view. The UK has led the way and we have heard about steps being taken elsewhere in the European Union. Let us acknowledge that Montserrat has committed itself to introducing a register, though we do not know when, and use our influence—or, if necessary, power—over what are, after all, British overseas territories: further and faster, as the right reverend Prelate said.
The term “open for business” is used quite a lot at the moment, in the context of the UK being open for business. None of us wants to be open for the business of being used as somewhere to bleach some very dirty laundry.
Lord Kennedy of Southwark (Lab)
My Lords, at the outset of my remarks I am pleased, like my noble friend Lord Rosser, to put on record that Her Majesty’s Official Opposition support the aims of this legislation. We will seek, as we always do, to probe, strengthen and improve the legislation that has come before us from the other place so that the Bill goes back there in better shape than when it arrived here.
Both serious organised crime and terrorism pose real and present dangers to the United Kingdom, and it is our job to ensure we pass laws that are fit for purpose and provide the law enforcement and other agencies with the tools they need to do their important job of keeping the United Kingdom, its citizens and all the people living here safe and protected from danger.
Noble Lords will have heard the figure of £24 billion, which is the estimate of what serious criminality costs the UK economy each year. I agree with what the noble Lord, Lord Faulks, said about the cost to the UK. It is a huge sum of money and with it go lives destroyed, communities ruined and real hurt to our economy. It is everything from the vulnerable person being ripped off on the phone by con artists—losing thousands of pounds, possibly every penny they have—to tax evasion, the evil trade in drugs, prostitution, slavery and firearms. It is our duty to do everything possible to disrupt the activities of criminals, to stop these activities and to bring the perpetrators to justice.
The things that criminals do to hide their ill-gotten gains include holding large cash sums and buying expensive cars, art, jewellery and expensive clothes in order to live a lifestyle that they have not earned through legal means, as the noble Lord, Lord Dear, said. An estimated $1.6 trillion is laundered throughout the world, and the National Crime Agency estimates that many billions of pounds of that money is laundered into or through the United Kingdom as a result of international corruption. Those are staggering figures, and they illustrate why action is needed.
The noble and learned Lord, Lord Brown of Eaton-under-Heywood, made an important point about the disparity between these criminal gains and the amounts recovered from those criminals, as did a number of other noble Lords during today’s debate. Action must be taken to make the UK the most hostile place in the world for those seeking to move, hide or use the proceeds of crime, and the criminals must get that message loud and clear.
I agree with what the noble Lord, Lord Flight, said about the importance of the various agencies, both public and private, working more closely together and sharing information, and the provisions there are very welcome.
That must also be the case for all the Crown dependencies, and this is one area where I think the Bill is deficient and improvements need to be made. My noble friend Lord Watson was right when he highlighted that the Government’s position on our overseas territories is weak: they have to do better than they are doing at present.
Transparency is one of the most effective ways of dealing with this type of corruption. The right reverend Prelate the Bishop of Oxford spoke about the scandal of the illicit flows of funds from the developing world and the need for firm action to be taken to deal with the issue of tax havens in British Crown dependencies and overseas territories. The lack of transparency is a real problem and prevents individuals from seeing who owns what. It enables criminals to hide behind a cloak of secrecy.
I agree with the noble Lord, Lord Hodgson of Astley Abbotts, that we have to get the issues right in respect of overseas territories. It would be appreciated if the Minister could explain to the House why the Government have not sought to introduce requirements to ensure that overseas territories and Crown dependencies which come under the jurisdiction of the United Kingdom publish publicly available registers of beneficial ownership. It is a requirement here in the UK, allowing us to see who owns which company, so why not in overseas territories and Crown dependencies?
The United Nations Conference on Trade and Development recently estimated that tax havens, including those in the United Kingdom’s overseas territories, are costing developing countries at least $100 billion per year. The noble Lord, Lord Thomas, referred to this. The Minister must be aware that the British Virgin Islands was by far the most widely used tax haven in the Panama papers, as referred to by my noble friend Lord Rosser. We have the ability to change that, and we should take the opportunity that the Bill provides to do so.
With the additional challenge of Brexit, it is important that we create an economy, a business centre, that is the best in the world in which to do business legally and is attractive to inward investment but protected from the risks of criminality. I do not agree with the noble Lord, Lord Hodgson of Astley Abbotts, if he is against proper regulation. It is not about box-ticking but about preventing criminality in a proportionate manner.
I have been reading Faulty Towers, a report from Transparency International UK which looks at the impact of overseas corruption on the London property market. It makes staggering reading. £4.2 billion of property has been bought in London with suspicious wealth, as the noble Baroness, Lady Kramer, referred to. In 14 landmark developments, almost 40% of future homes were bought by those from high-corruption jurisdictions. Again, I agree with the noble Lord, Lord Faulks, in this respect.
My noble friend Lord Rooker made important points about who owned what property in some of the most expensive parts of London. The shining of sunlight on bankers, estate agents and other middlemen must happen urgently. This situation leads to, among things, a distortion of housing supply, with ordinary law-abiding citizens unable to afford a home in the capital. The noble Lord, Lord Patten, speaking about the effects of criminal activity on the purchase of property in London, made similar points.
My noble friend Lord Anderson of Swansea made important points about properties bought in London with suspicious funds and asked who should ring the alarm bells—should it be the estate agents, lawyers, accountants and the bankers? I bought the home I live in 13 years ago. My wife and I could not afford to buy it at today’s prices, and we live in a very ordinary terraced house in Lewisham. That is a problem all over London, with people who work hard, pay their taxes and play by the rules unable to afford a home in the capital.
I agree with the noble Baroness, Lady Kramer, on the need for further protection for whistleblowers. I hope that the Minister will comment on that in her response.
There are many welcome measures in the Bill. Part 1 includes a number of measures, including the creation of unexplained wealth orders, which seek to tackle criminals who claim that they have no assets and are penniless but at the same time appear to control considerable funds. This measure will require an individual or organisation to explain the origin of assets that appear to be disproportionate to their known income. It is a welcome move, as is the extension of disclosure orders to money laundering, which will require someone who has relevant information to answer questions put to them as part of an investigation.
Chapter 2 of the Bill seeks to improve the procedures around money laundering and suspicious activity reports. Allowing the National Crime Agency further time to consider such reports, along with the power to request further information, is again a welcome move. The sharing of information to identify illegal activity is vital, and ensuring that companies can share information for the purposes of preventing and detecting serious crime, with clear legal certainty, will be another important tool in the box. The noble Lord, Lord James of Blackheath, gave a number of examples of shocking practices that have taken place in the past. Such behaviour has to be condemned and stamped out, with, where necessary, people brought to justice for behaving so irresponsibly, aiding criminality and putting lives at risk.
Tax evasion is a crime. I welcome provisions in the Bill that seek to disrupt this activity and in particular to deal with the issue of a company operating a business in the UK being able to escape criminal liability because a tax loss is suffered in another country rather than the UK. This will be of particular benefit to developing countries, which are at great risk of such activity.
Additionally, I welcome the introduction of new powers in respect of forfeiture and seizure of assets. I will want to probe in Committee whether we have got the list right and whether the process to amend it by the affirmative procedure is the correct way to proceed.
The Bill also seeks to extend the powers of various officials and agencies. We will again probe in Committee whether the new measures are both proportionate and fit for purpose.
The second part of the Bill extends powers provided for in Part 1 so that they can apply to investigations in relation to terrorist assets and terrorist financing. These measures are welcome. We must always be vigilant and ensure that we have in place measures to assist the appropriate authorities in carrying out investigations into terrorist offences. I am sure that the Minister will acknowledge the sometimes grey area between money laundering offences, criminality and terrorism offences, so having powers that work across the piece is important for those engaged in the work to keep us safe.
Part 3 introduces a welcome new corporate offence of failure to prevent tax evasion, but we will want to explore in Committee what further can be done. The noble Baroness, Lady Bowles of Berkhamsted, is right that people have the right to know who owns which companies and to be clear about the chain of responsibility. Economic crime must be policed with vigour. Good companies will have proper procedures in place and those that do not will be forced to take action. The Prime Minister has committed to getting tough on irresponsible behaviour in big businesses, and that is an aim I welcome very much.
Cracking down on corporate economic crime has the potential to deliver significant savings to taxpayers and ensures that the vast majority of businesses that act responsibly and play by the rules are not put at a competitive disadvantage. It would be useful if the Minister could comment on how she sees the present balance of the corporate liability regime and whether there is not a case for reform to make it easier to prosecute those companies that commit offences.
I again confirm that I welcome the Bill. We will seek constructively to probe and challenge the measures contained in it so that we send back to the other place an even better Bill that can tackle effectively and proportionately all the issues that Members around the House want dealt with, with people protected and kept safe, which is the first duty of government.
Baroness Williams of Trafford
My Lords, I thank all noble Lords who have taken part in this Second Reading. We have had a very constructive debate and consensus across the piece that there should be general support for the Bill. Clearly, we will take a few things further in Committee—I think I know what they are.
The noble Baroness, Lady Stern, said that I must be very happy to be introducing a Bill such as this. Yes, I am. It will further enhance our ability to bring to book those who seek to engage in corruption and tax evasion and benefit from all those other proceeds of crime.
I will turn first to the Crown dependencies and overseas territories, because it is what most noble Lords have mentioned today. The Government agree about the importance of combating grand corruption. International corruption threatens the progress of many developing nations, and this country must do everything in its power to leverage our international status, and that of our financial sector, to combat it.
There is clearly still much to do, but the Crown dependencies and overseas territories with a financial centre have made significant progress on the commitments that they made in the run-up to the London anti-corruption summit last year. That summit positioned the UK as a global leader in the fight against corruption, and the Government have not changed their position. As the noble Lord, Lord Rosser, and many other noble Lords pointed out, the UK has created its own public register. We are leading the way, and we hope that others will follow. Progress is being made, and I encourage noble Lords to recognise the considerable amount of work that is going on in this area. I take this opportunity to thank my noble friends Lord Flight and Lord Faulks for outlining the progress that is going on in the Crown dependencies as we speak.
The noble Lord, Lord Rosser, asked whether we can legislate for the overseas territories and Crown dependencies. We have the power to legislate for the overseas territories and Crown dependencies, but we do so almost always with consent. Where we do not, it is on moral and human rights issues, such as homosexuality and the death penalty. However, just because we can legislate for them does not mean that we should do so when we are working with them to implement existing agreements on a consensual basis. This has already delivered significant achievements, and it is right that we continue with this approach.
Obviously, our long-term ambition remains that publicly accessible registers of beneficial ownership will become the global standard. Should this happen, we would expect all jurisdictions to meet this standard, including the overseas territories and the Crown dependencies.
Lord Watson of Invergowrie
I welcome the fact that discussions are continuing with the overseas territories, but they seem to be left entirely open-ended. In my contribution, I asked for a deadline. I do not believe that the Minister will give me one now, but there has to be some point beyond which we say to the overseas territories, “We’ve tried discussing this with you, we’ve tried to carry you with us, but if you’re not coming, then we have to take positive action”.
Baroness Williams of Trafford
I hope I can be helpful to the noble Lord. Progress is being made, but at a point at which progress is not made, we may have to take a different view. As we see it now, the overseas territories have come an awfully long way from where they were even this time last year. My noble friends have given the House an update on how much progress the Crown dependencies are making. The point is that there is progress. Were progress not to be there, I might have given a different response to the noble Lord. I hope he is satisfied thus far with what I am saying.
Lord Anderson of Swansea
Is there not the danger in the argument of a level playing field of a comprehensive public register across the board that that will never be achieved, because there will always be some countries which would hold out against it? All one can reasonably hope for is the greatest measure of agreement.
Baroness Williams of Trafford
The noble Lord is absolutely right that we will never get a global homogenous position with every country being equally compliant. We are aiming for those territories and Crown dependencies to work towards the standard to which we aspire. That is where we are at this point. I hope both noble Lords are satisfied with that.
I trust that this House, like the Commons, will recognise the constitutional settlement that we have with these territories and agree that we should look to work consensually with them rather than enforcing legislation.
The noble Lord, Lord Rosser, and my noble friend Lord Faulks made the point that there is no point in legislating if law enforcement agencies do not have the resources to deliver. I understand the concerns raised regarding law enforcement and the resources available fully to implement these new powers. I am pleased to say that £764 million has been invested in law enforcement agencies since 2006 and that more than £257 million has been invested over the past three years under the asset recovery incentivisation scheme—otherwise known as ARIS—which returns recovered assets back to the front line. These moneys are used by law enforcement for reinvestment in law enforcement capabilities or in community crime prevention schemes.
In addition, the Home Office share of ARIS is invested in front-line capabilities, including the regional organised crime units, ROCUs, which have received more than £100 million in direct funding from the Home Office since 2013-14. We reformed ARIS to boost the resources available to tackle serious and organised crime. A top slice of £5 million has been set aside every year until the end of this Parliament to fund key national asset recovery capabilities.
The noble Lord, Lord Rosser, also asked which agencies can use the powers in the Bill. The powers in the Bill can be used by a variety of law enforcement agencies, not just the NCA. The police, the Serious Fraud Office, HMRC, the Crown Prosecution Service and immigration officers will be able to use the new powers in the Bill to investigate money laundering and seize criminal assets.
My noble friend Lord Faulks asked about the effect of partial compliance with a UWO. If there is compliance or purported compliance, the rebuttable presumption that the property is recoverable does not arise. However, law enforcement has valuable information and can pursue an investigation, if relevant. If the purported compliance is false or misleading, it will be an offence.
My noble friend also asked why so few UWOs are predicted—20 per year—and why the amount expected to be recovered as a result of UWOs is so small. A number of other noble Lords alluded to this. I reassure noble Lords that the figure given in the impact assessment is a conservative estimate based on the views of operational practitioners. It is not a definitive indication of how often this power will be used. The Government are keen that these powers are used in as broad a range of cases as possible, and we are already actively engaging with law enforcement and prosecutors to encourage the use of all the new powers being introduced by the Bill. Ultimately, it will be for the enforcement authorities, which are operationally independent, to decide when and how often to use these new powers. We will carefully monitor and review the use of UWOs once they are introduced. This will inform future changes that may be needed to ensure that they are being used to their maximum effect.
My noble friend also asked what we have learned from the use of UWOs in Australia. As part of the work developing our draft legislation, we have noted with interest the experience of other jurisdictions which have existing provisions for UWOs, Australia being one of them.
The noble Lord, Lord Rosser, and other noble Lords spoke about corporate failure to prevent other economic crime and asked why the Government have not created a corporate liability offence in respect of failure to prevent economic crime. The damage caused by economic crime perpetrated on behalf of, or in the name of, companies to individuals, businesses, the wider economy and the reputation of the United Kingdom as a place to do business is a very serious matter. However, the Government believe that it would be wrong to rush into legislation in this area and that there is a need to establish whether changes to the law are justified.
On corporate criminal liability for economic crime, the Government launched a public call for evidence on 13 January—which I think one noble Lord alluded to—which is open until 24 March. This is part of a potentially two-part consultation process. It has requested and will examine evidence for and against the case for reform and seeks views on a number of possible options, such as the Bribery Act failure to prevent model. Should the response the Ministry of Justice receives justify changes to the law, a consultation on a firm proposal would follow. We are therefore not in a position to comment on the timetable for reform, should that be the way forward.
The noble Lord, Lord Rosser, made a point about SARs reform, which was mentioned during the consultation on the Bill but is distinctly lacking in the Bill. He asked whether SARs will be prioritised as major and trivial. Reform of the SARs regime is a crucial part of the Government’s Action Plan for Anti-money Laundering and Counter-terrorist Finance. We have established a programme to reform the SARs regime, working collaboratively with partners in line with commitments published in that plan. The Government are seeking improvements in the short, medium and long term, and the legislative elements in the Bill are only one element of the wider reform that is required. During the review of the SARs regime that the Home Office ran in 2015, a number of regulated-sector companies suggested that suspicious activity reports should be prioritised. We will consider this as part of the SARs reform programme.
The noble Lord, Lord Rosser, suggested that the anti-money laundering regime is confused and ineffective and asked what HMG are doing to reform the 27 supervisory bodies. The Government consulted on reforms to the anti-money laundering supervisory regime in the autumn and have considered the responses. The Treasury intends to publish the outcome of that review in the coming weeks in order to ensure the most effective possible supervision of the regulated sector.
The noble Baroness, Lady Kramer, talked about whistleblower protection.
Lord Hodgson of Astley Abbotts
My Lords, does that mean that the results of the consultation will be available in time for Committee? What was discovered as a result of that consultation will inform our debate on money laundering in a very important way.
Baroness Williams of Trafford
I can find out and let my noble friend know. I did say a matter of weeks, so we may be in luck.
Protection for whistleblowers under the Employment Rights Act 1996 means that dismissal for whistleblowing is automatically unfair. BEIS is reviewing legislative provisions around protecting whistleblowers in the workplace and will make recommendations on how we might strengthen them.
My noble friend Lord Faulks and another noble Lord referred to the Observer article about individuals using the tax on enveloped properties and asked what was to become of that. We are providing new investigate powers, including UWOs, which will make it easier for our law enforcement agencies to investigate money laundering in the London property market and recover the proceeds of crime. However, the issue will not be solved by law enforcement action alone. We need to ensure that lawyers, estate agents and other professions, as many noble Lords have mentioned, are complying with their obligations under the Money Laundering Regulations. To that end, the Treasury has launched a review of the anti-money laundering supervisory regime and will publish the findings imminently.
In addition, the Government intend to publish a call for evidence, seeking views on a new register of overseas companies that own property in the UK. We hope to do so shortly and will then introduce the relevant legislation when parliamentary time allows.
Lord Rookie—sorry, I mean the noble Lord, Lord Rooker; I do not know why I called him “rookie”—talked about the Government ensuring that the Magnitsky power will be used. The expansion of the civil recovery regime is a significant step and adds to the suite of powers available to UK law enforcement agencies, including the NCA, to combat money laundering and other serious crime. Ultimately, it will be a matter for the agencies to decide which powers are justified on a case-by-case basis, but the use of this power will be subject to the relevant safeguards in Part 5 of POCA. In particular, law enforcement agencies will need to be satisfied and have the evidence required to satisfy a court on the balance of probabilities that property in the UK is the proceeds of gross human rights abuses or violations overseas.
The noble Lord, Lord Rooker, talked about fines on banks in the UK. He raised the issue of banks in the UK not being penalised for laundering funds from overseas. I have a huge list of fines, which I will not read out today, because it would take up valuable time in responding to the noble Lord’s point, but I will send it to him and other noble Lords and place a copy in the Library.
My noble friend Lord Faulks asked about deferred prosecution agreements in the Bribery Act, and I thank him for his words on DPAs. I agree that they are a very useful tool that encourages companies to engage with law enforcement and self-report wrongdoing. It is used effectively for bribery overseas, for example, in the case of Rolls-Royce, and it will be useful in bringing new offences under Part 3.
The noble Lord, Lord Flight, asked what the Home Office is doing to improve asset recovery and said that not enough is being recovered. More assets have been recovered under this Government than ever before. In 2015-16, we recovered more than £255 million-worth of criminal assets using the POCA powers. We have delivered our 2015 manifesto commitment to return a greater share of recovered assets to the police. When performance exceeds the baseline set in 2015-16, additional receipts will be invested in the regional asset recovery teams, which I think is the right way. The 50% share of recovered moneys that are already invested, including in local police forces, will be unaffected.
The right reverend Prelate the Bishop of Oxford talked about the large proportion of African wealth invested in tax havens. The UK is working precisely on that to bring corrupt leaders to justice and recover the assets that they have stolen, quite often from their own people, as the right reverend Prelate said.
In 2014-15, DfID’s gross losses to fraud and corruption were approximately £2.3 million, recoveries were £1.5 million and the net loss was therefore £750,000, which is a recovery rate of 67%.
The noble Lord, Lord Rooker, asked about procurement, particularly in the public sector. HMG are acutely aware of the risks that central and local government face, and that is why procurement is one of the priorities in the forthcoming anti-corruption strategy. He and other noble Lords have praised my right honourable friend in the other place, Sir Eric Pickles, and I join them in that praise.
The noble Lord, Lord Flight, and other noble Lords made a point about domestic PEPs. According to the Financial Action Task Force and EU law, politically exposed persons must be subject to some sort of enhanced due diligence in recognition of their influence, their authority and their prominence in public life. Our view is that banks should take a proportionate and sensible approach to know-your-customer measures for Members of Parliament, Peers and other UK PEPs. I fully accept, because I have heard various anecdotal evidence, that perhaps this is not being consistently applied across the piece.
I hope noble Lords will indulge me for one more minute, because I have quite a few things to get through. The noble Baroness, Lady Whitaker, asked when UWOs will take effect and when the code of practice will be available. At the earliest opportunity is the answer to that.
The noble Baroness, Lady Bowles, made a very good point about company director disqualification. Where a director is convicted, they can be disqualified as part of their sentence. Where a company is convicted of a Part 3 offence and the director is not party to that, fairness requires a separate hearing of application to disqualify. Where a director of a corporation is implicated in wrongdoing, they can be subject to prosecution. If their actions amount to criminality or facilitating tax evasion where their actions fall short of being criminal, investigators can already investigate whether they are fit and proper to continue to hold the position of a company director and report their findings to the Secretary of State.
I realise that I am well over my time and will have to write to noble Lords, as I still have a wad of answers here. I finish by again thanking noble Lords for what has been a very enjoyable debate.
Criminal Finances Bill
Tuesday 28th March 2017
(7 years, 1 month ago)
Lords ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 104-I Marshalled list for Committee (PDF, 179KB) - (24 Mar 2017)
Lord Hodgson of Astley Abbotts (Con)
My Lords, this is a modest amendment that is grouped with around 58 other amendments which deal with unexplained wealth orders, a new form of legislation in this country. Those 58 other amendments have been proposed by a bevy of talent, including several by my noble friend on the Front Bench, so after a few introductory remarks I propose to focus on the narrow issue which is the subject of my particular amendment. Before doing so, I should remind the Committee of my interests as declared in the register. I understand that it is now no longer approved procedure just to make a general reference and that we are supposed to be more specific. I should also remind the Committee that, while I am no longer an authorised person under financial services legislation, I remain the chairman of two companies that provide services to the financial industry.
At Second Reading I said that I strongly support the direction of travel of this Bill. I am well aware of the impact and the deleterious effect of the worm of corruption on society as a whole. However, I pointed out then and I point out now, as we begin Committee, that new regulation is by no means always the answer. Better use of existing regulation may well be equally effective, as encouraging and rewarding better behaviour to create the right climate may be. We need sticks but we also need carrots. The most important carrot is that people believe that what they are being asked to do is proportionate, fair and worth while, and that the information they are being asked to provide will be used and used effectively.
That should not be taken as my being in any way lukewarm about what we are discussing in the Bill and its purpose, but I shall want to be reassured now and as we go through Committee on three things: that the new powers being sought are required and required in the form it is proposed they should take; that those powers will be used, will be used effectively and will not sit on the shelf; and that they are likely to have a proper impact on the reduction of financial criminal activity.
With those introductory remarks, I turn to my amendment. As I said, this first part of the Bill is concerned with the introduction of an entirely new power for the authorities to obtain a court order to investigate what is called in the Bill “unexplained wealth”. I am no lawyer, but that seems a fairly broadly drafted phrase capable of quite a varying range of interpretations. I accept, however, that such broad phrasing may be necessary to cover the many forms that criminal financial activity may take, but equally, when I read that the provision will involve a reversal of the burden of proof—that is, under an unexplained wealth order I will have to explain why I should have this wealth, rather than the authorities explain why I should not—I wonder whether the right balance has been struck in the drafting.
In particular, in the group of amendments that we shall discuss, government Amendment 8 in the name of my noble friend on the Front Bench proposes to reduce the amount above which an unexplained wealth order may be sought from £100,000 to £50,000. If the Committee was minded to accept this amendment, quite small sums and probably quite legally unsophisticated individuals may be swept up in the new regime. It could be argued that such people need and deserve a higher level of judicial protection. With my amendment I seek to redress and improve the balance by imposing an additional duty on the court in the case of unexplained wealth orders. Clause 1 requires the court, under new Section 362A(1) merely to be,
“satisfied that each of the requirements for the making of the order is fulfilled”.
My amendment would raise the evidential bar a little by requiring the court not merely to be “satisfied”, but to be satisfied “beyond reasonable doubt” by inserting those three words in line 13 of page 1.
In summary, I argue that, if the authorities want the burden of proof reversed, the citizen is entitled to a high degree of protection from the court against possibly vexatious activities by regulators. My noble friend on the Front Bench may argue that government Amendment 6 would achieve the same purpose. Again, I am no lawyer, but the Government’s phrase,
“there is reasonable cause to believe”,
seems a good deal weaker than my phrase in Amendment 1, “beyond reasonable doubt”. I will await reaction from other Members of the Committee who have more legal experience than me as to whether my fears are justified or groundless. My noble friend may also argue that I should have tabled a similar amendment to deal with Scottish unexplained wealth orders under Clause 4. She would be absolutely right but my response is that, for today at least, this is a probing amendment to enable a broad discussion on the point to take place.
Other noble Lords will no doubt wish to discuss the practicalities of how the UWOs will work and whether the target category of politically exposed persons will be able to be dealt with effectively because of personal and functional immunity—we have had quite a lot of briefing on these matters. My amendment is about trying to achieve the right balance.
Before I sit down, I want to ask my noble friend one last question. It is about legal privilege and client confidentiality under the new unexplained wealth order legislation. As I understand it—again, I say that I am no lawyer—legal privilege does not exclude a legal adviser from the provisions of the suspicious activity, or SAR, regime. If a legal adviser becomes aware as a result of discussions or communications with his or her client that activities that would be capable of being caught by the SAR regime are occurring, they are obliged to report them and to do so without informing their client—indeed, informing their client would be an offence. Can my noble friend in due course make clear what the position is on a legal adviser whose client becomes the subject of a UWO? Is the construction of legal privilege changed in any way? I do not think that unexplained wealth orders or the suspicious activity regime will necessarily walk hand in hand. I beg to move.
Lord Davies of Stamford (Lab)
My Lords, the noble Lord has said that his amendment is merely probing. Clearly, the purpose of a probing amendment is above all directed at trying to influence the Government, but the other purpose is to see whether anyone else in the Committee rather agrees with the line of it, which may also be useful information for Ministers when they are taking final decisions on what the shape of the Bill should be.
The noble Lord made a very good case. We all know that legislation of this kind is essentially a matter of balance. On the one hand, we are imposing on people constraints and breaches of privacy and liberty. We are also imposing on them costs, because it is likely that to be able to respond to orders such as these they will have to pay accountants to do work. As the noble Lord said, we may be talking about amounts of wealth that are a substantial portion of the portfolio of the individual citizen being investigated. To respond to the investigation, the individual may need to spend significant amounts of money on accountancy or other professional advice. We should be very careful and aware of the costs of doing such things. We should also be aware that there is always a temptation for an authority, if it has a power, to use it and say, “There’s no downside. Let’s just put in a request to the High Court to have one of these investigations”. The noble Lord is therefore right to emphasise the need to protect the citizen to make it absolutely clear that an authority before making such a request, or a court before acceding to it, must be really convinced that there is a case for doing something quite exceptional—the state asking an individual to declare his or her private affairs. I therefore agree with the sense of the noble Lord’s amendment and I hope the Government take it seriously.
Lord Faulks (Con)
My Lords, my name is on a number of amendments. I wonder whether the noble Lord will allow me to expand on them a little.
My noble friend Lord Hodgson suggests in his amendment that the High Court should be satisfied beyond reasonable doubt in relation to the requirements before making an unexplained wealth order. For reasons that I will come to, I do not support the amendment, but I think my noble friend seeks to provoke, understandably, a debate about the scope of UWOs and to understand how the Government intend to use them and what sort of evidence the agencies will obtain before seeking one.
The Government are absolutely right to bring forward these provisions in relation to unexplained wealth. Indeed, it is an exciting and significant new development. There is a precedent, provided principally by Ireland and Australia. I had the opportunity to read an extremely lengthy worldwide overview of the use of these orders, The Comparative Evaluation of UWOs by Booz Allen Hamilton, and a useful selection of essays from the White Collar Crime Centre dated January 2017 and edited by Jonathan Fisher QC of Bright Line Law Services Ltd. The main questions appear to be: who can UWOs be appropriately aimed at; how effective will they be; and, are there adequate safeguards? The other way of putting the last question is: do they have the potential to be unfair?
Baroness Hamwee (LD)
My Lords, I was instinctively drawn to the amendment tabled by the noble Lord, Lord Hodgson of Astley Abbotts. However, for many of the reasons that the noble Lord, Lord Faulks, gave, and because this is a preventive provision, after thinking about it for a little while on Sunday, and rather to my surprise, I put a tick next to the Government’s amendment which states,
“that there is reasonable cause to believe”—
even though, like the noble Lord, I read that as reducing the threshold.
Our amendment to raise the threshold to £500,000 was tabled not in response to the proposal to lower it to £50,000 but because I wanted to explore whether £100,000 or £50,000 was the right amount. In this context, £50,000 is a pretty small amount, so I hope the Minister will share with the Committee the evidence behind the proposal to reduce the figure from £100,000 to £50,000. In evidence to the Public Bill Committee, the gloriously entitled prosperity director of the NCA, when asked about the amount, said that that was a reasonable value. The officer from the counterterrorism unit of the Met said that it was reasonable,
“when we are dealing with a higher end”.—[Official Report, Commons, Criminal Finances Bill Committee 15/11/16; col. 8.]
UWOs are not included in Part 2, where smaller amounts would be more relevant. In the debate concerning the amount, the Minister said that the Government,
“will be going for people worth £20 million, £30 million or £40 million and all the way down”.—[Official Report, Commons, Criminal Finances Bill Committee 17/11/16; col. 87.]
That was in response to an amendment to reduce the amount to £50,000. He said that £100,000 would catch serious criminals. The amendment in question arose from the value of property in Scotland, but the comments are still relevant.
Our concern is quite simply that if the amount is low the agencies might be tempted to go for the low-hanging fruit and fail to pursue those who commit grand corruption. It is a matter of human nature to do that. Although there is no direct read-over, the application of POCA has not been an entirely successful experience. I know that having a lower limit will not restrict going for the higher amounts, but practice and theory may not be the same thing.
We will come later to registers of beneficial ownership, both domestic and for the overseas territories, but I wonder whether UWOs can be administered effectively without a register of beneficial ownership.
We have other amendments in this group, some of which simply repeat the first amendment at different points in the Bill. Amendment 26 is the same as Amendment 54. It would change “must” to “may”—it is usually the other way round in this House, is it not? This is intended to probe why we would be restricted to the same proceedings in the paragraph that I would amend. In this context, does “same proceedings” mean the same case but allow for separate hearings? That would be sensible so that there can be a later application for a freezing order without starting new proceedings.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, in common with the noble Lord, Lord Faulks, I too oppose Amendment 1. These unexplained wealth orders, in my submission, are to be welcomed and we must do nothing to dampen them at their outset. However, to put the criminal burden of proof into the very first provision would, I suggest, do just that. This provision surely should be based on the balance of probabilities.
Government Amendment 6 will introduce into new Section 362B(2) being inserted by the Bill, as the test of satisfaction,
“that there is reasonable cause to believe”.
Your Lordships will notice that new subsection (3) sets out a different test, that of being,
“satisfied that there are reasonable grounds for suspecting that the known sources of the … lawfully obtained income would have been insufficient”,
while new subsection 4(b) says there should be,
“reasonable grounds for suspecting that … the respondent is, or has been, involved in serious crime”,
and so forth. To “suspect” something is merely to suspect that it may be the case; to “believe” something is to believe that it is the case. These tests therefore differ. I do not know, but perhaps the one under new subsection (3) could be tightened. Rather than trying to introduce the criminal burden in the first provision, those who would like to make these orders more difficult might at least want to consider whether “reasonable grounds for suspecting” should be uplifted to the requirement the Government are introducing in amended new subsection (2): that there is “reasonable cause to believe”. For my part, I would introduce as the first provision a balance of probability test and leave the others essentially where they stand.
My only further thought is that if the House—to my mind, unwisely—were to raise the threshold remotely as high as the amendment in the name of the noble Baroness, Lady Hamwee, suggests, you would want the lowest test to be enshrined in the Bill; whereas with a lower sum in question, you might want a correspondingly higher test. Those are thoughts, because this, after all, is at an early stage and these are essentially probing amendments.
Lord Blair of Boughton
I am glad that I did not interrupt the noble Lord, Lord Faulks, because he and the noble and learned Lord, Lord Brown, approach this matter from long knowledge of the law. I would like to consider the amendment of the noble Lord, Lord Hodgson, in relation to the investigative process. UWOs are effectively a search warrant. That is the test, and that is not beyond reasonable doubt. You have a search warrant because you think something might be happening. When you have executed the search warrant, you know whether it has happened or not and at that point, you might charge someone with a criminal offence, for which the test would be “beyond reasonable doubt”. From an investigative point of view, that amendment would put at the front of the operation a test which is almost impossible to pass unless you issue the order and effectively use a search warrant on the individual’s bank balances.
Lord Phillips of Worth Matravers (CB)
My Lords, I speak in harmony with the previous two speakers. I have some experience of this area, having wrestled in a judicial capacity with more than one appeal in relation to the Proceeds of Crime Act, and I have also recently taken the chair of the board which supervises more draconian legislation than the Bill for the confiscation of unexplained wealth in Mauritius. These unexplained wealth orders are designed to deal with the very real difficulty of proving facts which are likely to be in the exclusive knowledge of the holder of wealth. It would be simply contrary to the policy to impose the criminal rather than the civil burden of proof in respect of matters such as the value of property in which a person has an interest or the very question of whether he has an interest in that property at all.
Lord Sharkey (LD)
My Lords, I will speak to Amendments 10, 13, 20 and 22 to 25 in this group, all of which are probing amendments. Amendment 10 modifies subsection (4) of the newly inserted Section 362B of the Proceeds of Crime Act 2002. The subsection sets out one of the three conditions that must be satisfied before an unexplained wealth order may be made:
“The High Court must be satisfied that … the respondent is a politically exposed person, or …there are reasonable grounds for suspecting that … the respondent is, or has been (whether in a part of the United Kingdom or elsewhere), or … a person connected with the respondent is, or has been, so involved”.
As I read it, it means that simply being a politically exposed person satisfies the condition. That is enough for the High Court: it does not need,
“the reasonable grounds for suspecting involvement in serious crime”,
to be satisfied as well. That seems unnecessarily and dangerously broad.
It is probably unnecessary to remind the Committee that we are all PEPs. So are our families and our close associates. As the Government have made clear, and as the FCA is about to say in guidelines, most Back-Benchers, their families and associates should not require additional due diligence. Given that, we or our equivalents abroad should not be exposed to a harsher, more extensive and more intrusive regime. By replacing “or” with “and”, and by qualifying the definition of PEPs by inserting,
“who merits additional due diligence according to Financial Conduct Authority guidelines”,
my amendment removes this harsh, special treatment of non-EEA PEPs. For the condition to be fulfilled, the amendment requires that the PEPs are not ordinary PEPs but merit this additional due diligence and that there should be reasonable grounds for suspecting involvement in serious crime.
Amendment 13 removes the exemption of UK and EEA PEPs from the conditions in subsection (4) of new Section 362B, in order to give the Minister the opportunity to explain why UK and EEA PEPs should not be treated exactly as all other PEPs.
Amendment 20 gives the Minister an opportunity to clear up an apparent anomaly. On page 5, subsection (2)(b) of the newly inserted Section 362E sets out the penalty for failure to respond properly to an unexplained wealth order. For summary conviction in England and Wales—and later, we see, in Scotland too—the penalty is imprisonment for a term not exceeding 12 months, or a fine, or both. However, on the very next page, in subsection (2)(c), the penalty on summary conviction in Northern Ireland for exactly the same offence is set at imprisonment for a term not exceeding six months, or a fine, or both. So in England and Wales and Scotland, you can go to prison for up to 12 months, but in Northern Ireland it is up to six months. Why? I would be grateful if the Minister could explain.
Lord Faulks
Before the noble Lord goes on to the next amendments, could he help the Committee with one point? He points to the position of PEPs and describes the potential vulnerability that quite ordinary people might have to these orders, but does he not think that subsection (3) of new Section 362B is a sufficient protection? It provides that the High Court,
“must be satisfied that there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property”.
That provides a hurdle that has to be surmounted, as well as establishing that someone is a PEP.
Lord Sharkey
If it were absolutely clear that you cannot obtain an unexplained wealth order without satisfying that condition, I would be happy, but I am not entirely sure that it is, and I would welcome the Minister’s confirmation that the noble Lord is correct.
Amendments 22 to 25 will allow the Minister to point out—if other noble Lords do not do so beforehand—where I have entirely missed the point. They refer to page 7 and subsections (2), (3) and (4) of new Section 362H. These subsections allow rules of court to provide for the practice and procedure to be followed relating to unexplained wealth orders before the High Court in Northern Ireland. There are similar but not identical subsections later in the Bill dealing with the same matter in Scotland. However, the Bill seems to be silent on how these matters are to be dealt with in the English and Welsh courts. I am sure I have missed something obvious here and would be grateful for enlightenment from the Minister.
There is another apparent anomaly in the sections dealing with the variation or discharge of an unexplained wealth order. I notice that the provision in Scotland is significantly different from that in Northern Ireland. On page 18, line 43, to line 1 on page 19, the Bill allows applications for variation or discharge to be made by “Scottish Ministers” or by,
“any person affected by the order”.
That is not the case for Northern Ireland, where application can be made only by the enforcement authorities or the respondent. Why is there this difference between Scotland and Northern Ireland? My Amendment 24 makes the process in Northern Ireland the same as in Scotland but, again, what about England and Wales? I look to the Minister to put me right on all this.
Lord Leigh of Hurley (Con)
My Lords, I welcome the legislation on UWOs. I have a number of declarations of interest, and I own residential and commercial property in the UK. I do not think that I have any unexplained wealth, but I have some experience—admittedly, some 30 years ago—of working as a tax adviser. It was quite common in those days for the Inland Revenue, as it was then, to demand explanations of what it thought was unexplained wealth from various taxpayers. That was quite common practice, so the concept of the state seeking an explanation of wealth is not new in practice.
We have a situation where, certainly in central London, a shocking number of multimillion pound properties lie dormant and are owned by overseas parties. To the extent that this goes some way to change that situation, it must be very welcome. It would also be quite welcome if the Government were to take a more holistic approach, perhaps using this Bill to address that problem as well as considering other solutions, outwith this legislation, including penal rates for dormant properties owned by overseas people. None the less, the UWOs are likely to make a significant change in helping our law enforcement agencies to investigate money laundering in the London property market and, in particular, recovering proceeds of crime.
Lord Kennedy of Southwark (Lab)
My Lords, the Bill was welcomed by all sides of the House at Second Reading. Unexplained wealth orders are a device to give law enforcement agencies powers to require a person suspected of involvement in or association with serious criminality to explain the origin or source of assets which appear disproportionate to their income.
Amendment 1, in the name of the noble Lord, Lord Hodgson of Astley Abbotts, seeks to insert the words, “beyond reasonable doubt” after the word “satisfied”, when requiring a person to comply with an order. This raises an important point, but I am not convinced that introducing this higher test is needed here. It would make it more difficult for law enforcement agencies to get permission to seek the source of the wealth which has led them to suspect that the person’s lawfully obtained income would be insufficient for the purposes of obtaining their assets. I agree with the remarks made about this amendment by the noble Lord, Lord Faulks, who said that the higher evidential test would not be welcome in this regard. I also agree with the comments made by the noble and learned Lords, Lord Brown of Eaton-under-Heywood and Lord Phillips. I also agree with the comments by the noble Lord, Lord Blair of Boughton, on the investigatory role—the test and procedure would be difficult there as well.
Amendments 2 and 7, in the name of the noble Lord, Lord Faulks, give a better definition in relation to a person’s connection to a property, and the Government should reflect carefully on this during the passage of the Bill and possibly bring an amendment forward on Report.
Amendment 5, also in the name of the noble Lord, Lord Faulks, would provide an additional power to require a person to answer questions under oath. Again, that seems a reasonable additional power to take, which could be used at the discretion of the court. I very much take the point that the noble Lord made about the William Hill defence in terms of how one acquires assets and wealth. We need to look at that important point.
On Amendments 8 and 9, I thought that the £100,000 value in respect of a property was about right, that the £50,000 figure proposed by the noble Baroness, Lady Williams of Trafford, was too low, and that the figure proposed by the noble Baroness, Lady Hamwee, was far too high. However, having sought advice from law enforcement agencies, I understand the motivation behind the amendment of the noble Baroness, Lady Williams of Trafford, and I am content that the figure she proposes may well be right.
There is a whole series of government amendments in this group which I am content with, as they seek to prevent a person subject to one of these orders seeking to circumvent it through complicated financial means and transactions.
This has been a very useful debate, with some well-informed contributions that posed a number of questions for the noble Baroness. I am sure that she will reflect on those as we may want to come back to some of those points on Report.
The noble Lord, Lord Leigh of Hurley, made important points about property and the problems associated with it. I think that we shall debate an amendment in the name of the noble Lord, Lord Faulks, in the next group which concerns property.
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, I thank all noble Lords who have taken part in this excellent debate. We have had some very good contributions from noble Lords from around the Committee on the significant new powers of the unexplained wealth order. I will do my best to respond to all the points that were made. I apologise in advance if I take some time to do so.
As noble Lords will know, the measures in this Bill are largely focused on serious and organised crime, but it also provides important new powers to tackle terrorist financing. Last week’s horrific attack reminds us all of the very real nature of this threat. I would like to take a moment to pause and think about the families of those who have been killed and those who still lie injured in hospital. I again pay tribute to the men and women of the police and other law enforcement and intelligence agencies who are so committed to keeping us safe—to PC Keith Palmer, but also to his many colleagues who work in Parliament and across the country. We must ensure that they have the powers they need to investigate and disrupt terrorists and terrorist groups. The powers in Part 2 of the Bill, which we will come to later, will do just that.
I return to the amendments in this group on unexplained wealth orders—or UWOs. The UK is a world leader in the fight against global corruption and the UWO is a substantial new power that will assist UK law enforcement agencies to do so. I welcome the continued cross-party support for these measures. I remind noble Lords that a UWO is a court order that requires a person to provide information which shows that they obtained identified property legitimately. If the person provides information in response to a UWO, the enforcement authority can then decide whether to investigate further, take recovery action under POCA or, if they are satisfied, take no further action. If the person does not comply with a UWO, either by not responding or not responding fully to the terms of the order, the property identified in the order is presumed to be recoverable under any subsequent civil recovery proceedings.
There are a number of government amendments in this group and I turn to them first. These are, by and large, technical changes to the provisions to help them function most effectively, but I will highlight a few for the benefit of noble Lords. As regards trusts, we have tabled government Amendments 3, 4, 6, 12, 14, 15, 17, 19, 21, 30 to 32, 36, 38 to 40, 52, 53, 174 and 175. Perhaps the biggest addition to the provisions made by the government amendments are the measures to ensure that a UWO can be served in situations where property of interest is held in trust or involves corporate structures. This, I believe, picks up some of the concerns raised by my noble friend Lord Faulks. The amendments will also allow subsequent UWOs to be obtained on additional individuals such as trustees in complex cases where this is necessary. The amendments are not a silver bullet in cases where trusts and corporate entities are involved. However, they are a significant improvement and will close a potential gap.
UWO thresholds are addressed by government Amendments 8 and 33, which would reduce the threshold for a UWO to be obtained from £100,000 to £50,000. Noble Lords rightly questioned how we settled on the balance. It followed representations from authorities in Scotland—including from the SNP during Commons consideration of the Bill—and Northern Ireland. It reflects the fact that the higher threshold could disadvantage law enforcement agencies in certain parts of the country where financial returns may not be as high or may be spread more evenly across criminal groups, and where property, in particular, has a lower value.
The threshold, however, is still an important safeguard, together with the other qualifying criteria that must be met before a UWO can be made by the court. It remains our view that the orders should be used in the most complex cases, where obtaining evidence has proved difficult, and this will be reflected in the supporting guidance.
The noble Baroness, Lady Hamwee, tabled a related amendment to push the threshold up rather than down. She helped us to reflect on the balance that must be struck in circumscribing the new power. However, based on our consultation with law enforcement agencies, I suggest that her proposed threshold of £500,000 would be prohibitive. It would stop the agencies using this power in significant cases involving serious and organised crime, and noble Lords have been clear that they want to see the most effective use of UWOs. I hope that the noble Baroness will be satisfied that our approach strikes the appropriate balance.
Baroness Hamwee
I could repeat my question about the temptation to get at the low-hanging fruit and not use the orders to deal with grand corruption, as I understand it.
Baroness Williams of Trafford
The noble Baroness is right that both ends of the scale should be tackled, so I hope that law enforcement agencies will use the orders in a proportionate way to tackle criminal activity at both ends of the scale. I hope that that will satisfy the noble Baroness. She looks satisfied.
Lord Faulks
When questions were raised at Second Reading about the scope of the orders and how many might be issued, I referred to an assessment that was provided—with some difficulty—by the Government that only about 20 might be sought during the year. The Minister understandably said that that was only an estimate, based on general experience of civil recovery. However, does it not indicate that, rather than grasping low-hanging fruit, if anything this will be considerably resource-heavy and will probably be directed only at cases where the amount of wealth is significant enough to make the expenditure of time and money worth while?
Baroness Williams of Trafford
My noble friend and the noble Baroness have made the case for both ends of the threshold. My noble friend talked about resources generally. One thing that came from the law enforcement agencies was that the issue was not resources but the tools to be able to tackle criminals. Also, law enforcement agencies do benefit from a proportion of the money recovered, so they are incentivised at both ends of the scale—and it will be up to legislators in this House and the other place to decide on the right balance to strike. But that was our rationale for the lower amount—and I know that the Government originally suggested £100,000.
The point about compensation is covered in government Amendments 28 and 56, and Amendments 29 and 57, in the name of the noble Baroness, Lady Hamwee. Amendments 28 and 56 introduce a compensation scheme in relation to the interim freezing orders that can support a UWO. Other powers to freeze property in POCA have connected compensation provisions. It is absolutely right that a person who has genuinely suffered a loss should have the ability to seek compensation where there has been serious default on the part of the enforcement agency. The “serious default” test is already used in POCA and is applicable here too. I hope that on that basis, the noble Baroness will agree that her amendments probably are superfluous in this instance.
Lord Thomas of Gresford (LD)
In support of my noble friend, the experience of POCA has been that the amount recovered has been very little more than the cost, so that the question of resources is very germane. In practice, both sides are anxious to come to an agreement early on to avoid the expense of a lengthy hearing, never mind the lengthy investigation. Therefore, setting the level at a high point is a very sensible thing to do and will ensure that resources are properly used.
Baroness Williams of Trafford
Is the noble Lord talking about the high point with regard to the UWO triggering point? The Government have considered all options; they have suggested £100,000. The point was made that £50,000 was more appropriate, particularly in some of the devolved Administration areas, where property prices are generally lower, and the noble Baroness, Lady Hamwee, has made an argument for setting the bar higher. However, my noble friend also made the point that by setting the bar lower we might end up having more success, reaching not only the low-hanging fruit but the high-hanging fruit as well. I therefore hope that the noble Lord accepts that explanation. It is an objective consideration, but there are obviously many views about where the threshold should be set.
On Amendments 2, 5, 7, 16 and 18, tabled by my noble friend Lord Faulks, Amendments 2 and 7 seek to replace the term “holds” with “has a financial interest in” as the test for the High Court to consider. It is only fair that in serving a UWO the respondent must have some direct connection with the property that is of interest. “Holds” is a well-established concept in civil law, including in the Proceeds of Crime Act 2002, and we believe that requiring a person to “hold” property is a proportionate approach. It is also our view that “holding” property includes holding an interest in that property. I hope that noble Lords are reassured by that assessment.
Lord Faulks
I am sorry to interrupt the Minister. I thought that the answer to this point was provided by the Government’s Amendment 21, therefore there is no need to refer to the provisions of POCA, because there is an internal reference to what “holding” means.
Baroness Williams of Trafford
That is correct, but I thought I might go through it. I am just being thorough.
Amendment 5 seeks to add the ability to interview a person “under oath” as a possible requirement of a UWO. It would already be a criminal offence for the respondent to knowingly or recklessly provide false or misleading information. We must also remember that this is only an investigative power; if the case leads to criminal proceedings, it would be subject to the usual rules of giving evidence and allow for interviews “under caution”.
Amendments 16 and 18 address the issue of “purported compliance”. If a person does not comply with a UWO, their property is presumed to be recoverable under civil recovery proceedings. Given the severe consequences of not complying, it is right that this rebuttable presumption should not apply to a person who purports to provide a response. This avoids any legal ambiguity as to when the presumption will apply. However, where that individual provides responses that do not satisfy the enforcement agency, he or she then runs the risk that the poor quality of the responses will encourage the agency to take further action, and in those circumstances the burden of proof switches back to law enforcement, as is normal.
Purported compliance applies to a scenario where all the requirements of a UWO have been met but where the response is less than satisfactory. The agency is able to tailor the request for information very specifically, so will have some control over this. We do not want to get into arguments before the courts as to whether the presumption should apply and whether the individual has complied.
Finally, the UWO provisions will allow the enforcement authority to make very specific requests for information, reducing the risk of a low-value response being provided. I hope that my noble friend will feel that this addresses the point he has so expertly raised. He also raised a point about gambling. With regard to the Ladbrokes test or the William Hill defence, we would expect a high level of evidence to prove that, and we would expect it to meet the requirements of the UWO. The UWO will have achieved its purpose by flushing out information.
My noble friend also asked whether we would publish the code of practice before Report. The answer is yes. I undertook to discuss publication of the update to the relevant code of practice with my officials and ministerial colleagues, and it is my intention that the draft code will be available to noble Lords prior to Report.
I now turn to Amendment 1, moved by my noble friend Lord Hodgson of Astley Abbotts. This would require the High Court to be satisfied “beyond reasonable doubt” with regard to each of the requirements before issuing a UWO. This is an investigative power, as the noble Lord, Lord Blair, said, so the test of “reasonable suspicion” is quite normal and consistent with existing law, including Part 8 of POCA. The balance of probabilities applies here, as the noble Lord, Lord Blair, and my noble friend Lord Faulks said, and I hope that my noble friend will agree that it would not be appropriate to impose a criminal law standard in such cases.
My noble friend Lord Hodgson asked about the reversal of the burden of proof. We accept that there is a reversal of the burden of proof but it is in very specific and narrow circumstances. There has to be a link to a PEP or a serious criminal. This is a proportionate use of operational need. As an investigation power, there is the opportunity to address this issue in any subsequent proceedings. As my noble friend said, Transparency International has approved this approach.
My noble friend also asked about the use of legal advisers if a client is subject to a UWO, but we do not consider that an amendment is required to the laws on legal privilege. The lawyer role is unchanged, and the lawyer has the same responsibility to file a SAR if he has a relevant suspicion. It will be a question of the facts in each case.
I now turn to Amendments 10, 13, 20, 22, 23, 24, 25, 35 and 37, tabled by the noble Lord, Lord Sharkey. I think that these broadly separate out into two topics: first, the application of UWOs to PEPs, and, secondly, the court process in Northern Ireland. UWOs can be made either where there is suspicion of involvement in serious crime or in relation to non-EEA politically exposed persons. In that sense, I want to make it clear that politicians and senior officials in the UK and the EEA are covered by the first element of this power where they are suspected of being involved in serious criminality.
The reason for the second limb is to plug a gap experienced by law enforcement agencies when they investigate politically exposed persons. The issue arises in cases where critical evidence is available only in the PEP’s home country, which lacks the capabilities necessary to gather it itself. Conversely, in relation to UK PEPs and those across the European Economic Area, if the evidence exists it will be obtainable, so the same issues do not arise. There is no gap in these cases. That means it should be possible to evidence suspicion of involvement in serious crime.
On the noble Lord’s point about the FCA guidelines, these relate to the regulatory obligations of banks and other institutions. UWOs are not to do with the regulatory burden and responsibilities of the financial industry, so reference to the FCA is not strictly relevant here.
On increasing the sentence on summary conviction in Northern Ireland to 12 months, the current provisions reflect the approach taken to sentencing for other “either way” offences in the Bill, and which also correspond to offences in POCA already. The 12-month point for England and Wales arises from an amendment to the approach to sentencing in the magistrates’ courts which derives from Sections 281 and 282 of the Criminal Justice Act 2003. Those amendments did not extend to Northern Ireland. In relation to the ability to make rules of court and other procedures in the High Court, including the variation or discharge of a UWO, specific provisions are not required in the Bill for England and Wales. However, express provision is required for the High Court in Northern Ireland to put them on the same footing.
The noble Lord also asked about Scotland. There is a constitutional division of powers between Scottish Ministers and the Lord Advocate, which is obviously specific to Scotland. We need to be certain that there is an ability of the Scottish Minister to disclose information onwards. The provisions presume that if a response is made to a UWO, this information could be disclosed onwards for consideration of a criminal investigation and/or prosecution. Therefore, in the Scottish context, Scottish Ministers apply for UWOs so that they will receive any information in response to such. If they consider that this information suggests that a criminal investigation and proceeding may be appropriate, they would need to refer the material to the Lord Advocate. The amendments provide that Scottish Ministers can disclose the information to the Lord Advocate for this very purpose. They also make certain that there is no suggestion that Scottish Ministers are tasking the Lord Advocate, merely that the material can be referred for independent consideration by the Lord Advocate. That is important due to the constitutional structure in Scotland.
Amendment 24 provides for any person affected by a UWO to apply for its variation or discharge, and not just the applicant and respondent. As a specifically focused investigation order, only the applicant and respondent are directly affected by the UWO. This is because the UWO requires the respondent to provide information, but does not itself affect any other interests in the property.
Finally, we reach the other amendments from the noble Baroness, Lady Hamwee. Amendments 26 and 54 would provide that the application to freeze property need not be made at the same time as the application for a UWO. It is right that all matters relating to the person and property should be dealt with in one hearing. This also gives certainty to the respondent. Should the enforcement agency wish to freeze the property at any other time, it will be able to do so under the main freezing order provisions in POCA, provided that the relevant test can be met.
With reference to UWOs, the noble Baroness asked about the need for the ownership register. Open source material that already exists can be of assistance; for example, the Land Registry, public accounts and records at Companies House. Other countries may already have public registers of ownership and income. In these circumstances, our law enforcement agencies would have access to them. We should also note that the UK has public registers of beneficial ownership.
I turn finally to the point raised by the noble and learned Lord, Lord Brown of Eaton-under-Heywood. He talked about altering the threshold but still having the safeguards. On the threshold, it must be remembered that the High Court has to be satisfied that there is still a link to serious crime or that someone is a PEP. That is a significant test. It focuses the use of the power in relation to the amount, and that is dropped by our amendments. The court has to show not only the value of the property but that the respondent does not have any obvious legitimate income.
Baroness Hamwee
My Lords, on that last point, I was not clear whether the Minister was saying that defendants’ living expenses were covered or not. I would be happy to discuss that with her after today. I raised it because I was aware that they are specifically referred to in other legislation.
Baroness Williams of Trafford
The noble Baroness is right: they are provided for because they are in line with existing powers in POCA.
Baroness Hamwee
The Minister said that it would be right to have everything dealt with in the same hearing. I questioned whether “proceedings” meant “hearing” because to me they are not the same thing. Did the Minister say “hearing”? That might require a tweak.
Lord Hodgson of Astley Abbotts
My Lords, we began with my modest amendment an hour and 40 minutes ago, and we have obviously ranged pretty widely. That is not surprising with nearly 60 amendments in this group. I asked in my opening remarks for reassurance that the government amendment,
“that there is reasonable cause to believe”,
provided adequate protection and we did not need “beyond reasonable doubt”. I asked for more experienced legal expertise than I have to provide me with that reassurance. I got not one but two noble and learned Lords to provide that in the shape of the noble and learned Lords, Lord Brown of Eaton-under-Heywood and Lord Phillips of Worth Matravers, for which I am very grateful.
I was slightly surprised that the noble Lord, Lord Blair, was dismissive of what I put in my amendment but will, I imagine, accept government Amendment 6, which provides a slightly lower level of inhibition to police activity, but that is as it may be. I was grateful to my noble friend on the Front Bench for her reassurance that there was no change to the issue of legal privilege. I beg leave to withdraw the amendment.
“(c) where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and(d) setting out such other information in connection with the property as may be so specified.”
Lord Faulks
“(c) the respondent has a financial interest in land or property in England and Wales which is registered in the name of an overseas company.”
Lord Faulks
My Lords, a walk around the centre of London after dark reveals that large parts of the city are wholly unilluminated. Why are the lights off? Is it that most Londoners are getting an early night? I think not. The fact is that many high-end properties are unoccupied and are used as investment vehicles by those who regard London as a safe haven for their money, often unlawfully acquired. In September 2016 the Mayor of London, Sadiq Khan, launched an inquiry into the impact of foreign investment flooding into London’s housing market. Lest my submission be considered too London-centric—I declare an interest as a resident of central London—such investment has also been going on in Manchester, Liverpool and Birmingham, among other cities. Mayor Khan said on launching the inquiry that we all need to be reassured that dirty money is not flooding into the property market.
Property that is the subject of a UWO does not have to be real property, but real property has the advantage of being less easy to dispose of informally and quickly. Your Lordships have already heard me and others discuss the importance of tightening up the provisions in relation to compliance with UWOs to deal with the potential for evading the orders. In this context, I am particularly concerned about property owned by overseas companies. On 17 March 2016, the Land Registry published the fact that it had registered 100,000 freehold and leasehold properties in the name of overseas companies. I should make it clear that the list excludes private individuals, UK companies, UK companies with an overseas address and charities. Noble Lords may be aware that unlike in most countries, there are absolutely no restrictions on foreign ownership of residential property in the United Kingdom.
Do we really think that all this property is being acquired with clean money? Are solicitors and agents complying with anti-money laundering provisions? I know that tightening up those provisions is the subject of later amendments. I read last week in the Times that only five people have been convicted of money laundering in the 10 years since the legislation was apparently tightened. The Law Society is on record as saying:
“Compliance with money laundering obligations is one of the greatest challenges for solicitors in the UK today”.
What about the obligations of estate agents? Of these properties owned by overseas companies, how many are polluted by dirty money? I mentioned at Second Reading the envelope tax. This was a reference to the super-rich being prepared to pay something like £218,000 a year in tax rather than identify who owns property. I asked the Minister whether the Government were happy with this state of affairs. Her answer was that UWOs will,
“make it easier for our law enforcement agencies to investigate money laundering in the London property market and recover the proceeds of crime”.—[Official Report, 9/3/17; col. 1519.]
She also mentioned the importance of ensuring that lawyers, estate agents and other professionals comply with their money laundering obligations. Apparently the Treasury will in due course publish its findings in relation to the supervisory regime.
The noble Lord, Lord Rooker, referred to his kleptocracy tour in his speech at Second Reading, while the noble Baroness, Lady Kramer, cited the report of the All-Party Parliamentary Group on Anti-Corruption, which takes the view that more than £4 billion-worth of properties have been bought with suspicious wealth. My noble friend Lord Patten endorsed all the comments that were made at Second Reading about the devastating effect of dirty money on the occupancy of London properties. The Minister said that,
“the Government intend to publish a call for evidence, seeking views on a new register of overseas companies that own property in the UK”.
She said that the Government,
“hope to do so shortly and will then introduce the relevant legislation when parliamentary time allows”.—[Official Report, 9/3/17; col. 1519.]
As I have explained in relation to other amendments, I do not think that parliamentary time is likely to be available in the foreseeable future, so we must seize the legislative opportunity as it now presents itself.
London is in danger of becoming a safe haven for dirty money. This is partly because of our reputation for maintaining the rule of law and because we are generally regarded as a good home for foreign investment. I certainly would not want to deter investment, particularly in the uncertain economic times that lie ahead, but I deprecate this assault on the London property market, the effect it is having on Londoners and how it is adding to the pressure that exists in the London property market, which falls particularly harshly on those seeking to acquire their first properties. We should do everything we can to make these provisions effective.
The legislation currently provides that the court must be satisfied that a respondent is a PEP, has been involved in serious crime, or that there is at least a reasonable suspicion of involvement. The amendment in my name and that of the noble Lord, Lord Anderson of Swansea, who unfortunately is unwell, would add to that,
“the respondent has a financial interest in land or property in England and Wales … registered in the name of an overseas company”.
This would make it easier for the agencies to obtain a UWO in circumstances where they do not have much evidence of involvement in serious crime or the respondent is not a PEP, but they have suspicions about the source of money used in the acquisition of property. My noble friend Lord Leigh referred to his familiarity with questions being posed by the Revenue. The High Court would still have to be satisfied that there are reasonable grounds for suspecting that the respondent’s lawfully obtained income would have been insufficient, but this should not be too high a bar to surmount.
Would this create any unfairness? I do not see why. If the property has been acquired with honest money, an explanation could be provided that would comply with the order. I ask the Minister: how, if at all, will UWOs be used to get at the problem that has been identified by me and a number of other noble Lords? Will she explain why she objects, if she does, to this amendment, or at the very least explain what improvements will be made to deal with this very real problem? Her answer may be partially to rely on the very recently proposed government Amendment 21. I am not sure that that does the trick. This a very important point and a real opportunity. I beg to move.
Lord Rooker (Lab)
My Lords, I had not intended to speak on this amendment, but it gives me the opportunity to raise the point that I wanted to raise today anyway following Second Reading. I agree with everything that the noble Lord just said. From memory, I think the figure is that 9.3% of the properties in Westminster are owned by overseas companies from jurisdictions that maintain secrecy. That is a huge percentage of the properties in one local authority area.
The issue I want to raise is that the money comes into this country from somewhere. Basically, it must come through the banks. At Second Reading I made the point:
“As far as I know, no bank has ever been prosecuted in the UK for laundering corrupt wealth from another country”.—[Official Report, 9/3/17; col. 1487.]
The Minister responded by saying:
“The noble Lord, Lord Rooker, talked about fines on banks in the UK. He raised the issue of banks in the UK not being penalised for laundering funds from overseas. I have a huge list of fines, which I will not read out today, because it would take up valuable time in responding … I will send it to him … and place a copy in the Library”.—[Official Report, 9/3/17; cols. 1520-21.]
When the noble Baroness wrote to Members who had participated at Second Reading, she neglected to mention anything about that exchange, so I contacted her office just to remind them. I was sent a letter, which I presume others would have had, dated 21 March. Attached to it were details of some of the most significant fines imposed in recent years on financial institutions with a presence in the UK. They related to tax fraud, money laundering and financial crimes. The vast pile of papers that the Minister said she had at Second Reading amounts to four sheets, but only three banks in the UK are mentioned: Barclays, Deutsche Bank and Sonali. Not one of them has been prosecuted for money laundering. They have had fines levied on them by the Financial Conduct Authority, but not one has been found guilty of money laundering.
Lord Deben (Con)
My Lords, I support the amendment because I have been for many years concerned about housing. This issue is a matter not just of corrupt investment but of investment in housing for purposes which are other than housing. This is a very serious social issue in London and other cities. If the Government do not take it seriously, they will reap the whirlwind.
The number of such houses and flats—real estate—in London in particular, causes considerable resentment among those unable to buy their own home. It is no good any party any longer ignoring it. All parties have to admit that they have not solved this problem. This is not a party-political comment, but it is an increasingly serious matter because it is creating divisions in our society which are greater than they have ever been. I ask Members of your Lordships’ House to remember when it was possible for them as young people to buy a house or a flat in London, now to think about their children or grandchildren unable to do so and to recognise the divisive effect of that. It is against that background that this amendment should be considered.
The second issue is simply that most of us are fed up with the intrusive questions asked by people with whom we have banked for most of our lives, including being asked to send one’s utility bills to a bank with which one has had an account that has been in reasonable order for 60 years because it has to meet the perfectly understandable anti-money laundering arrangements. The second resentment is that normal, ordinary British people have to go through this amazing series of hoops to bank money or get money out if they wish to do anything which is slightly out of the ordinary, yet they know perfectly well that the banks must have been involved in the transmission of money in situations which are, at the very best, dodgy.
I, too, sought some figures about who has been prosecuted for this. It actually beggars any kind of belief that no bank of any kind has ever helped anybody to buy, with improperly gained foreign money, property in London. I am sorry but that does not stand up. So the second disillusion that comes is that decent people in this country go through this kind of unbelievable series of hoops knowing both that they must accept them because of the security that we properly wish to impose and that others avoid this to the tune of millions and millions of pounds.
The third reason this amendment is so important is that there is a real concern in this country, with the atmosphere of Brexit, about attitudes to foreigners. I am an absolute and continuous remainer and will not be pushed off that by anybody’s arguments, so I am biased. However, I do not like the society we are building in circumstances of antagonism to foreigners of all kinds. That makes it even more important that where dishonourable activities take place and money earned dishonourably elsewhere is invested in this country that is dealt with clearly and transparently, so that the kind of accusations that are and have been made against people who invested here honourably are totally distinct from that which has been unacceptable.
My fourth reason—and last, as the House will be pleased to note—is that we recently, honourably, passed the Modern Slavery Act. We are beginning to be serious about the way in which people are exploited and the benefits of that exploitation coming to people in this country. People are serious about this, the Government have been serious about it and it has all-party support. If we are serious about the Modern Slavery Act, we must also be serious about the proceeds of crime and often of exploitation being brought into this country and used in the real-estate world. That is why I beg my noble friend to take this amendment very seriously. It addresses some deep disillusion in our society and also some deep injustice in the society of the world. This is not just a passing amendment to tease out the Government’s position here and there but a fundamental amendment that challenges the whole of our society to behave in a way that we can be proud of, rather than one that facilitates activities we should condemn.
Lord Brown of Eaton-under-Heywood
My Lords, I start with a very pedantic point. If this amendment is to go ahead, it needs to begin with an “or”. As the noble and very clever though not technically learned Lord points out, this is a further alternative to the two already listed in new Section 362B(4). The next point is that of course the property here envisaged, registered in the name of an overseas company in which the respondent has an interest, is not—I repeat, not—the same property as referred to in subsection (1), in respect of which one seeks to have an unexplained wealth order made. It is a different property altogether.
I have great sympathy with the amendment and the policy underlying it. Like the noble Lord, Lord Deben, I deplore the extent to which London properties are in foreign ownership nowadays. But I respectfully wonder how far the amendment would go—if any distance—in actually dealing with that problem and with money laundering. Surely with regard to most of the people who buy and own these London properties—if they are not already PEPs, or politically exposed persons, and we know that a lot of them probably are—nobody questions how much money they have. But would it not then be rather difficult to satisfy the earlier requirement —which, again, has to be satisfied to make one of these orders—in new subsection (3)? Each of the various requirements set out in proposed new subsections (2), (3) and (4) has to be satisfied. First you have to show that they hold property of the relevant value; then, in new subsection (3) you have to be satisfied that,
“there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property”.
The property there being referred to is not property in London registered in the name of an overseas company, it is the property in respect of which you are seeking a UWO.
Those points need to be borne in mind before one goes down this particular road. It is not going to be the panacea that some who have contributed to the debate thus far seem to think it is likely to be.
Baroness Kramer (LD)
My Lords, I do not pretend for a moment to have the drafting skills of the noble and learned Lord, Lord Brown of Eaton-under-Heywood, but I associate myself with all the other comments that have been made on the amendment. Rather than repeat the issues that have been so well described, I want to pick up the point that the noble Lord, Lord Faulks, made—that this Bill is a real and rare opportunity to tackle this problem, which, as he will have heard, exercises Members on all sides of the Committee and is essentially a non-partisan series of concerns.
When I had the privilege of sitting where the Minister is sitting, I brought a Bill through this House which was fondly and informally known as the “Dump it in here” Bill. It is perfectly possible, even at this stage, for the Government to come forward with some well-drafted language that would achieve the goals that have been described by various noble Lords today and by others who have been concerned about this issue. The Government have been looking at it for a long time. Given the fact that it will be difficult to get new legislation through in the next couple of years, I urge the Government to look at drafting that language—they have the capacity to do it and would be in a position to do it—that would bring into the Bill the kinds of remedies that would require the public register of beneficial interest for property ownership that presently we do not have in the UK. I met representatives of the British Virgin Islands the other day. The British Virgin Islands actually has such a register and would be delighted to provide mechanisms and recommendations to the British Government if they felt they needed advice in this area.
Lord Leigh of Hurley
My Lords, I have touched on this subject already. As president of Westminster North Conservative Association, I have spent many long evenings tramping along the streets of Westminster North, knocking on doors of properties that are clearly unoccupied and turn out to have no registered voters so are probably owned by offshore companies. While I am not convinced that the amendment, placed where it is, achieves the effect that the noble Lord, Lord Faulks, wants, I echo the remarks of the noble Baroness, Lady Kramer, that this might be an opportunity to seek to make progress.
The point made by the noble Lord, Lord Deben, about not wanting to be xenophobic is well taken, not least because of the concerns that some people have that the actual beneficial owner of these overseas companies is in fact a person in the UK who might well allegedly be the tenant. The fact that it is an overseas company does not mean that it has an overseas owner. Noble Lords ask whether their children will be able to afford to live in the house that they live in. Invariably, the answer is no.
Lord Hodgson of Astley Abbotts
My Lords, I support this amendment and the sentiments that have been expressed. Like other noble Lords, I am not sure whether it will do anything other than send a signal that this is something we are very serious about. An important aspect of not allowing it to become too London-centric—the darkened squares that my noble friend referred to in his opening remarks—is the ripple effect. What happens in central London ripples out through the country. I think the Lloyds Bank review says that Oxford is now the most unaffordable town in the country in terms of local wages to local house prices. If we can stop the ripple, or at least inhibit the ripple, that will have an effect much wider than merely the darkened squares to which my noble friend referred. As my noble friend Lord Deben said, if we take this further out, there are implications for social cohesion, as some of our less well-off and less well-resourced fellow citizens are finding themselves squeezed out by gentrification in an increasingly wide range of towns and cities across the country.
Lord Kennedy of Southwark
My Lords, Amendment 11 is tabled in the names of the noble Lord, Lord Faulks, and my noble friend Lord Anderson of Swansea. My noble friend was taken ill yesterday, and I am sure we all wish him a speedy recovery. This amendment would add a new paragraph to subsection (4) which clearly specifies that where,
“the respondent has a financial interest in land or property ... which is registered in the name of an overseas company”,
which could be being used as part of a complicated financial arrangement to hide from the authorities their unexplained wealth, the court can make an unexplained wealth order. I support the aims of this amendment. It highlights another way that a person can seek to avoid having to explain their wealth. This amendment seeks to address that in a very clear way. My noble friend Lord Rooker raised some important points, and I am sure the Minister will respond to them in her remarks.
Like the noble Lord, Lord Deben, I have had a bank account for 38 years. I have only ever had one—I opened it when I was 16. I went into the bank at Camberwell Green and have kept it in pretty reasonable order for those 38 years. All the things you have to do—saying who you are and having to give your mother’s maiden name—are very irritating, but there are clearly issues with funds travelling backwards and forwards that must have gone through a bank somewhere. If they are ever to be brought to account for things, that is something we must address in these debates.
A lot has been said about the London housing market. Any suggestion that it could be a safe haven for corrupt money should be of concern to us all. What a terrible thing that we even have to contemplate that. It contributes to the housing crisis in London. I referred to the Transparency International report in my contribution at Second Reading. It did some work in 14 developments and found that 1,616 companies and individuals bought properties and that only 450 were registered to people who were living in the UK. Forty per cent of purchases in London, totalling £1.6 billion, were bought by investors from countries with a high risk of corruption. We do not want any suggestion of our capital city being seen as a safe haven for corrupt money, as that must concern us all. The noble Lord, Lord Faulks, made the point that whole parts of central London are in darkness. Ten per cent of Westminster is owned by faceless companies. Properties with an abnormally low use of electricity suggests that they are not lived in on a regular basis. Transparency International also found that 140 properties with a value of £4.2 billion have been bought by investors who represent a high money-laundering risk. My friend the Mayor of London, Sadiq Khan, has launched an inquiry into the impact of foreign investment flooding into London’s housing market. The noble Lord, Lord Faulks, referred to this.
The other problem is the trickle-down effect. It causes property prices to be abnormally raised and is putting whole sections of the capital out of the reach of ordinary law-abiding citizens. That must worry us all, and very regrettable it is. About a year ago, I was standing at this Dispatch Box discussing with the Minister the Housing and Planning Bill—the cost of rents, how we get people living in safe, warm, dry properties, how people can afford to buy property and whether starter homes are the right answer. The way money has come in has made it more difficult for families, which must be of regret to us all. That is something we need to address in this Bill. The noble Lord, Lord Faulks, made the point that there may well be very little legislative time in the next Session, so we should take the opportunity that this Bill gives us.
The noble Lord, Lord Deben, talked about housing. I am happy to accept that all parties have failed in the past. There is no question about that—we all need to do very much more about it. I live in Lewisham. The noble Lord was the Member of Parliament for Lewisham at one time; I am a councillor in his old constituency. It is a great area to live in, not the most expensive part of London, but I could not now afford to buy the house that I live in. I have lived there for 13 years and the rent the people in the house next to me pay is more than my mortgage. It is ridiculous. If corrupt money has led to that, it is a bad situation.
This amendment raises important issues, and the Minister should reflect on them very carefully. If we can find some way forward before the Bill becomes law, we should do that.
Baroness Williams of Trafford
I thank all noble Lords who have taken part in this short debate. I am grateful for their contributions. As we have already covered, the court may issue a UWO in cases where either there is a link to serious criminality or the respondent is a politically exposed person from outside the European Economic Area. Amendment 11 seeks to add a third limb to those covered by UWOs. This amendment would mean that a UWO could also be served on a person who has a financial interest in land or property which is registered in the name of an overseas company. This would be quite a significant step, and I encourage noble Lords to consider it carefully. The UWO has been specifically designed as a reaction to the real operational difficulties that law enforcement agencies have had in individual cases.
First, there are those who are known to have a link to serious criminality, such as there being known links to organised criminal groups. The senior criminal, if I can call them that, is often able to keep themselves distant from any actual individual instance of criminality. The UWO will force them to explain their wealth. Secondly, there are non-EEA PEPs. PEPs are targeted in this way because they are widely acknowledged to be a high corruption risk. The ability to get evidence from certain countries—
Lord Lea of Crondall (Lab)
I hesitate to intervene, but this is a point of general relevance to the Bill. The Minister referred to us being a member of the European Economic Area. I take it that nothing will happen to this Bill when it goes on to the statute book, but this question is germane and substantive. The Bill refers to the European Economic Area, of which we are a member. Would we require legislation to stop being a member? Does that bear on the substantive issues in the Bill?
Baroness Williams of Trafford
I do not entirely understand what the noble Lord said.
Lord Lea of Crondall
Will the Minister make sure that this question is looked at? Otherwise, we will have on the statute book something that depends upon us being a member of the European Economic Area.
Baroness Williams of Trafford
I am much clearer about this. Obviously negotiations will be conducted as the Brexit negotiations go on. I did a debate the other week about the co-operation around law enforcement; we are absolutely committed to continue that co-operation—if that gives comfort to the noble Lord—in fighting crime, corruption, fraud, slavery, people trafficking and all that sort of thing. We are a world leader at this point in time.
I did not initially get where the noble Lord was coming from, so I apologise. I was talking about the non-EEA PEPs—those outside the European Economic Area at the moment—who are targeted in this way because they are widely acknowledged to be a high corruption risk. The inability to get evidence from certain countries has rendered action against those persons almost impossible in some cases, even though they have obvious unexplained wealth and there are other suspicions relating to them. In both cases, there are clear reasons to justify the use of this novel investigative power. Based on clear evidence, we judge it to be proportionate in these cases to reverse the burden of proof, which is a major departure from the normal operation of our law, and to put their property at risk of recovery purely on the basis that they do not respond to a UWO.
I fully recognise that those in the third grouping proposed by noble Lords—those with a financial interest in property owned by an overseas company—have given rise to concerns relating to corruption. However, very importantly, it must be remembered that the vast majority of people with a financial interest in an overseas company are law-abiding. Many of them are British citizens, for whom there will, if relevant, be other avenues to progress an investigation. I am not satisfied that the situation relating to this third suggested group of persons is so stark, or that a real operational need has been identified. As I said earlier, there is nothing inherently suspicious about having a financial interest in an overseas company.
Despite that, I take on board the points that noble Lords have made and am very grateful for the amendment, which highlights a very important area. My officials will, of course, liaise with law enforcement colleagues to ensure that they have the tools that they need to investigate cases of this type, but I assure noble Lords that they have not indicated a gap in their existing powers that would justify extending UWOs in the way that is proposed.
I will go through some other points that noble Lords have made. My noble friend Lord Faulks—I thought he was noble and learned, and it has quite shattered my illusions to learn that he is not—talked about the “envelope tax”, which he also brought up at Second Reading. I undertake to discuss it with colleagues at the Treasury and come back with a response, either on Report or by letter to him. He also talked about UWOs and the London property market, and what they will do to help with empty properties—which I see every night on my way back to my small flat in north London. In terms of how a UWO will be used against property held by foreign companies, it must be noted that the UWO provisions can be used against legal persons—companies—wherever they are located, subject to international law on service. In addition, it will be possible to focus on the individual if he holds an interest. Our new amendments will mean that foreign-owned property is not excluded from the UWO provisions.
My noble friend also talked about the supervisory regime and the obligations of regulated bodies with respect to the London property market. The Government consulted on reforms to the anti-money laundering supervisory regime in the autumn and have considered the responses. The Treasury published the outcome of that review on 22 March and is currently conducting further consultation on the creation of a new office for professional body anti-money laundering supervision, which will be overseen by the FCA and is expected to be fully operational by the start of 2018.
The noble Lord, Lord Rooker, asked about the latest available data on prosecutions, convictions and sentencing, broken down by offence from 2015. In 2015, 2,307 defendants were proceeded against for money laundering offences in the magistrates’ court; 1,336 defendants were found guilty at all courts for money laundering offences; and 1,300 were sentenced. Where a bank’s anti-money laundering regime is found to have failed, significant fines can be, and have been, applied. I think that is the chart that he was referring to. Banks are also required to fix their regimes, and banks operating in the UK have been fined for failures in their anti-money laundering regimes.
Lord Rooker
The Minister is missing the point, although I am sure she is not doing so deliberately. No bank has been prosecuted. That is the background to the question I asked. I did not ask about cosy deals with the Financial Conduct Authority—like those reported today with Tesco and the one with Rolls-Royce, which I referred to at Second Reading—to have deferred prosecutions, so that they pay but do not get prosecuted. I asked about banks being prosecuted. The one way to stop or curtail this, as the noble Lord, Lord Deben, said, is to get them where it hurts, not with cosy deals. These fines are not the result of prosecutions. If she is implying that, she is wrong, and is close to misleading the Committee. I am not asking about deals; I am asking about prosecutions which take place in court, not through cosy deals and a fine from the Financial Conduct Authority.
Baroness Williams of Trafford
I hope the noble Lord does not think that I have ever tried to mislead the House. I talked about fines, but where a bank was found to have committed a criminal offence, a prosecution could be undertaken. Investigations and prosecutions are a matter for law enforcement agencies and prosecutors. I take the point that he is making, but this is open to law enforcement. Last month, a £163 million fine was issued to Deutsche Bank, and I would suggest that hitting them where it hurts probably involves hitting them in their pockets. It is open to law enforcement to prosecute banks, but I take the noble Lord’s point in that, today, I know of no prosecutions of banks. But the fines regime is in place.
I am very grateful for the amendment but hope that my noble friend has been assured that there is not a gap in existing powers that would justify extending UWOs in the way proposed. I hope he will feel content to withdraw his amendment.
Lord Faulks
My Lords, I am grateful to all noble Lords who took part in the debate and for the general support for what lay behind this amendment, which is a widespread concern about the London property market in particular and the degree to which it is clear that corrupt money has entered it. The noble and learned Lord, Lord Brown, made a number of important points—particularly that I am not learned. He was also correct to say that the word “or” was missing from the amendment, and made some other drafting suggestions. He was also right to suggest that this is not a panacea, but it was not designed to be. The amendment was intended to provoke the sort of debate we have had and to ask the Government whether they are truly satisfied that the evil we have identified is being answered, and in particular whether anything in the Bill can be used to deal with the problem.
My noble friend the Minister has said that the provision covers those who are PEPs within the definition of the Bill or those suspected of serious criminality. But what, I ask, about those who may not easily be defined as being “suspected of serious criminality” but are in fact gangsters? What of those who have high office but do not come within the definition of PEPs? With many of the properties, it will be difficult to determine precisely who owns them. All that we ask for is an unexplained wealth order—it is not a criminal offence; it is a civil procedure which results, if there is no adequate explanation, in civil recovery. That, I suggest, will help deter the incursion of corrupt money. The provisions contain safeguards on self-incrimination and compensation. Let us not be too pusillanimous about this. My noble friend said that she had received my request for information about the envelope tax at Second Reading and she has again, but she has not yet replied. On the face of it, that is in stark contradiction to the policy that underlies the UWOs.
We will miss a legislative opportunity if we do not do something through the Bill to sort out the problem we have identified. I hope that my noble friend will speak to her officials and be satisfied that there is no gap, no lacuna, in this approach.
Lord Rooker
Perhaps through the noble Lord, as the Minister talks to her officials, I can invite her to watch two films: “From Russia with Cash” and “From Ukraine with Cash”. They are on the same CD. If she does not have access to them, I will provide her with a copy. They spell out that there is a serious problem.
Lord Faulks
I am very grateful for that intervention, which supports the point that these effective owners may not be PEPs within the definition and it may be difficult to pinpoint serious criminality. We must do something about this. I look to the Minister to provide a better solution than exists at the moment. If not, we will be letting the country down and letting Londoners down, particularly young, aspirant Londoners. However, at this stage, I beg leave to withdraw the amendment.
“(e) where the property is an interest in other property comprised in a settlement, the reference to the respondent obtaining the property is to be taken as if it were a reference to the respondent obtaining direct ownership of such share in the settled property as relates to, or is fairly represented by, that interest.”
“(d) otherwise connected with a person within that paragraph.”
“(5A) Subsections (5B) and (5C) apply in determining the respondent’s interest for the purposes of subsection (3) in a case where the respondent to the unexplained wealth order—(a) is connected with another person who is, or has been, involved in serious crime (see subsection (4)(b)(ii) of section 362B), or(b) is a politically exposed person of a kind mentioned in paragraph (b), (c) or (d) of subsection (7) of that section (family member, known close associates etc of individual entrusted with prominent public functions).(5B) In a case within subsection (5A)(a), the respondent’s interest is to be taken to include any interest in the property of the person involved in serious crime with whom the respondent is connected.(5C) In a case within subsection (5A)(b), the respondent’s interest is to be taken to include any interest in the property of the person mentioned in subsection (7)(a) of section 362B.”
“362GA Holding of property: trusts arrangements etc(1) This section applies for the purposes of sections 362A and 362B.(2) The cases in which a person (P) is to be taken to “hold” property include those where—(a) P has effective control over the property;(b) P is the trustee of a settlement in which the property is comprised;(c) P is a beneficiary (whether actual or potential) in relation to such a settlement.(3) A person is to be taken to have “effective control” over property if, from all the circumstances, it is reasonable to conclude that the person— (a) exercises,(b) is able to exercise, or(c) is entitled to acquire,direct or indirect control over the property.(4) Where a person holds property by virtue of subsection (2) references to the person obtaining the property are to be read accordingly.(5) For further provision about how to construe references to the holding of property, see section 414.”
“362PA Compensation(1) Where an interim freezing order in respect of any property is discharged, the person to whom the property belongs may make an application to the High Court for the payment of compensation.(2) The application must be made within the period of three months beginning with the discharge of the interim freezing order.(3) The court may order compensation to be paid to the applicant only if satisfied that—(a) the applicant has suffered loss as a result of the making of the interim freezing order,(b) there has been a serious default on the part of the enforcement authority that applied for the order, and(c) the order would not have been made had the default not occurred.(4) Where the court orders the payment of compensation—(a) the compensation is payable by the enforcement authority that applied for the interim freezing order, and(b) the amount of compensation to be paid is the amount that the court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.”
“(c) where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and (d) setting out such other information in connection with the property as may be so specified.”
“( ) where the property is an interest in other property comprised in a settlement, the reference to the respondent obtaining the property is to be taken as if it were a reference to the respondent obtaining direct ownership of such share in the settled property as relates to, or is fairly represented by, that interest.”
“(d) otherwise connected with a person within that paragraph.”
“(5A) Subsections (5B) and (5C) apply in determining the respondent’s interest for the purposes of subsection (3) in a case where the respondent to the unexplained wealth order—(a) is connected with another person who is, or has been, involved in serious crime (see subsection (4)(b)(ii) of section 396B), or(b) is a politically exposed person of a kind mentioned in paragraph (b), (c) or (d) of subsection (7) of that section (family member, known close associates etc of individual entrusted with prominent public functions).(5B) In a case within subsection (5A)(a), the respondent’s interest is to be taken to include any interest in the property of the person involved in serious crime with whom the respondent is connected.(5C) In a case within subsection (5A)(b), the respondent’s interest is to be taken to include any interest in the property of the person mentioned in subsection (7)(a) of section 396B.”
(a) consider whether the Lord Advocate should be given an opportunity to determine what enforcement or investigatory proceedings, if any, the Lord Advocate considers ought to be taken by the Lord Advocate in relation to the property, and (b) determine whether they consider that any proceedings under Part 5 (civil recovery of the proceeds of unlawful conduct) or this Chapter ought to be taken by them”
“(2A) If the Scottish Ministers consider that the Lord Advocate should be given an opportunity to make a determination as mentioned in subsection (2)(a), the Lord Advocate must determine what enforcement or investigatory proceedings, if any, the Lord Advocate considers ought to be taken by the Lord Advocate in relation to the property.”
(b) the Lord Advocate may (at any time) determine what, if any, enforcement or investigatory proceedings the Lord Advocate considers ought to be taken by the Lord Advocate in relation to the property.”
“396GA Holding of property: trusts arrangements etc(1) This section applies for the purposes of sections 396A and 396B.(2) The cases in which a person (P) is to be taken to “hold” property include those where—(a) P has effective control over the property;(b) P is the trustee of a settlement in which the property is comprised;(c) P is a beneficiary (whether actual or potential) in relation to such a settlement.(3) A person is to be taken to have “effective control” over property if, from all the circumstances, it is reasonable to conclude that the person—(a) exercises,(b) is able to exercise, or(c) is entitled to acquire,direct or indirect control over the property.(4) Where a person holds property by virtue of subsection (2) references to the person obtaining the property are to be read accordingly.(5) For further provision about how to construe references to the holding of property, see section 414.”
“396QA Compensation(1) Where an interim freezing order in respect of any property is recalled, the person to whom the property belongs may make an application to the Court of Session for the payment of compensation.(2) The application must be made within the period of three months beginning with the recall of the interim freezing order.(3) The court may order compensation to be paid to the applicant only if satisfied that—(a) the applicant has suffered loss as a result of the making of the interim freezing order,(b) there has been a serious default on the part of the Scottish Ministers in applying for the order, and(c) the order would not have been made had the default not occurred.(4) Where the court orders the payment of compensation—(a) the compensation is payable by the Scottish Ministers, and(b) the amount of compensation to be paid is the amount that the court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.”
Baroness Hamwee
Baroness Hamwee
My Lords, Amendments 58 and 59 deal with the same provision in the Bill. We have now come to the chapter on money laundering.
Under new Section 336B(6), the Bill provides that the court must direct the exclusion from the hearing of an application of,
“the interested person to whom that application relates”,
and “anyone representing that person”. The second of my amendments would make that discretionary for the court, but the principal amendment would remove the provision, because it would be appropriate for the Committee to hear the Minister’s justification for excluding from the hearing without alternative arrangements on their behalf the suspected person and his representatives. I acknowledge that I missed a similar provision earlier in the Bill, but the point remains.
I appreciate that there is concern not to tell that person what evidence the police have when they seek to extend the moratorium period, but it is serious to restrict arguments and representation when the person is likely to be subject to an extension of the moratorium. It is part of the whole landscape of innocence until guilt is proved. As far as I understand it, that person will have no opportunity to object to the extension—or perhaps will have an opportunity but no real target to aim at because neither he nor his representatives will have heard the arguments.
The Deputy Chairman of Committees (Viscount Ullswater) (Con)
I must advise the Committee that if this amendment is agreed to, I shall not be able to call Amendment 59.
Lord Rosser
My Lords, I have Amendment 72 in this group. The Bill provides for extensions to the suspicious activity reports regime under which private sector companies report suspected money laundering—or, at least, they are meant to. The extensions or enhancements enable the moratorium period during which the relevant law enforcement agencies can gather evidence to be extended and provide a power enabling the UK Financial Intelligence Unit in the National Crime Agency to obtain further information from suspicious activity reporters. The enhancements also create a legal basis for sharing information between companies in order that they can build up a clearer picture of suspected money laundering.
Amendment 72 would provide for a procedure, through the National Crime Agency, for prioritising the most serious suspicious activity reports to target effectively the use of scarce law enforcement resources. Private sector companies and professionals, such as accountants, are required by law to make a suspicious activity report every time they become aware that a person might be in possession of the proceeds of crime, and that applies equally even if the amounts involved are small or if the information is far from conclusive or far from being considered fully reliable. The same duty to report applies whether the suspicion relates to a theft of a few pounds from petty cash or to what could be serious organised crime.
At present there appears to be no means by which information may be quickly screened or sifted to determine which are likely to prove the most significant or important reports requiring full investigation. There were just over 380,000 individual suspicious activity reports in 2015, and considerable time must be spent processing essentially very minor crime reports, which can only be at the expense, resource-wise, of the investigation and detection of crimes at the serious end of the scale. This amendment seeks to address that situation by providing for priority levels based on the intelligence value of each report, or a similar kind of categorisation, which would give an appropriate risk-based approach to determining which economic crimes should be tackled as a matter of urgency.
At Second Reading, the Government said that the issue raised in this amendment on suspicious activity report reform was lacking in the Bill, even though reform of the SARs regime was a crucial part of the Government’s own action plan for anti-money laundering and counterterrorist finance. The Government went on to say that they had established a programme to reform the SARs regime, and were seeking improvements in the short, medium and long term. They then went on to say that, during the review of the SARs regime that the Home Office ran in 2015, a number of regulated-sector companies suggested that suspicious activity reports should be prioritised, which is what this amendment is about. Despite this, they went on to say at Second Reading:
“We will consider this as part of the SARs reform programme”.—[Official Report, 9/3/17; col. 1518.]
However, the review was two years ago, in 2015, and a number of companies affected raised the issue addressed in this amendment in response to the review. Why, two years after the review, cannot the Government make a decision to do something to address this matter of prioritising reports rather than continue to put off making a decision? Surely, in all the discussions that would have taken place on this Bill before it was brought to Parliament and during the debates on the Bill so far in Parliament, prioritising SARs reports, which had after all been raised in the 2015 review, could and should have been considered, since it is directly relevant to the content of the Bill?
I hope that the Government will recognise this reality, and give a positive response to this amendment and, if that is not possible—and I would like to know why, if that is the case—accept that Report is now likely to be another four weeks away, with Third Reading being five weeks away, and agree to bring back a government amendment on Report or at Third Reading to address the issue raised in the amendment.
Lord Brown of Eaton-under-Heywood
I want to address only Amendments 58 and 59, both of which I oppose, to new Section 336B on page 28 of the Bill. That section deals with an application under the previous section to extend the moratorium period, which has to be dealt with as soon as is practicable. New subsection (3) says that the court,
“may exclude from any part of the hearing … an interested person”,
or “anyone representing that person”. We see that formulation again in new subsections (4) and (6). They are the people whose presence or otherwise at the hearing is in question.
New subsection (4) allows for a particular application, that certain specified information may be withheld from the interested person or representative, but that order can be made only under new subsection (5), if the court is,
“satisfied that there are reasonable grounds to believe that if the specified information were disclosed”,
something bad would happen—that either,
“evidence of an offence would be interfered with or … the gathering of information …would be interfered with”,
or somebody would be injured, or,
“the recovery of property … would be hindered, or … national security would be put at risk”.
In that situation, new subsection (6) comes into play. Unlike new subsection (3), which we looked at earlier, where the court “may exclude”, in this instance—because it relates to an application under new subsection (4)—the court inevitably “must” direct that the interested person or his representative be excluded. With the best will in the world, I cannot see how we could sensibly leave out new subsection (6), which puts a requirement on the court which is not to be found in new subsection (3), which deals with the general position. Nor would it make any sense whatever to substitute “may” for “must”. You have already got “may” in new subsection (3), but for this situation, “must” is the appropriate direction to the court for the order to be made. I respectfully oppose those amendments.
Lord Hodgson of Astley Abbotts
My Lords, I support Amendment 72, in the name of the noble Lord, Lord Rosser. It has been common ground in our discussions this evening that the volume of SARs is rising all the time. There are now over 1,500 a working day and it slightly defies belief that those are all getting anything like the attention that they should. Those of us who have had experience of this find that the National Crime Agency is extremely reluctant to allow any inhibition on its ability to call for SARs at every level. It should be possible to have discussions about automatically asking for a time limit—not that the information could not be asked for subsequently—of 25 or 50 years. One of my most recent PEP inquiries involved events 53 years ago. I simply cannot believe that collecting that sort of information is a good use of my time or the bank’s. There would be a great deal of virtue in my noble friend trying to persuade the NCA that some focus was a good idea. Getting the focus that is badly needed, and things like time and a de minimis figure, would make the whole system much more effective. The amendment tabled by the noble Lord, Lord Rosser, is a first step towards that and is worthy of serious consideration.
Baroness Williams of Trafford
My Lords, these amendments cover measures in Chapter 2 of Part 1 of the Bill. I thank noble Lords who have taken part in the debate. As the Action Plan for Anti-money Laundering and Counter-terrorist Finance set out, the Government see public/private partnership as central to tackling money laundering and terrorist financing. A major part of this approach is to provide support for the effective exchange of information, both within the private sector, and between the public and private sectors, to increase our collective knowledge of threats and vulnerabilities; to help the regulated sector to protect itself, and to improve the quality of the UK’s financial intelligence. The provisions in Chapter 2 assist this approach, and our amendments will enhance their ability to do so.
I hope noble Lords will agree that the government amendments in this group are technical and uncontroversial. Clause 11 permits the UK Financial Intelligence Unit—or UKFIU—hosted in the National Crime Agency, to request further information in relation to a suspicious activity report, or following a request from a foreign authority, from any member of the regulated sector. Clause 35 allows the police to do the same in relation to terrorist finance. At present, the clause will allow the NCA and police to direct that further information is provided through issuing a further information notice. If the information is not provided in accordance with the direction, the NCA will be able to apply to a court for a further information order to require the person to provide the information requested. However, following further consultations with operational partners, we have concluded that a further information notice is not required, as the NCA can already request information to be provided voluntarily under existing powers. Government Amendments 64 to 69, 130 to 137 and 173 will therefore remove further information notices. If the regulated sector entity declines to provide information on a voluntary basis, the NCA or police can still apply to a magistrates’ court for a further information order.
Lord Rosser
Is the noble Baroness satisfied that this matter has been dealt with as expeditiously as possible bearing in mind that the review was in 2015 and we now have a Bill in front of us to which the SARs regime is directly relevant? However, when we put forward proposals to try to make the regime more effective by prioritising matters, we were told that the Government were still considering the situation. The difficulties in finding space for legislation over the next couple of years have already been raised, so could the noble Baroness address that point and reflect further that we are four weeks away from Report? If the Government really put their mind to it, surely they could come forward with an amendment of their own on this issue.
Baroness Williams of Trafford
My Lords, I recognise that the issue was considered in 2015. It is now 2017. I totally take on board what the noble Lord says. This issue is complex but I will go back to the department to see what is in the art of the possible before Report. I cannot promise anything at this stage other than that I will try to expedite it if possible.
Prioritisation and the allocation of resources are operational matters. The NCA already has processes in place to take tasking decisions and allocate its resources. It is very unlikely that a SAR would be the only factor taken into account when deciding whether to open an investigation. Putting this matter into legislation could, if anything, impose additional restrictions on law enforcement agencies, which already have the type of flexibility to prioritise cases that the noble Lord’s amendment seeks to achieve.
I hope that he is at least partly satisfied with my explanation. I invite the noble Baroness, Lady Hamwee, to withdraw her amendment.
Baroness Hamwee
My Lords, as regards the bad things in subsection (5), I would feel more comfortable if these were a matter of discretion for the court. However, if a court has to be satisfied about something, the provision goes against my instincts—of course, I do not have the experience of other noble Lords in this area—as it would not be in a position to hear arguments on the other side. I specifically mentioned there being no alternative provisions because, in another part of the landscape, we are accustomed to there being special advocates, although that may not be a perfect system and I am not sure that I want to go down that route.
I will have to read the Minister’s response on legal professional privilege. It did not immediately answer my questions. Clearly, we are not going to make further progress on that today but it may well be something that I would like to come back to on Report, which, as I understand it from the provisional arrangements, will be very inconveniently held on the day after the day that we return from the Easter Recess. Therefore, I may disturb somebody’s holiday. I am sorry about that. I beg leave to withdraw the amendment.
“(3A) Subsection (1) applies whether or not the conditions in section 339ZB were met in respect of the disclosure if the person making the disclosure did so in the reasonable belief that the conditions were met.”
“Further information orders339ZH Further information orders(1) A magistrates’ court or (in Scotland) the sheriff may, on an application made by a relevant person, make a further information order if satisfied that either condition 1 or condition 2 is met.(2) The application must—(a) specify or describe the information sought under the order, and(b) specify the person from whom the information is sought (“the respondent”).(3) A further information order is an order requiring the respondent to provide—(a) the information specified or described in the application for the order, or(b) such other information as the court or sheriff making the order thinks appropriate,so far as the information is in the possession, or under the control, of the respondent.(4) Condition 1 for the making of a further information order is met if—(a) the information required to be given under the order would relate to a matter arising from a disclosure made under this Part,(b) the respondent is the person who made the disclosure or is otherwise carrying on a business in the regulated sector,(c) the information would assist in investigating whether a person is engaged in money laundering or in determining whether an investigation of that kind should be started, and(d) it is reasonable in all the circumstances for the information to be provided.(5) Condition 2 for the making of a further information order is met if—(a) the information required to be given under the order would relate to a matter arising from a disclosure made under a corresponding disclosure requirement,(b) an external request has been made to the National Crime Agency for the provision of information in connection with that disclosure,(c) the respondent is carrying on a business in the regulated sector,(d) the information is likely to be of substantial value to the authority that made the external request in determining any matter in connection with the disclosure, and(e) it is reasonable in all the circumstances for the information to be provided.(6) For the purposes of subsection (5), “external request” means a request made by an authority of a foreign country which has responsibility in that country for carrying out investigations into whether a corresponding money laundering offence has been committed.(7) A further information order must specify—(a) how the information required under the order is to be provided, and(b) the date by which it is to be provided.”
“( ) Schedule 9 has effect for the purposes of this section in determining what is a business in the regulated sector.”
““corresponding disclosure requirement” means a requirement to make a disclosure under the law of the foreign country concerned that corresponds to a requirement imposed by virtue of this Part;“corresponding money laundering offence” means an offence under the law of the foreign country concerned that would, if done in the United Kingdom, constitute an offence specified in paragraph (a), (b) or (c) of section 340(11);“foreign country” means a country or territory outside the United Kingdom;”
Baroness Hamwee
“Anti-money laundering supervision
The Secretary of State must by regulations made by statutory instrument amend the Money Laundering Regulations 2007 to require the supervisory authorities to—(a) publish annually their enforcement statistics;(b) publish annually details of individual cases of enforcement; and(c) report to HM Treasury such information as it requests, including information regarding failures of compliance and a lack of understanding of compliance requirements.”
Baroness Hamwee
My Lords, this amendment would provide a new clause on anti-money laundering supervision, requiring supervisory authorities to publish certain information. When the Bill started its passage through this House, briefings to noble Lords from a number of organisations made similar points about supervision, including that there are too many supervisors, there is inconsistency, and there are conflicts of interest since enforcement does not lie very comfortably with promotional activity. The term “a dysfunctional system” also was used. There was also quite a lot of comment about lack of transparency and accountability in the supervisory system, a matter which formed part of Transparency International UK’s analysis of the weakness in the rules. Its report was entitled Don’t Look, Won’t Find.
I am aware of the Treasury’s work and the current call for information but it seemed to me that it was worth pausing particularly on transparency and accountability. As Transparency International explains, these are,
“fundamental components to an effective supervisory regime”.
TI also quotes the Macrory report:
“Transparency is something that the regulator must provide to external stakeholders, including both industry and the public, so they have an opportunity to be informed of their rights and responsibilities and of enforcement activity. However, it is also important for the regulator itself, to help ensure they use their sanctioning powers in a proportionate and risk based way”.
My Amendment 70 is based directly on Transparency International’s report in the light of the recent government announcements.
The supervisors do not necessarily seem comfortable with the system. The Solicitors Regulation Authority comments that the draft regulations—the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017—fall short of requiring the supervisors of anti-money laundering to be fully independent of any representative body. The authority is keen to see where the weaknesses in the system can be addressed ahead of the Financial Action Task Force review next year. It asks us to raise in the context of the Bill the issue that the underlying legal position is in need of clarification to ensure explicit recognition that supervisory bodies should be fully independent from representative ones. I dare say that the Minister, or at any rate her officials, will have seen that briefing. Having focused on transparency and accountability, I beg to move.
Lord Rosser
We have Amendment 73 in this group, which is on not dissimilar lines to the amendment moved by the noble Baroness, Lady Hamwee. Amendment 73 would require the Secretary of State to,
“lay before each House of Parliament an annual statement on the money laundering supervision regime and any plans the Government has to amend it”.
At Second Reading, we raised questions about the effectiveness or otherwise of our anti-money laundering system in the light of the billions of pounds in corrupt money that comes into this country each year. Reference has already been made to that point in our earlier debate on the London property market. According to the National Crime Agency, the figure could be as high as £90 billion. The Government’s impact assessment says that this country is unusually exposed to the risks of international money laundering, which is made even more serious by the reality that money laundering is also a key enabler of serious and organised crime, including terrorist financing. The social and economic costs of this are estimated in the Government’s impact assessment at some £24 billion per year. However, despite this far from satisfactory state of affairs, there are, as I understand it, some 27 supervisory bodies in the relevant sectors, which must surely lead to a fragmented approach in the identification and mitigation of risks, and in the approach to enforcement.
Lord Sharkey
My Lords, Amendment 108 seeks to help the FCA to ensure meaningful compliance and right behaviour in the banking sector, which has not been entirely a stranger to money laundering. Work done by the New City Agenda think tank, of which I am a director, has shown some progress in changing the culture within banks—but has also shown that there is still a need for much more change.
Last week's report by the Banking Standards Board also had interesting things to say about banks acting in an honest and ethical way. For example, its very comprehensive survey found that 12% of employees had seen instances where unethical behaviour had been rewarded; 13% saw it as difficult to get ahead in their careers without flexing ethical standards; and 18% had seen people in their organisation turning a blind eye to inappropriate behaviour.
Since the FCA under its previous chief executive abandoned its promised inquiry into the culture within banks, it has relied heavily on financial penalties to punish misbehaviour and as a control mechanism. Since 2013, the FCA has levied an absolutely staggering £3 billion in penalties on firms. The latest, which the Minister mentioned, was a settlement in January with Deutsche Bank. The proposed penalty was £230 million, which was discounted to £163 million. This was a settlement. In fact, almost all the penalties imposed have been settlements. Typically, the FCA proposes a financial penalty and then agrees a discount if the firm settles—as almost all do. The discount is normally 30%. Since 2013, that amounts to a total of £1.2 billion awarded in discounts.
My amendment proposes to put this gigantic discount mechanism to better use. It would enable the FCA to have direct sight of the improvements in process and behaviour agreed in any settlement. It would enable it to see that appropriate disciplinary action had been taken against those responsible for the transgressions. It would give the settling firms a powerful incentive to fulfil any settlement conditions. It would do this by making part of any discount withholdable until the settling firm had satisfied the FCA that all appropriate disciplinary actions had been taken. Only then would the full discount be realised.
This is a simple proposal. It would give the FCA more power, more say and more insight into how transgressors had modified their behaviour and addressed individual and structural culpability. It would give the firms involved a powerful incentive to take proper remedial action—which, unfortunately, still seems to be needed.
Lord Hodgson of Astley Abbotts
My Lords, I have Amendments 126 and 127 in this group. They impose duties on the National Crime Agency regarding the performance of its duties and the way it supervises the bodies that report to it. I tabled the amendments to address my concern that the country’s anti-money laundering regulations, which were and remain a critical part of the fight against financial crime, are not as effective as they should or could be.
There are three related issues. The first is that the regulations lack focus. Far too much unnecessary information is collected, which serves to distract rather than to illuminate the task of the regulator. We have heard tonight from my noble friends Lord Deben and Lord Leigh, and every Member of your Lordships’ House could produce evidence of the collection of superfluous information. They also lack effectiveness and follow-through. I was astonished to read in the debate on Second Reading in the House of Commons that Sir Edward Garnier, experienced lawyer that he is, said that many certification orders, having been granted, are never enforced. I therefore put down a Parliamentary Question—which is due for answer the day after tomorrow, sadly, but I am sure that my noble friend can chase up her officials—in which I asked,
“in each of the last three years for which figures are available, how many confiscation orders were … authorised by the courts … put into effect; and how much money was recovered”.
I hope that my noble friend will be able to give us those figures when she winds up.
However, it is not just about confiscation orders. My noble friend Lord Faulks talked about the report in the Times last week, according to which between 2007—when we introduced the last set of money-laundering regulations—and 2012, there were no convictions at all:
“There have been four convictions since and five more proceedings, according to a freedom of information request by the London law firm Howard Kennedy”.
Of course, as I said at Second Reading, the asset recovery by the NCA can only be described as trivial: £26.9 million for an agency that costs some half a billion pounds to run, and which tells us that billions of pounds of illegal money passes through London every year.
Lastly, and most importantly, the regulations do not enjoy general public confidence. Too many members of the public regard them as a paper-pushing exercise. As a result, they do not feel committed to their success or to ensuring that they work well. In my experience, having from time to time chaired risk and compliance committees, attempts to get the regulators to explain how valuable their work is are not greeted with great approval; they tend to say, “This is our business—you mind yours”. That is very different from the approach of the security services, which have publicly praised the public for their help.
At that point, some people may be tempted to say, “He works in the City, so he is a tainted witness”. However, I was interested to read the briefing from Transparency International—an NGO about which I know very little. It said:
“At the heart of the problem is the fact that”,
there are,
“27 Supervisory Bodies in relevant sectors … This leads to a fragmented approach:
...Failure to identify where the risks are and mitigate against those risks…The approach to enforcement is inconsistent and not transparent or effective…Many of the supervisors have serious conflicts of interest”—
we have already discussed that this evening—
“which we believe prohibits the bodies from doing a good job”.
I could hardly have put it better myself.
Compliance remains the great growth industry. Noel Coward may have said to Mrs Worthington,
“Don’t put your daughter on the stage”,
but you could do a great deal worse than putting her into compliance. Regulators seek more powers, so more returns are needed, compliance officers see a chance to build their empires, professional firms seek commercial opportunities in checking and rechecking the records, and Ministers can attend conferences and refer to all the efforts being made and the money being spent.
While the money being spent is considerable, both directly in maintaining the supervisory bodies, and by the firms who have to comply with their requirements, there is another cost which is much less frequently referred to: reputational cost, which arises from a process known as “de-risking”. When you de-risk, you remove from a group of people or a set of companies their financial ability to transact. Noble Lords will be aware of my interest in the charity and voluntary sector. Charities which operate in “difficult”—sensitive—areas find it almost impossible to get the financial services of British banks; it is not worth their time or trouble. It is not about borrowing money but just checking facilities—day-to-day operations—and the smaller the charity, the more difficult they find it. It affects not just organisations but individuals as well. Thirty years ago I worked in the City with a Pakistani who has a British passport and who is as Anglophile as you would like him to be. He worked in Hong Kong, and now lives in Lahore. He has just been told that all his bank accounts have been closed. Is there anything wrong with the accounts? There is nothing wrong with them—it has just been done. It is clear that the pressure on the banks to close down these accounts is coming from the regulators.
Baroness Williams of Trafford
My Lords, the amendments in this group have raised some important points around regulation and supervision of the regulated sector. I am also pleased to able to update noble Lords on some of the recent developments in this area.
Amendment 108, in the name of the noble Lord, Lord Sharkey, would require the FCA to withhold a proportion of any discount to a penalty applied to a financial firm until that firm has completed any internal disciplinary actions agreed in the settlement. We agree with the principle that such firms should be held accountable for their actions, or lack of them. The Government already have in place, through the FCA, powers to increase a penalty that it would otherwise impose on a firm in light of a range of potentially aggravating factors, including,
“disciplinary action against staff involved”.
A firm that had, by the time the FCA imposed its relevant penalty, failed to take such appropriate action, could therefore already have that penalty increased as a result.
The Financial Services and Markets Act 2000 allows the FCA to impose requirements on such firms. If the FCA considers that a firm needs to take disciplinary action—if appropriate and following all due employment process—after a penalty is imposed, the FCA can require that the firm properly and fully considers doing so. If the firm then fails to do so, that would become misconduct in respect of which the FCA could, subject to all other relevant factors, impose an additional penalty. Therefore, we believe that we already have in place powers to take action in the way the proposed amendment suggests.
Lord Sharkey
Does the Minister accept that there is a big difference between having the powers to do something in addition and having an automatic system of withholding, which makes it directly in the interests of the firms to take the action that they are supposed to take, rather than have the FCA make an assessment later and come back to discuss whether it ought to impose an additional penalty? One is automatic, giving an immediate incentive for the firms to do something, while the other requires additional supervision.
Baroness Williams of Trafford
I take the noble Lord’s point that one is perhaps much simpler, but of course each case is different. One firm might be a lot more compliant and it might not take much effort; another might take a lot more effort. However, I take his point.
I move on to Amendments 126 and 127 in the name of my noble friend Lord Hodgson of Astley Abbotts. These relate to the role of the NCA. The NCA leads, co-ordinates and supports the national law enforcement response to money laundering. The prosperity command of the NCA houses the UK Financial Intelligence Unit, or UKFIU, and receives suspicious activity reports, or SARs, from the regulated sector. The intelligence gathered from these is used to support investigations into both money laundering and the predicate offences.
The amendments seek to require the NCA to act in a regulatory manner by ensuring that the provisions of the Money Laundering Regulations, such as customer due diligence and monitoring of transactions, are implemented effectively, and to ensure that the NCA acts with regard to the principles of regulatory best practice. The NCA can and will act where there is criminal activity relating to money laundering. However, it does not have a regulatory remit, and to require it to have one would deflect it from its purpose of tackling serious and organised crime.
My noble friend also asked me for some figures on the moneys recovered. I can tell him that in 2015-16 £255 million was recovered under the Proceeds of Crime Act, of which £208 million was in confiscation. However, I will write to him with further details on that.
Finally, I turn to Amendment 70, moved by the noble Baroness, Lady Hamwee, and Amendment 73, tabled by the noble Lord, Lord Rosser.
Lord Hodgson of Astley Abbotts
I thought I heard the Minister say that the NCA is not a regulator, but I do not understand why it cannot abide by regulatory principles in executing its duty as an enforcer on money laundering regulations. I do not understand why the two are mutually exclusive. If I heard my noble friend aright, she appeared to say that it could not abide by regulatory principles because it is an enforcer.
Baroness Williams of Trafford
That is correct.
I now turn to Amendment 70, moved by the noble Baroness, Lady Hamwee, and Amendment 73 in the name of the noble Lord, Lord Rosser. I can update the Committee on the significant action that the Government are taking to improve the effectiveness of anti-money laundering regulation by strengthening the obligations on all supervisors through the new Money Laundering Regulations 2017. The Treasury published a consultation on these regulations shortly after Second Reading and it is open until 12 April.
The Government set out in a Treasury publication earlier this month their proposals for the new office for professional body anti-money laundering supervision. However, it would not be right for the Government simply to legislate without proper public consultation on the detail of this proposal, and I hope the noble Lord will recognise that that is the appropriate way forward.
We have also recognised the need for more co-ordination between regulators and supervisors of the regulated sector in relation to tackling money laundering. The new office for professional body anti-money laundering supervision will therefore work with professional bodies to help, and ensure, compliance with the regulations. The office will be hosted by the FCA and will liaise with other bodies across the regime to discuss and share best practice to help ensure consistent high standards across supervisors—especially where statutory and professional body anti-money laundering supervisors monitor the same sectors—and to strengthen collaboration between professional body anti-money laundering supervisors, statutory supervisors and law enforcement agencies.
The Government will consult on the draft regulations that will underpin the office over the summer, and they will be finalised and laid before Parliament in the autumn. The Government expect the office to be fully operational by the start of 2018.
The new arrangements will also support the enforcement capability of the supervisors. The supervisors can take a range of actions in relation to failings identified in the areas they supervise. Professional bodies have sanctions specific to their supervisory population—for example, the ability to expel firms from membership. The removal of professional accreditation in this way can incentivise compliance.
HMRC and the FCA have powers under the regulations to require information, enter and inspect premises, and administer monetary civil penalties to their supervised population. The UK is leading the way in improving transparency and accountability in anti-money laundering supervision by publishing an annual report on money laundering supervision on GOV.UK.
The Treasury’s annual report, which is now in its fifth year, sets out how the UK’s supervisors are contributing to the fight against money laundering and terrorist financing. The most recent report shows that supervisors are increasingly focusing on educating businesses on how to meet their anti-money laundering obligations, and ensuring that systems and controls are effective and proportionate to the risks. The actions that supervisors are reporting help to ensure that the UK’s financial system is a hostile environment for illicit finance.
The report shows the positive collaboration between the Treasury and the supervisory authorities, which include the FCA, HMRC, the Gambling Commission and the professional bodies. As set out in the Government’s response to the review of the supervisory regime, the annual report will be strengthened with a new requirement for supervisors to provide relevant information to inform the annual report. This will be expanded to include two new questions on enforcement activity.
I hope that noble Lords will recognise and commend the considerable government activity in relation to the anti-money laundering regime. On that basis, I hope that the noble Baroness will withdraw her amendment.
Lord Rosser
For clarification, the Minister referred to the Government’s intention to create a new office for professional body AML supervision, hosted by the FCA. If my memory serves me right, she said that it would be in existence in early 2018. That of course is still out for consultation, is it not? That is the document where responses were called for by 26 April. It may be that all the responses about the proposed body were negative, in which case presumably the Government may wish to think again. Does that mean that setting up this new office will not require any legislation and that there will not be a need for legislation, for example, to define its powers and responsibilities?
Baroness Williams of Trafford
It may be helpful to the noble Lord if I reiterate the point that I made. The Treasury published the outcome of the review on 22 March and is now conducting further consultation on the creation of the new body, which will be overseen by the FCA and will be up and running by the start of 2018.
On his question of whether legislation—secondary or otherwise—will be required, perhaps I may write to him. I think that it will be secondary legislation but I cannot be certain.
Lord Rosser
Is the Minister saying that setting up a new body that will have powers over other bodies can be done through secondary legislation—by a statutory instrument?
Baroness Williams of Trafford
I do not know, which is why I will write to the noble Lord, if he is happy with that.
Baroness Hamwee
That will be helpful. As I understood it, the proposal was for regulations, and the further consultation has a limited number of questions to flesh out the earlier work. The Minister obviously has some more information.
Baroness Williams of Trafford
I have just had an answer from the Box. It will in fact be secondary legislation that is laid before Parliament.
Baroness Hamwee
My Lords, perhaps I should accept that it will be up to us to ensure that transparency and accountability are included in those regulations. I will set myself some more homework. I am grateful for the Minister’s responses. The story is obviously not ending here but I beg leave to withdraw the amendment.
Baroness Kramer
“Whistleblowing
(1) The Secretary of State must by regulations made by statutory instrument establish an Office of the Whistleblower.(2) The functions of the Office shall be the administration of arrangements to facilitate whistleblowing in respect of corrupt or suspected corrupt practices in systematically important financial institutions including in particular with regard to fraud, tax evasion, money laundering or miss-selling. (3) The Office shall have powers—(a) to give directions as to the records kept by each institution and to check compliance with its directions including by audit;(b) to award financial compensation to any person voluntarily providing information to—(i) the Financial Conduct Authority;(ii) the Prudential Regulation Committee of the Bank of England;(iii) the Serious Fraud Office; or(iv) any other organisation designated by the Secretary of State;leading to enforcement action against the institution sanctioned by way of penalty of not less than £500,000; and(c) to set the level of compensation awarded in each case between 10% and 30% of the total collected.(4) The Secretary of State must by regulations made by statutory instrument make provision with regard to retaliatory action against whistleblowers.(5) For the purposes of this section a “systematically important financial institution is an institution” designated by the Bank of England in consultation with the Financial Stability Board and the Basel Committee on Banking Supervision.”
Baroness Kramer
My Lords, this amendment is designed to strengthen the protection for whistleblowers but also to provide for mandatory compensation for them following the example of the United States in this area, most recently under Dodd-Frank. It also proposes an office of the whistleblower, both to enshrine the importance of whistleblowing and to provide the necessary oversight of the broader regime. It is a probing amendment and I hope that the Minister will not waste her time in discussing drafting issues, when the core issue of whistleblowing and how we support it is so critical to making the financial system clean and fair and to rebuilding public trust.
Being realistic, so much money swirls though the financial system that the potential for ill-gotten gains from misbehaviour is huge. My amendment mentions fraud, tax evasion, money laundering and mis-selling, but ingenuity in this area is boundless, as evidenced by the fixing of the LIBOR benchmark rate, which involved many banks over several years distorting billions of dollars of transactions, for which very few have paid the price, and those who have are primarily junior staff. With money on this scale, no regulator or enforcement agency can begin to tackle these issues without inside information. That means a positive culture of whistleblowing, which in itself then becomes a deterrent.
We do this notoriously badly. The recent RBS GRG scandal is an example. I have spoken to only two of the whistleblowers but they have both been treated atrociously by RBS and the regulators and face an end to their careers and personal disaster. This is despite endless warm words from the banking industry, individual banks, the regulators and the Government on how important the whistleblower is and promises of protection. It is why I am calling on the Government in subsection (4) of the proposed new clause to act much more directly to stop retaliatory action.
I was a member of the Parliamentary Commission on Banking Standards. Among our work, we looked at the whistleblowing regime and recommended some enhancements. To be fair, those have, for the most part, been adopted, but they were modest changes: for deposit takers, PRA-designated firms and insurers a non-executive director or senior manager is required to be named as responsible for whistleblowing under the senior managers regime; a system to protect employees is required to be in place in each institution; the rules are to be disseminated; and employment tribunals are meant to provide protection. The banking industry is very satisfied with this approach. Indeed, it has always been satisfied with its approach and, in the evidence and testament we took, it was very satisfied with the prior approach, even though rarely was whistleblowing taking place even under the most egregious circumstances, and whistleblowers were receiving little, if any, protection. It is clear the industry was shocked that, with all of its whistleblowing measures in place, no one came forward to tell the authorities about money laundering, LIBOR or mis-selling.
The revised system appears to be fraught with problems. In an email from the charity WhistleblowersUK, I heard that a few days ago a staff member called to speak to the whistleblowing champion at a major bank only to be told that they did not exist. When the caller persisted by providing the name from a letter, the bank told them that that person did not exist. Whistleblowers themselves complain that the regulators provide them with advice and then renege, and that they have no comeback against the regulators, whom no one can compel to respond to FOIs or subject data access requests.
In March this year the Financial Conduct Authority confirmed that the number of whistleblowing reports has fallen for the second year in a row, down to 866, of which just over 100 were of “significant value”. That is not a successful system. In the United States, by contrast, whistleblowers are far more appreciated. They are a core tool for exposing wrongdoing, whereas in the UK they are merely incidental. The key difference is reflected in compensation, which underscores the complete cultural difference in the attitude towards whistleblowers. In my amendment I have essentially lifted the simple principles of compensation available under Dodd-Frank and drafted them into UK law. Compensation is mandatory for those providing original information leading to a sanction, and the compensation is a hefty 10% to 30% of the sanction paid. This is a recognition that for most people whistleblowing puts a career, lifestyle and family at risk.
Let me quote the evidence of Erika Kelton, a US lawyer dealing with whistleblowing cases, describing the impact of US whistleblowing incentives schemes to the Parliamentary Commission on Banking Standards. She said:
“Tens of billions of dollars otherwise lost to illegal practices that cheat the public fisc have been recovered as a direct result of whistleblower information. But the impact and importance of whistleblower matters goes far beyond the large dollar amounts recovered for US taxpayers. Whistleblowers have exposed grave wrongdoing, leading to changes that promote integrity and transparency in financial markets. Whistleblowers have helped stop massive mortgage frauds, gross mischarging practices, commodity price manipulation, and sophisticated money laundering schemes, among other misdeeds”.
She argued that,
“meaningful, non-discretionary financial incentives are critical to establishing robust and successful whistleblower programs”.
In the UK, the objection of the regulator to such incentives is one of “moral hazard”—that whistleblowing is simply somebody doing his or her job and deserves no special reward. I simply look at the lack of whistleblowing and the situation for whistleblowers in the UK and disagree. The Parliamentary Commission on Banking Standards directly called on the FCA to research the impact of financial incentives in the US in encouraging whistleblowing. I have yet to hear any substantive report on that issue; perhaps somehow I have missed it and the Minister has seen it.
I fully accept that issues around whistleblowing extend beyond financial services and impact many other business sectors and areas of our lives. But we could start here with financial services. We need action that is game-changing, not tinkering around the edges. It is vital that we use every reasonable tool to increase our chances of keeping the financial sector clean, protect the public and restore trust in an industry that is key to the functioning of our economy. I beg to move.
Lord Phillips of Worth Matravers
My Lords, I support this amendment. I suggest that whistleblowers need to be both protected and rewarded in order to encourage them. The Mauritian legislation of which I spoke earlier makes provision for rewards to be paid to whistleblowers whose information leads to the confiscation of unexplained wealth. Indeed, the board that I chair has the function of making such awards. In my view this is a salutary provision as one of the weapons in the fight against crime and corruption. Therefore, I support in principle this amendment, but as a starting point because I suggest that it is a principle that should be applied much more widely in the case of action taken that leads to the recovery of the proceeds of crime.
Lord Faulks
My Lords, I am sure the whole House shares the concern that the noble Baroness has expressed about whistleblowing and its importance generally. However, I respectfully submit that this amendment is a pretty substantial response to that. It seeks to set up a whole department—the office of the whistleblower. I accept that this is something of a probing amendment and therefore bears the standard for what the noble Baroness may hope to come, but it is little short of a job-creation scheme. The proposed functions of the office of the whistleblower are extensive and it would have powers. Of course, if an office is created, those who are given that office will appoint others to work for them and powers will be exercised. If they are not exercised it would be suggested that they were not doing their job. Before we know where we are, we will have a substantial bureaucracy that runs the risk of having the same problems that exist in other areas of bureaucratic supervision of financial institutions.
The question of incentives is interesting. I accept that that they have had some success in the United States and, as we heard from the noble and learned Lord, in Mauritius too. But as to the question of “retaliatory action against whistleblowers”, a whistleblower has remedies in civil law in any event. When she comes to respond to the Minister, will the noble Baroness give us some idea what is meant by the provision with regard to “retaliatory action against whistleblowers”? The criminal law exists and civil remedies exist for employees and I wonder whether that is not inviting something rather too much. Of course, she rightly acknowledges that whistleblowers are not entirely based in the financial institutions; they exist in the NHS and have recently been considered by Sir Robert Francis and in all other government departments.
The real question is whether the establishment of this no doubt expensive bureaucracy will deter and whether it will result in the detection of what would otherwise not have been detected. While I applaud the general thrust of the amendment, I wonder whether it is something of an overreaction.
Lord Kennedy of Southwark
My Lords, the noble Baroness, Lady Kramer, raised the issue of whistleblowing in her contribution at Second Reading and now proposes this new clause today with the noble Baroness, Lady Hamwee. As we have heard, it would establish an office of the whistleblower. The purpose would be to offer much-needed protection to whistleblowers who expose criminality, corruption, fraud and other illegal activity. The price that whistleblowers often pay for alerting the authorities to illegal and criminal activity is to lose their jobs and have their careers ruined and destroyed.
The noble Baroness is right to highlight that we need to do more to offer protection and compensation to people who come forward and alert the authorities to the illegal activity. The noble and learned Lord, Lord Phillips, supported action and I agree. However, I agree with the noble Lord, Lord Faulks, that setting up an office may not be the right way to go about that. What is definitely needed is further protection in statute and regulation. It may not need an office to be established. I will be interested to hear the response from the noble Baroness, Lady Williams of Trafford, to this amendment. I entirely accept that it is a probing amendment and I think that we should take the opportunity that this Bill affords us to do something to address the issue of whistleblowers and the precarious position that they can find themselves in, which the noble Baroness, Lady Kramer, has highlighted to the House today. I accept that whistleblowing goes across a variety of sectors, but we are dealing with the financial services sector and this would be a good place to start.
Baroness Williams of Trafford
My Lords, I am grateful to the noble Baroness for allowing us to debate this important issue. Whistleblowers play a valuable role in society by bringing wrongdoing to light that could otherwise go unchallenged. Individuals should be able to report malpractice in the workplace without fear of reprisal; and employers should be prepared to work with staff to resolve concerns, particularly by means of effective internal procedures.
The Employment Rights Act 1996, as amended by the Public Interest Disclosure Act 1998 and subsequently, provides employment protection for workers in all sectors who have blown the whistle. It enables them to seek redress if they are dismissed or suffer detriment at the hands of the employer because they have made a “protected disclosure” about wrongdoing that they have witnessed at work. To qualify for the protections, a worker must generally make their disclosure either to their employer or the relevant “prescribed person”. “Prescribed persons”’ are typically regulatory bodies for the sector in which the whistleblower works or the type of wrongdoing involved.
I assure noble Lords that, over recent years, the Government have taken steps to support a cultural change in relation to whistleblowing in all sectors, including financial services. A number of statutory and non-statutory improvements have been made. This includes guidance for whistleblowers on how in practice to make disclosures while preserving their employment protections; and guidance for employers including a non-statutory code of practice which we will review this year. We have fulfilled the commitment to keep the prescribed persons list up to date with annual reviews, and we now have guidance in place for prescribed persons. The next update will require prescribed persons to report annually on the number of whistleblowing disclosures they have received and broadly the action that resulted.
Lord Kennedy of Southwark
I agree with the Minister that the office is not the right way forward, but is she saying that everything is fine?
Baroness Williams of Trafford
I am saying that the Government looked at this in 2014, certainly in terms of the financial incentives, and there are various mechanisms in the different sectors for whistleblowers to come forward. The ultimate sanction for employers is unlimited compensation, depending on the type of wrongs that that employer engages in.
Lord Kennedy of Southwark
I am sorry to come back on this, but I take it that the Government do not think that anything further needs to be done on this at the moment.
Baroness Williams of Trafford
The Government are never complacent in any area of law they introduce; I would never say that everything is perfect.
Baroness Kramer
My Lords, obviously I am going to withdraw the amendment, but I want first to make a couple of points. I am not going to give up on this issue. Let me point out that a moment ago the Minister talked about an office for money laundering to be set up within the FCA. As far as I am concerned, that is an ideal pattern to follow. The notion that this proposal would create an extraordinary and hefty bureaucracy is not credible because, frankly, the entire bureaucracy would probably be paid for by one whistleblower revealing one scandal on the scale that we have seen in recent years. I reject the idea that this is onerous. There are plenty of templates to follow that would allow us to do this sensibly.
On the financial incentive, I do not believe for a moment that whistleblowers do it for the money. The money is a recognition that they have destroyed their future. There may be some protection within the company they work for which ensures that they are not dismissed, but neither I nor anyone else can be persuaded that people do not look at whistleblowers and decide that they are not quite right for this promotion, that project or opportunity. If they try to change companies they go with what is almost a black spot on their hand, marking them out as someone it is perhaps better not to take a risk on. That is a reality which the Government have never faced up to.
When dealing with detriment, I would recommend the Minister and others who are interested to connect with the charity Whistleblower.co.uk, which would be delighted to provide them with a great deal of detail. I hesitate to mention individuals without their specific permission, but all the protections have turned out to be completely useless for them. People’s lives have been wrecked. Frankly, even the regulator would agree that despite all the systems that are in place, people’s lives have been wrecked, and there has only been some tinkering at the edges. Nothing has happened to bring about fundamental change. All this comes together in the poor statistics that I set out when moving the amendment. Very few people are coming forward and blowing the whistle on substantive issues that can affect our absolutely massive financial services sector. This allows the industry to be rather complacent, and that is exceedingly dangerous.
I hope that the Minister will recognise that while I will withdraw the amendment, we are nowhere near coming to the end of this issue.
Baroness Vere of Norbiton
“(h) betting receipts,”.”
Baroness Vere of Norbiton (Con)
My Lords, we now come to two proposed changes that the Government are seeking to make to the seizure and forfeiture powers set out in Chapter 3 of Part 1 of the Bill. In the House of Commons we introduced amendments to allow law enforcement agencies to seize casino chips and gaming vouchers where they had the suspicion that they were either the proceeds of crime or would be used to commit further offences. The Government were also asked to consider whether similar provisions could be introduced to allow the seizure of betting slips. Government Amendments 80, 82, 83 and 138 to 140 make such provision. If law enforcement agencies suspect that the funds used to place a bet are the proceeds of crime, they will be able to seize the betting slip. These provisions will be subject to the same safeguards as for cash seizure and we will be working with bookmakers and their trade associations to ensure that they are used effectively.
At present, Clause 14 allows for the seizure and forfeiture of moveable stores of value but makes no allowance for deductions for legal expenses on the part of the person the item was seized from. Government Amendments 88, 90 to 101 and 142 to 155 will therefore allow for a deduction to meet legal expenses from recovered sums following the forfeiture of the item. Where appropriate, the court will determine whether legal expenses should be paid and will provide for that as part of the forfeiture order. These amendments make similar provisions in Schedule 3 in relation to items seized where there is a suspicion of terrorist financing. I beg to move.
Lord Kennedy of Southwark
I am happy to support these amendments, which are both sensible and proportionate. Ensuring that betting slips can be seized is a sensible move, as indeed is the whole series of amendments.
Lord Stevens of Kirkwhelpington (CB)
My Lords, I also support this group of amendments. I declare an interest as my son is the head of the financial recovery unit of the Metropolitan Police. This is one area of the Bill that had an immense weakness. To ensure that the provisions work properly as far as officers working on the front line are concerned, these amendments must be inserted into the legislation.
Criminal Finances Bill
Tuesday 28th March 2017
(7 years, 1 month ago)
Lords ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 104-I Marshalled list for Committee (PDF, 179KB) - (24 Mar 2017)
Baroness Hamwee
“(h) money or assets in any form which may be used as currency,”.”
Baroness Hamwee (LD)
Amendment 81 extends the debate we had immediately before the break with regard to the assets that may be liable to forfeiture. I understand the extension in Clause 13, which we have discussed, but I wonder why there should be any limits on what falls within the forfeiture provisions, because life changes. Items that come into common use change. Who had heard of bitcoins 10 years ago? That is the thinking behind my Amendment 81, which would extend cash, and Amendment 84, which would extend listed assets. The Minister in the Public Bill Committee in the Commons said of what is now Clause 14 that the Government did not want to use the power in new Section 303B(2) “indiscriminately”. I am puzzled what that term means. I can see that they would want to be careful about that use, but I do not see the relevance of discrimination.
In her letter of 17 March to noble Lords following Second Reading, the Minister referred to a balanced approach and said that allowing seizure of any type of property would not be proportionate. Again, that term puzzles me. Balance and proportion are relevant to the circumstances in which property can be forfeited—the conditions which have to be met, and so on—but are they relevant to the type of asset? We are in danger of allowing the owner of an asset to apply criminal ingenuity to remain a step ahead, finding new categories of property in which the proceeds of crime can be held. At Second Reading, the Minister said:
“As criminals adapt, so must we”.—[Official Report, 9/3/17; col. 1476.]
We should—but it would be even better if we were to anticipate and be a step ahead, not a step behind, because it is very hard to be in step precisely.
Lord Stevens of Kirkwhelpington (CB)
My Lords, I support Amendments 81, 82 and 83. I pay tribute to the Minister and her team, who have listened to the officers who are actually on the front line as well as to others. In general terms—and I know these are probing amendments—if there are direct links between money assets and anything that may be used as currency, can consideration be given to those links being widened? Pursuing that would be of great help to the agencies which are enforcing these laws. I stress my tribute to the Minister and her team for listening to those who have to enforce these laws.
Lord Kennedy of Southwark (Lab)
My Lords, the amendment proposed by the noble Baroness, Lady Hamwee, has merit and widens the Bill so that assets which can be used as currency can be included for the purposes of the forfeiture of cash. In some parts of the world, mobile phone credits are traded as cash and it would not be impossible to see situations where large quantities of these credits could be traded, hold the proceeds of crime and be used as currency. There will be other items that will be used in similar circumstances in the future.
However, I am not persuaded by Amendment 84 in the name of the noble Baroness, Lady Hamwee. I understand the arguments about what is included in this broad definition but believe that what is shown in the Bill as “listed assets” is better. However, I would want the regulations which may amend subsection (1) to use the affirmative procedure because it is important that we have a discussion about it at that time.
Amendments 85, 89, and 106 add the words “reasonable grounds for suspecting”. Those are proportionate clarifications which the Minister should adopt. I am not convinced that Amendment 87 is necessary. I see the point which the noble Baroness, Lady Hamwee, is seeking to address but hope that the Government will confirm that the words “safely stored” will cover this point and that valuable goods will be stored appropriately.
I am not persuaded of the merits of Amendment 102, although I do support Amendments 103 and 104 in the name of the noble Baroness. If the court is satisfied that the person has suffered a loss then they should be compensated for that loss and it is important that regulations made under this section are not used to restrict the payment of compensation. Amendment 105 is also a sensible addition, unless the Minister says very clearly today that a person’s reasonable living expenses include them providing for their dependants. Amendment 106, bringing in the term “reasonable grounds”, in respect of forfeiture is also a welcome provision.
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
I thank noble Lords for their contributions, and particularly the noble Lord, Lord Stevens, for his kind words. The noble Baroness, Lady Hamwee, has—as always—scrutinised the provisions in some detail and I am grateful to her for the points she raised. Her Amendments 81 and 84 seek to broaden the scope of the seizure and forfeiture powers at Clauses 13 and 14 so that they can essentially be used to seize any items deemed to be the proceeds of crime. However, these will create a number of issues. The test that the property “may be used as currency” is legally ambiguous and untested, and it could complicate the use of these powers. The effect of Amendment 81 would also be to include a wide range of property in the cash forfeiture procedure which is not easily severable, as would be required for these provisions.
The noble Baroness referred to bitcoin at the beginning of her speech. There are difficulties in defining what we would seize. While we would not include this in the Bill, we are continuing to work with law enforcement agencies to determine how we should approach this issue more generally, and specifically to determine whether there is a gap in law enforcement capability that requires legislative change.
In respect of the noble Baroness’s Amendment 84, I am sure she would agree that we must take a proportionate approach to ensure that there is clarity regarding what can and cannot be seized. The items listed in the Bill are there based on clear justification that they may be used to move or hide the proceeds of crime, and we drew on the advice of law enforcement practitioners in developing this list. Her amendments would move away from the principle of clarity, eroding the careful circumscription that the Bill provides for these provisions. We can add to the list when the need arises, subject to parliamentary approval. As we have demonstrated through our amendments during the Bill’s passage, we will do so where a clear case arises. This gives us and the police the flexibility and balance we need while ensuring that this is not a sweeping seizure power. I am very grateful to the noble Baroness for allowing me to emphasise how seriously the Government take these issues, particularly the need for stringent safeguards on the use of such powers. I trust that she will feel inclined not to press these amendments.
I turn to the other amendments tabled by the noble Baroness. Amendment 85 seeks to insert the principle of “reasonable grounds for suspicion” into the definition of a listed asset. However, this appears to insert this test in the wrong place in the Bill. We consider that the inclusion of the “reasonable grounds to suspect” test in the sections relating to the operation of the seizure powers is more appropriate, and this approach mirrors the existing provisions for the recovery of cash.
Amendment 86 seeks to require the Secretary of State to take the actions relating to the issuing of the code of practice for searches for listed items before it is issued. The provision in the Bill is consistent with existing wording in the Proceeds of Crime Act relating to codes of conduct. I assure the noble Baroness that all the relevant actions will be taken before a code is issued.
Amendment 87 seeks to require that items seized under these provisions should be stored in appropriate conditions. The agency seizing such property is liable for its storage, and would be liable for damage to such property if due care were not taken. Therefore, we believe that the agency responsible would take such action in any case.
Amendment 102 seeks to remove the provision allowing the release of the listed item if the victim was deprived of it through unlawful conduct. The provision is one of three principles that the court must consider when the victim applies to the court for the item to be returned. The removal of this provision would remove the requirement on the victim to show that they had lost the property through unlawful means. This is an important test that the court must satisfy itself on, and which already applies to the well-established system for the forfeiture of cash, and we believe that it should be retained.
Amendment 104 seeks to prevent the Secretary of State restricting the payment of compensation through regulation. The intention behind the power in the Bill is to ensure that the appropriate agency can be held responsible for any compensation that may be paid. It allows the Secretary of State to add to the list of those who are liable for paying compensation where appropriate. The provision already exists for cash forfeiture, and I see no reason not to replicate it here. It should be noted that the circumstances in which compensation would be payable are set out elsewhere in new Section 303W, and that the Secretary of State’s power does not extend to amending these provisions.
The noble Baroness asked why exceptional circumstances are required. This is modelled on the cash provisions. The seizure power applies to a limited number of assets. It is not anticipated that, in normal circumstances, seizure would result in loss being sustained. The items are not likely to change in value during the timeframe for seizure.
I turn to provisions relating to Clause 15. Amendment 105 seeks to extend the exclusions to an account-freezing order to include the living expenses of a person’s dependants. The provision for exclusions relates to the actions on the account and the owner’s ability to use the contents of the account to meet reasonable living expenses. I fully appreciate that there may be dependants of the account owner who would be adversely affected if no provision were made for the account to be used to meet their living expenses. That is why we have included this provision. The living expenses will be determined by a court and, if there are dependants, the court will take them into consideration.
Amendment 106 would include a provision that, where forfeiture is sought on the grounds that it will be used for unlawful conduct, the officer must have reasonable grounds for suspicion that this is the case. The existing provisions already require the officer to be satisfied that the property may be recoverable or may be used for unlawful conduct, and we do not want to lower that threshold.
I thank noble Lords for their patience. I hope that I have addressed the issues that the noble Baroness raised and that she will be happy to withdraw her amendment.
Lord Kennedy of Southwark
When I spoke about listed assets, on page 44 of the Bill, I said I preferred what was in the Bill to the amendment of the noble Baroness, Lady Hamwee. I mentioned regulations being made by the affirmative procedure. Of course, it does not say that here, so I am assuming that they are not—that they will be made by the negative procedure or in some other way. Perhaps the Minister could write to me on this.
Baroness Williams of Trafford
I am looking for a yes or a no, but I do not think that I will get it, so I will write to the noble Lord.
Baroness Hamwee
My Lords, I am grateful to the noble Lords, Lord Stevens and Lord Kennedy. Mobile phone credits for cash? I have led a very sheltered life.
The Minister said that the problem was in the phrase “may be used as currency”. But it seems to me that one can know that only through experience. That is why betting receipts, gaming vouchers and so on have now been included. I am really not sure that I follow the argument, although I will think about it after this evening.
I mentioned bitcoins not because I was suggesting that they should be included but simply as an example of how some time ago we did not know what was coming.
One’s living expenses include the expenses of dependants—I think that is what the Minister said. She is nodding. It is not quite within the normal meaning of the words, but I will accept that, and I am glad that it has been confirmed.
I do not think that I adequately followed the argument about the term “exceptional circumstances”. The Minister said quite a lot about the rest of the clause and of course I shall look at that after this evening. For now, I beg leave to withdraw the amendment.
Baroness Williams of Trafford
Perhaps I may intervene to say that the regulations will be affirmative.
Lord Kennedy of Southwark
I thank the Minister very much, but it does not say that in the Bill—it just refers to the regulations—and I think it needs to say that.
“( ) “betting receipt” means a receipt in physical form that represents a right to be paid an amount in respect of a bet placed with a person holding a betting licence.( ) In subsection (7A)—“bet”—(a) in relation to England and Wales and Scotland, has the same meaning as in section 9(1) of the Gambling Act 2005;(b) in relation to Northern Ireland, has the same meaning as in the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 (S.I. 1985/1204 (N.I. 11)) (see Article 2 of that Order);“betting licence”—(a) in relation to England and Wales and Scotland, means a general betting operating licence issued under Part 5 of the Gambling Act 2005;(b) in relation to Northern Ireland, means a bookmaker’s licence as defined in Article 2 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985;“gaming machine”—(a) in relation to England and Wales and Scotland, has the same meaning as in the Gambling Act 2005 (see section 235 of that Act);(b) in relation to Northern Ireland, has the same meaning as in the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 (see Article 2 of that Order).( ) In the application of subsection (7A) to Northern Ireland references to a right to be paid an amount are to be read as references to the right that would exist but for Article 170 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 (gaming and wagering contracts void).””
“(3A) An order under subsection (3) made by a magistrates’ court may provide for payment under section 303U of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of— (a) the proceedings in which the order is made, or(b) any related proceedings under this Chapter.(3B) A sum in respect of a relevant item of expenditure is not payable under section 303U in pursuance of provision under subsection (3A) unless—(a) the person who applied for the order under subsection (3) agrees to its payment, or(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.(3C) For the purposes of subsection (3B)—(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B would apply if the order under subsection (3) had instead been a recovery order;(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations;(c) if the person who applied for the order under subsection (3) was a constable, an SFO officer or an accredited financial investigator, that person may not agree to the payment of a sum unless the person is a senior officer or is authorised to do so by a senior officer.(3D) “Senior officer” has the same meaning in subsection (3C)(c) as it has in section 303E.”
“(5A) An order under subsection (1) made by a magistrates’ court may provide for payment under subsection (9) of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—(a) the proceedings in which the order is made, or(b) any related proceedings under this Chapter.(5B) A sum in respect of a relevant item of expenditure is not payable under subsection (9) in pursuance of provision under subsection (5A) unless—(a) the person who applied for the order under subsection (1) agrees to its payment, or(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.(5C) For the purposes of subsection (5B)—(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B would apply if the order under subsection (1) had instead been a recovery order;(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations.”
“Senior officer” has the same meaning in this subsection as it has in section 303E.”
“(za) first, it must be applied in making any payment of legal expenses which, after giving effect to subsection (5B), are payable under this subsection in pursuance of provision under subsection (5A);”
“(3A) An order under subsection (3) made by the High Court may include provision of the type that may be included in an order under section 303O(3) made by a magistrates’ court by virtue of section 303(3A).(3B) If provision is included in an order of the High Court by virtue of subsection (3A) of this section, section 303O(3B) and (3C) apply with the necessary modifications.”
“(1A) Where an order under section 303Q is made by a magistrates’ court, any party to the proceedings for the order (including any party to the proceedings under section 303O that preceded the making of the order) may appeal against a decision to include, or not to include, provision in the order under subsection (5A) of section 303Q.”
“(aa) second, they must be applied in making any payment of legal expenses which, after giving effect to section 303O(3B)(including as applied by section 303R(3B)), are payable under this subsection in pursuance of provision under section 303O(3A) or, as the case may be, 303R(3A);”
Baroness Hamwee
Baroness Hamwee
My Lords, we have had groupings which have covered half a dozen big issues; Amendment 107 would amend the definition of SFOs— serious fraud officers—in Schedule 1, where we are told that an SFO officer is,
“a member of staff of the Serious Fraud Office”.
My amendment would add to that,
“of such minimum level of seniority as may be designated by the Secretary of State”.
Realistically, of course, this aims to exclude a very junior member of staff who has perhaps simply administrative duties and so on—I seem to remember the noble and learned Lord, Lord Keen of Elie, saying, “It wouldn’t mean the janitor”. I want to make sure that it does not mean the janitor. The SFO officers are referred to for various purposes, and after all, staff include civilians. I hope that whoever is to reply to this from the Front Bench—it seems that it will be the noble Baroness, Lady Vere—will be able to reassure the Committee as to just what is meant in this context and why there is no obvious limit: or perhaps there is one somewhere else as regards what level of officer we are talking about. I beg to move.
Lord Kennedy of Southwark
The noble Baroness’s amendment is obviously a probing amendment, and I hope that we will get a response from the Government Front Bench that clarifies the situation.
Baroness Vere of Norbiton (Con)
My Lords, I am grateful to the noble Baroness, Lady Hamwee, for her scrutiny of these provisions. Her Amendment 107 seeks to require the Secretary of State to define the seniority of SFO staff so that not all have access to POCA powers. I appreciate her concern at the extension of the powers conferred by POCA but I hope I can reassure her by explaining our reasons for extending powers to SFO officers.
As the noble Baroness is undoubtedly aware, the SFO is responsible for investigating some of the most serious cases of fraud, bribery and corruption. To effectively combat complex crime, it is vital that SFO officers have access to the most effective legislative tools. Currently, only SFO officers who have accredited financial investigator status have access to POCA powers. This is at variance with other agencies such as the police, the NCA, HMRC and Immigration Enforcement, whose officers have direct access to these powers whether or not they are financial investigators.
It is logical and appropriate that these powers are made available to all SFO officers, both to ensure consistency of approach across agencies and to ensure that non-accredited SFO officers have access to POCA powers when investigating complex crimes, which may include investigating the proceeds of crime.
I hope I can further reassure the noble Baroness that all agencies adopt a process whereby applications made under POCA are considered and approved by an appropriate management chain before they are submitted to court. This ensures that all officers, of whatever grade or rank—even the janitor—are required to consider the necessity and proportionality of any application they make.
I am grateful to the noble Baroness for allowing me to explain the rationale for this position—particularly the need to make powers available to a wide range of officers involved in the investigation of complex, acquisitive crime. I trust that she will feel inclined not to press this amendment and, accordingly, I invite her to withdraw it.
Baroness Hamwee
My Lords, I understand the need to broaden the scope but I cannot help but think that we have been told that there are a lot of organisations that could give responsibilities to their janitors. The point is that decisions on who is given responsibility to do what can be made by senior officers of the day in an inconsistent fashion. In most organisations that would be entirely reasonable but we are talking about very serious powers, so my amendment and my comments are not intended to be frivolous.
Of course, I shall not pursue this matter tonight, and indeed after two or three mentions of thanks for my careful scrutiny and, reading between the lines, thoughts of “I wish the noble Baroness would shut up”, I think that I probably will for tonight. As I said, it is not a frivolous point but I beg leave to withdraw the amendment.
Lord Rosser
“Report to Parliament on impact on enforcement authorities
(1) The Secretary of State must, within 18 months of the day on which this Act is passed, lay before both Houses of Parliament a report on the implementation of this Act and the impact on enforcement authorities.(2) The report must include an assessment of—(a) what, if any, additional resources are required by enforcement authorities in order to carry out their functions and powers under this Act;(b) what, if any, additional resources have been provided to enforcement authorities to support them in carrying out their functions and powers under this Act;(c) what additional training has been provided by enforcement authorities to staff members in order to allow them to effectively carry out their functions and powers under this Act;(d) to what extent enforcement authorities have used the powers provided under this Act.(3) In this section “enforcement authorities’’ means—(a) the National Crime Agency;(b) Her Majesty’s Revenue and Customs;(c) the Financial Conduct Authority;(d) the Serious Fraud Office; and(e) the Director of Public Prosecutions (in relation to England and Wales) or the Director of Public Prosecutions for Northern Ireland (in relation to Northern Ireland).”
Lord Rosser (Lab)
This amendment requires the Secretary of State, within 18 months of the day on which this Bill is passed, to lay before both Houses of Parliament a report on the implementation of the Act and its impact on enforcement authorities.
At Second Reading, it was pointed out that, if the measures provided for in the Bill are to be made to bite, the necessary resources will need to be provided. New offences and powers are created in the Bill, together with extensions of existing powers, which will require further resources, both financial and staff.
In response at Second Reading, the Government referred to the sums of money that have been invested in law enforcement agencies since 2006 and under the asset recovery incentivisation scheme over the past three years. I am not sure that that response really addressed the potential concern that had been expressed about the future and the implications for resources if the changes in the Bill in respect of new offences, powers and enhanced powers were to be effectively introduced and applied.
One’s concerns were not helped by the response from the Government to the question asked at Second Reading about the few unexplained wealth orders that were predicted—20 per year. The response was to the effect that it was a conservative estimate—presumably in more senses than one—as opposed to being a definitive indication of how often the unexplained wealth orders would be used. Has that been the basis on which other new and enhanced powers in the Bill have been assessed by the Government, and has it been done in this way to try to dampen down calls for additional resources in the quest to save money?
The Government said at Second Reading that they were already engaging with law enforcement authorities and prosecutors to encourage the use of all the new powers being introduced by the Bill. However, they went on to say that ultimately it would be for the enforcement authorities, which are operationally independent, to decide when and how often to use the new powers in the Bill. That may be true but the extent to, and thoroughness with which, enforcement authorities use the new and enhanced powers in the Bill must ultimately be determined by the level of resources they are given to carry out their new and enhanced role and responsibilities. The issue of the resources that are going to be made available to implement the provisions in the Bill, and about which we have heard very little, is a matter for government.
Lord Hodgson of Astley Abbotts (Con)
My Lords, the noble Lord, Lord Rosser, is talking about post-legislative scrutiny arrangements. I quite favour post-legislative scrutiny but think that the amendment has some serious weaknesses. Essentially, it is a list of requests, in the sense that proposed new subsection (2)(a), (b) and (c) asks for additional resources and training. When you tie that in with the list of enforcement authorities overleaf in proposed new subsection (3)(a) to (e), there are some extremely serious and bulky authorities there that could come up with a pretty large list of what they might want. While I entirely support what is said in proposed new subsection (2)(d)—
“to what extent enforcement authorities have used the powers provided”,
which is an extremely good point to inquire about—nowhere does the report require any assessment of what has been achieved. It seems to me that the critical aspect of the Bill is what is achieved. I worry that what we have here is a shopping list for more resources but without any need to justify the money that has been spent or to what extent it has proved effective in various ways; for example, by inhibiting crime or by seizing drugs or other forms of assets.
Finally, 18 months would be a very short time in which to make this sort of assessment. By the time this begins to build as an organisation, it will be longer than that. We are in danger of taking a snapshot in which we get only half the picture—that is the asking half and not the delivery half—and of looking at it before it is fully fledged and developed. I hope that my noble friend will resist this amendment, in this form at least.
Baroness Williams of Trafford
My Lords, I thank the noble Lord, Lord Rosser, and my noble friend Lord Hodgson of Astley Abbotts for speaking to the amendment. As with all powers introduced in legislation, it is crucial that the necessary resources are available to law enforcement and prosecution agencies so that they are used effectively. As he mentioned, ARIS is essential to this work. Under this scheme, half of all assets recovered go back to the law enforcement and prosecution agencies involved. Put simply, the more they recover, the more they get back. I am pleased to say that £764 million has been raised since 2006, and over £257 million in the last three years has been invested in law enforcement agencies under this scheme. The new powers will ensure that there are even more efficient ways of recovering assets and that they will be cheaper. Indeed, senior law enforcement officers gave evidence to the Commons Public Bill Committee that the powers will help agencies achieve more with the resources that they have. We have not downplayed the estimates in the impact assessment. These are provided subject to all the standard guidance based on input from law enforcement, the banks and others.
In addition, the Home Office share of ARIS is invested in front-line capabilities, including the regional organised crime units, which have received over £100 million in direct funding from the Home Office since 2013-14. Further to this, £5 million has been set aside from ARIS every year until the end of this Parliament to fund key national asset recovery capabilities, and we are fulfilling a manifesto commitment to return a greater percentage of recovered assets back to policing by investing all the Home Office share of the scheme’s money—above a certain baseline—in the multiagency regional asset recovery teams.
All the agencies listed in this amendment already report on their resources and results through departmental annual accounts and reports. As my noble friend said, this is about what they have achieved. They are subject to examination by the National Audit Office and Public Accounts Committee. The Criminal Finances Board, which is co-chaired by the Security Minister and the Economic Secretary to the Treasury, closely monitors resourcing, performance and support mechanisms such as training, to ensure that agencies are achieving results with the powers that Parliament imparts to them.
Finally, the Government have protected the NCA’s budget. In addition, new capital investment of over £200 million will be available over the period 2016 to 2020, to transform the NCA into a world-leading law enforcement agency, with new digital and investigative capabilities to tackle cybercrime, child exploitation and the distribution of criminal finances. The noble Lord, Lord Rosser, asked how many UWOs would be used and why so few were predicted. I said before—and the noble Lord said—that it was a conservative estimate, but we will encourage their use from day one. We are already actively engaging with law enforcement and prosecutors to encourage the use of all the new powers being introduced by the Bill. I hope with those words that the noble Lord is satisfied with my response. I know that we will keep an eye on this in the future but, for now, I hope that he will feel happy to withdraw his amendment.
Lord Rosser
I thank the Minister for her response and the noble Lord, Lord Hodgson of Astley Abbotts, for his contribution. The noble Lord’s main criticism of the amendment—not the only one—was that it did not provide for the authorities mentioned to say what they had achieved. I would have thought it was for the Government to say what they expected the authorities concerned to achieve in the light of the provisions of the Bill and the new offences and enhanced powers that they were giving the agencies. As yet, however, I have not heard anything from the Government about what they expect the agencies to achieve as a result of the Bill. There is some difficulty in requiring the agencies to report when the Government have not set them any targets that they are meant to attain. I do not know whether it is the Government’s intention to tell noble Lords at some stage what they think the agencies should be able to achieve in respect, for example, of a reduction in money laundering or the number of people who are arrested as a result of carrying it out. What do they expect the agencies to achieve in relation to the additional powers in the Bill? I do not know if this is something on which the Minister is prepared to write and tell me. What are the goals that the Government think these additional powers, and the resources that they say they are going to put in, will be achieved by the agencies? That is what is missing.
We have been having debates about the new powers and the noble Baroness has reminded us of the amount of money that has been provided so far, but what we are not getting is what the Government think the Bill will achieve to improve the situation. Is the Minister, either now or at some stage in the future, able to give me any idea of what the Government are expecting as a result of the new and enhanced powers in the Bill?
Baroness Williams of Trafford
My Lords, as the noble Lord will know, the Government have not been fixated on targets, but we most certainly will have expectations of what can be achieved and they will be laid out in due course.
Lord Rosser
How will they be laid out? Are they to be set out in regulations or will the Government be making a Statement?
Baroness Williams of Trafford
I would guess that they will be laid out in regulations and they will be revealed in due course.
Baroness Williams of Trafford
Perhaps I may intervene once more. I will confirm in writing to the noble Lord that they will be laid out in regulations. I do not want to make misleading statements at the Dispatch Box, but I can let him know in due course.
Lord Rosser
I would be happy for the noble Baroness to write to me, but whether the letter will set out what she has just said remains to be seen. However, I am happy for her to write to me on this issue; it would be very helpful. With that, I beg leave to withdraw the amendment.
Baroness Vere of Norbiton
Baroness Vere of Norbiton (Con)
My Lords, this set of amendments makes a number of minor changes to the Proceeds of Crime Act 2002 so that the powers in the Bill work as they were intended. As noble Lords will be aware, POCA is a complex piece of legislation and inevitably, as we have consulted further with key partners and parliamentary counsel, additional issues have arisen that require attention. Given their technical nature, I will not detain your Lordships for long, but I will highlight a few key points about these amendments.
They are primarily about ensuring consistency across the Bill. First, we are ensuring that penalties and fines mirror those already in POCA and elsewhere in statute. We will also provide that cash already being detained under terrorist forfeiture powers is not also liable for confiscation; this avoids double counting. These amendments will also extend existing powers for the courts in Scotland and Northern Ireland to order the payment of a criminal’s cash to settle an outstanding confiscation order. The Bill already provides for this in the English magistrates’ courts. We will provide that confiscation orders that have been discharged can be revisited if the criminal is found to have further assets. Finally, we are amending the Civil Jurisdiction and Judgments Act 1982 to allow for civil orders issued in one part of the UK to be recognised and enforced in another. I beg to move.
“( ) In subsection (2), for paragraphs (a) and (b) substitute—“(a) has been seized under a relevant seizure power by a constable or another person lawfully exercising the power, and(b) is being detained in connection with a criminal investigation or prosecution or with an investigation of a kind mentioned in section 341.”( ) After subsection (2) insert—“(2A) But this section applies to money only so far as the money is free property.”( ) Omit subsection (3). ( ) In subsection (5)(as it has effect before and after its amendment by section 36 of the Serious Crime Act 2015), for “bank or building society” substitute “appropriate person”.( ) In subsection (5A), at the beginning insert “Where this section applies to money which is held in an account maintained with a bank or building society,”.( ) In subsection (7A), after “applies” insert “by virtue of subsection (1)”.”
“( ) For subsection (8) substitute—“(8) In this section—“appropriate chief clerk” has the same meaning as in section 202(7);“appropriate person” means—(a) in a case where the money is held in an account maintained with a bank or building society, the bank or building society;(b) in any other case, the person on whose authority the money is detained;“bank” means an authorised deposit-taker, other than a building society, that has its head office or a branch in the United Kingdom;“building society” has the same meaning as in the Building Societies Act 1986;“relevant seizure power” means a power to seize money conferred by or by virtue of—(a) a warrant granted under any enactment or rule of law, or(b) any enactment, or rule of law, under which the authority of a warrant is not required.””
(b) is being detained in connection with a criminal investigation or prosecution or with an investigation of a kind mentioned in section 341.(3) But this section applies to money only so far as the money is free property.”
(a) in a case where the money is held in an account maintained with a bank or building society, the bank or building society;(b) in any other case, the person on whose authority the money is detained;”
“Reconsideration of discharged orders
(1) The Proceeds of Crime Act 2002 is amended as follows.(2) In section 24 (inadequacy of available amount: discharge of order made under Part 2), after subsection (5) insert—“(6) The discharge of a confiscation order under this section does not prevent the making of an application in respect of the order under section 21(1)(d) or 22(1)(c).(7) Where on such an application the court determines that the order should be varied under section 21(7) or (as the case may be) 22(4), the court may provide that its discharge under this section is revoked.”(3) In section 25 (small amount outstanding: discharge of order made under Part 2), after subsection (3) insert—“(4) The discharge of a confiscation order under this section does not prevent the making of an application in respect of the order under section 21(1)(d) or 22(1)(c).(5) Where on such an application the court determines that the order should be varied under section 21(7) or (as the case may be) 22(4), the court may provide that its discharge under this section is revoked.”(4) In section 109 (inadequacy of available amount: discharge of order made under Part 3), after subsection (5) insert—“(6) The discharge of a confiscation order under this section does not prevent the making of an application in respect of the order under section 106(1)(d) or 107(1)(c).(7) Where on such an application the court determines that the order should be varied under section 106(6) or (as the case may be) 107(3), the court may provide that its discharge under this section is revoked.”(5) In section 174 (inadequacy of available amount: discharge of order made under Part 4), after subsection (5) insert—“(6) The discharge of a confiscation order under this section does not prevent the making of an application in respect of the order under section 171(1)(d) or 172(1)(c).(7) Where on such an application the court determines that the order should be varied under section 171(7) or (as the case may be) 172(4), the court may provide that its discharge under this section is revoked.”(6) In section 175 (small amount outstanding: discharge of order made under Part 4), after subsection (3) insert—“(4) The discharge of a confiscation order under this section does not prevent the making of an application in respect of the order under section 171(1)(d) or 172(1)(c).(5) Where on such an application the court determines that the order should be varied under section 171(7) or (as the case may be) 172(4), the court may provide that its discharge under this section is revoked.”(7) The amendments made by this section apply in relation to a confiscation order whether made before or after the day on which this section comes into force but do so only where the discharge of the order occurs after that day.”
( ) in subsection (2), after paragraph (e) insert—“(ea) paragraph 3(2), 6(2), 10D(1), 10G(2), 10J(3), 10S(2) or 10Z2(3) of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001;”;( ) ”
“( ) after subsection (3)(c)(as inserted by paragraph 22 of Schedule 5) insert—“(d) it has been forfeited in pursuance of a cash forfeiture notice under paragraph 5A of Schedule 1 to the Anti- terrorism, Crime and Security Act 2001 or an account forfeiture notice under paragraph 10W of that Schedule;(e) it is detained under paragraph 5B, 5C, 9A or 10G(4) of that Schedule.”
( ) in subsection (2)—(i) omit “or” at the end of paragraph (e);(ii) after that paragraph insert—“(ea) paragraph 3(2), 6(2), 10D(1), 10G(2), 10J(3), 10S(2) or 10Z2(3) of Schedule 1 to the Anti- terrorism, Crime and Security Act 2001, or”;( ) ”
“( ) after subsection (3)(c)(as inserted by paragraph 24 of Schedule 5) insert—“(d) it has been forfeited in pursuance of a cash forfeiture notice under paragraph 5A of Schedule 1 to the Anti- terrorism, Crime and Security Act 2001 or an account forfeiture notice under paragraph 10W of that Schedule;(e) it is detained under paragraph 5B, 5C, 9A or 10G(4) of that Schedule.”
( ) in subsection (2), after paragraph (e) insert—“(ea) paragraph 3(2), 6(2), 10D(1), 10G(2), 10J(3), 10S(2) or 10Z2(3) of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001;”;( ) ”
“( ) after subsection (3)(c)(as inserted by paragraph 27 of Schedule 5) insert—“(d) it has been forfeited in pursuance of a cash forfeiture notice under paragraph 5A of Schedule 1 to the Anti- terrorism, Crime and Security Act 2001 or an account forfeiture notice under paragraph 10W of that Schedule;(e) it is detained under paragraph 5B, 5C, 9A or 10G(4) of that Schedule.”
“( ) Subsection (1) applies whether or not the conditions in section 21CA were met in respect of the disclosure if the person making the disclosure did so in the reasonable belief that the conditions were met.”
“Further information orders22B Further information orders(1) A magistrates’ court or (in Scotland) the sheriff may, on an application made by a law enforcement officer, make a further information order if satisfied that either condition 1 or condition 2 is met.(2) The application must—(a) specify or describe the information sought under the order, and(b) specify the person from whom the information is sought (“the respondent”).(3) A further information order is an order requiring the respondent to provide—(a) the information specified or described in the application for the order, or(b) such other information as the court or sheriff making the order thinks appropriate,so far as the information is in the possession, or under the control, of the respondent.(4) Condition 1 for the making of a further information order is met if—(a) the information required to be given under the order would relate to a matter arising from a disclosure made under section 21A,(b) the respondent is the person who made the disclosure or is otherwise carrying on a business in the regulated sector,(c) the information would assist in—(i) investigating whether a person is involved in the commission of an offence under any of sections 15 to 18 or in determining whether an investigation of that kind should be started, or(ii) identifying terrorist property or its movement or use, and(d) it is reasonable in all the circumstances for the information to be provided.(5) Condition 2 for the making of a further information order is met if—(a) the information required to be given under the order would relate to a matter arising from a disclosure made under a corresponding disclosure requirement, (b) an external request has been made to the National Crime Agency for the provision of information in connection with that disclosure,(c) the respondent is carrying on a business in the regulated sector,(d) the information is likely to be of substantial value to the authority that made the external request in determining any matter in connection with the disclosure, and(e) it is reasonable in all the circumstances for the information to be provided.(6) For the purposes of subsection (5), “external request” means a request made by an authority of a foreign country which has responsibility in that country for carrying out investigations into whether a corresponding terrorist financing offence has been committed.(7) A further information order must specify—(a) how the information required under the order is to be provided, and(b) the date by which it is to be provided.”
“( ) Schedule 3A has effect for the purposes of this section in determining what is a business in the regulated sector.”
““corresponding disclosure requirement” means a requirement to make a disclosure under the law of the foreign country concerned that corresponds to a requirement imposed by virtue of this Part;“corresponding terrorist financing offence” means an offence under the law of the foreign country concerned that would, if done in the United Kingdom, constitute an offence under any of sections 15 to 18;“foreign country” means a country or territory outside the United Kingdom;”
(a) a constable,(b) a National Crime Agency officer authorised for the purposes of this section by the Director General of that Agency,(c) a counter-terrorism financial investigator, or(d) a procurator fiscal;”
“( ) betting receipts,”.”
“( ) “betting receipt” means a receipt in physical form that represents a right to be paid an amount in respect of a bet placed with a person holding a betting licence.( ) In sub-paragraph (5)—“bet”—(a) in relation to England and Wales and Scotland, has the same meaning as in section 9(1) of the Gambling Act 2005;(b) in relation to Northern Ireland, has the same meaning as in the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 (S.I. 1985/1204 (N.I. 11)) (see Article 2 of that Order);“betting licence”—(a) in relation to England and Wales and Scotland, means a general betting operating licence issued under Part 5 of the Gambling Act 2005;(b) in relation to Northern Ireland, means a bookmaker’s licence as defined in Article 2 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985;“gaming machine”—(a) in relation to England and Wales and Scotland, has the same meaning as in the Gambling Act 2005 (see section 235 of that Act);(b) in relation to Northern Ireland, has the same meaning as in the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 (see Article 2 of that Order).( ) In the application of sub-paragraph (5) to Northern Ireland references to a right to be paid an amount are to be read as references to the right that would exist but for Article 170 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 (gaming and wagering contracts void).””
“(2A) An order under sub-paragraph (2) made by a magistrates’ court may provide for payment under paragraph 10N of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—(a) the proceedings in which the order is made, or(b) any related proceedings under this Part of this Schedule.(2B) A sum in respect of a relevant item of expenditure is not payable under paragraph 10N in pursuance of provision under sub-paragraph (2A) unless—(a) the person who applied for the order under sub-paragraph (2) agrees to its payment, or(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount. (2C) For the purposes of sub-paragraph (2B)—(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (2) had instead been a recovery order made under section 266 of that Act;(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations;(c) if the person who applied for the order under sub- paragraph (2) was an authorised officer, that person may not agree to the payment of a sum unless the person is a senior officer or is authorised to do so by a senior officer.”
“(6) For the purposes of sub-paragraph (2C)(c), a “senior officer” means—(a) in relation to an application made by a constable or a counter-terrorism financial investigator, a senior police officer;(b) in relation to an application made by an officer of Revenue and Customs, such an officer of a rank designated by the Commissioners for Her Majesty’s Revenue and Customs as equivalent to that of a senior police officer;(c) in relation to an application made by an immigration officer, such an officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer.(7) In sub-paragraph (6), a “senior police officer” means a police officer of at least the rank of superintendent.”
“(5A) An order under sub-paragraph (1) made by a magistrates’ court may provide for payment under sub-paragraph (8) of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—(a) the proceedings in which the order is made, or(b) any related proceedings under this Part of this Schedule.(5B) A sum in respect of a relevant item of expenditure is not payable under sub-paragraph (8) in pursuance of provision under sub- paragraph (5A) unless—(a) the person who applied for the order under sub- paragraph (1) agrees to its payment, or(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.(5C) For the purposes of sub-paragraph (5B)—(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub- paragraph (1) had instead been a recovery order made under section 266 of that Act;(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations.”
“Senior officer” has the same meaning in this sub-paragraph as it has in paragraph 10G(2C)(c).”
“(za) first, it must be applied in making any payment of legal expenses which, after giving effect to sub-paragraph (5B), are payable under this sub-paragraph in pursuance of provision under sub-paragraph (5A);”
“(3A) An order under sub-paragraph (3) made by the High Court may include provision of the type that may be included in an order under paragraph 10G(2) made by a magistrates’ court by virtue of paragraph 10G(2A).(3B) If provision is included in an order of the High Court by virtue of sub-paragraph (3A) of this paragraph, paragraph 10G(2B) and (2C) apply with the necessary modifications.”
“( ) Where an order under paragraph 10I is made by a magistrates’ court, any party to the proceedings for the order (including any party to the proceedings under paragraph 10G that preceded the making of the order) may appeal against a decision to include, or not to include, provision in the order under sub-paragraph (5A) of paragraph 10I.”
“(aa) second, they must be applied in making any payment of legal expenses which, after giving effect to paragraph 10G(2B)(including as applied by paragraph 10J(3B)), are payable under this sub-paragraph in pursuance of provision under paragraph 10G(2A) or, as the case may be, 10J(3A);”
Lord Empey
“Assets owned by persons involved in supplying arms to terrorist organisations
(1) Where assets based in the United Kingdom are frozen under the Anti-terrorism Crime and Security Act 2001 or European Union Council Regulations adopted by virtue of Chapter 2 of Title V of the Treaty on European Union, and the assets meet the requirement in subsection (3), the Treasury must take all actions necessary to prevent the release of the frozen assets until the circumstances in subsection (5) are met.(2) The actions referred to in subsection (1) may include putting in place such domestic asset freezing measures, under the Terrorist Asset-Freezing etc. Act 2010, as are necessary to ensure the effective implementation of this section. (3) The requirement in subsection (1) is that the assets are owned by persons who are or have been involved in supplying terrorist organisations in the United Kingdom with arms, including explosive materials.(4) A person is deemed to be or have been involved in supplying terrorist organisations in the United Kingdom with arms if—(a) the United Nations Security Council has made a Resolution to that effect; or(b) the Treasury reasonably believes that the person is or has been involved in supplying terrorist organisations in the United Kingdom with arms.(5) The circumstances in subsection (1) are that a settlement has been reached in respect of compensation to be paid to United Kingdom citizens affected by the supply of arms referred to in subsection (3).(6) In this section—“terrorist organisations in the United Kingdom” means organisations which are based in the United Kingdom, and that the Treasury reasonably believes are or have been involved in terrorist activity, within the meaning of the Terrorist Asset-Freezing etc. Act 2010; and“United Kingdom citizen” has the same meaning as in the British Nationality Act 1981.”
Lord Empey (UUP)
My Lords, Members may be familiar with this theme, to which I have returned on a number of occasions, including via a Private Member's Bill. It follows the principle that persons who have been engaged in criminal activity, persons who have been engaged in activities contrary to human rights and persons who have been involved in terrorism and who have attacked this country consistently over a long period should not have access to their assets without the opportunity for victims of the activities of those individuals, organisations or, in this case, the state to have those assets forfeited to the extent of the injuries inflicted.
The position is very simple: for many years, the state of Libya supplied terrorists with material, primarily in the form of Semtex. It provided training and logistical support. It provided boatloads—literally—of weapons. It provided the arms, training and logistics for a terrorist organisation. Many persons in the United Kingdom were injured and suffered great loss as a direct result of that activity. If we are contemplating a Bill which has a section in it dealing with terrorism, that seems the perfect opportunity for Her Majesty’s Government to deal with this matter.
I know that the Minister will say, “Oh, but there’s a United Nations resolution, and there are resolutions of the European Union”—I am sure I could read out her reply blindfold. However, the United Kingdom is a permanent member of the Security Council. We are a member of the European Union. At this point in time, after years and years, we have not even asked our European partners or the United Nations for any variation whatever on the asset-freezing resolutions to take account of the humanitarian needs of our own citizens. Other countries—the United States, France, Germany and Italy—have all had compensation paid to their citizens as a result of terrorist activity. We are the glaring exception, despite the fact that more people have suffered in this country than in any other—there is no argument about that.
I have been writing to government since 2002. My first letter was to Tony Blair; it was replied to by Mike O’Brien, at that time in the Home Office. I have had letters from Prime Minister Cameron. We had letters from the noble Baroness, Lady Warsi, when she was at the Foreign Office, the noble Lord, Lord Howell of Guildford, and other Ministers in Administrations of all parties. The Minister may be aware that a group of us from all parties is pursuing this issue in both places. Even today, I know that efforts have been made by an all-party group of Back-Benchers in the other place to go to the Backbench Business Committee to see whether they can get support for a debate. I know that the honourable Member for Poplar and Limehouse, Jim Fitzpatrick, whose patch includes the site of the London Docklands bomb, is active in this and introduced a debate in Westminster Hall early last year.
There is a broad swathe of support for the measure in your Lordships’ House because it passed my Private Member's Bill, the Asset Freezing (Compensation) Bill, last year. That has unfortunately been stalled for three solid months in a row using the procedural device of objecting in the other place. It is now scheduled to come up on 12 May but I have no doubt that it will be blocked again. The reason is that last summer we went to see Treasury and Foreign Office officials and we challenged them. I also went to the Northern Ireland Affairs Select Committee to hear evidence from former Foreign Secretary Jack Straw. That was very revealing. His reaction was, “These people were compensated”. That is technically true but they were compensated by the British taxpayer, not the people who perpetrated the acts or provided the material to attack them. That was a perverse position. It seems that there has been the most bizarre attitude over the last 15 to 20 years. Where would you get a situation in this day and age where another country would conduct a proxy war against you, injure your citizens, and you ignore it?
We happen to know that there are £9.5 billion of assets attributed to the Libyan regime headquartered in London. We should ask our colleagues in the United Nations and the European Union to see if we can even take a lean against part of those assets to help our own citizens who were injured as a result of this activity. The Bill is another vehicle where this is consistent with the principles behind it. It is consistent with justice and with the fact that the people who supplied that material were in severe breach of all human rights legislation that you could imagine. Some of the most terrible injuries were inflicted by these people. Part 2 of the Bill would extend the measures such as disclosure orders to apply to terrorism investigations. We see it talk about gross human rights violations, and seizure and forfeiture powers. The principles are all there in the Bill. We should use the scope of this legislation to deal with one of the most significant and long-running major injustices that has afflicted our people.
Also, Her Majesty’s Government should make some serious effort—I see no sign that it has been made heretofore—in the United Nations and European Union to get our partners to help us. I am all for asset-freezing and resolutions, and I understand that the Government cannot just act unilaterally. However, they have not even bothered to lift a finger for nearly 20 years. I find that unacceptable. The Bill provides a vehicle whereby we can seriously address and right a great wrong. I beg to move.
Baroness Williams of Trafford
My Lords, I am grateful to the noble Lord for highlighting this issue. I pay tribute to his many years of work on counterterrorism matters. I am very pleased to be able to respond.
As we heard, Amendment 156 would impose a duty on the Treasury to prevent the release of assets of an individual that have been frozen under various legislative regimes by using “all action necessary”, including considering the use of a designation under the Terrorist Asset-Freezing etc. Act 2010. The Terrorism Act 2000, or TACT, already includes a number of criminal offences under Sections 15 to 18 for terrorist financing, including the use, possession or funding of assets in support of terrorist activity. Specifically, Section 23 of TACT provides for the forfeiture of money and/or property following a conviction for these and other terrorism offences. This means that assets can be frozen by way of a restraint order during the investigation and prosecution of such offences, and subsequently forfeited upon a successful conviction, ensuring that they are not available to terrorist organisations.
The element of the noble Lord’s amendment relating to compensation is also covered by paragraph 4A of Schedule 4 to TACT, which allows for the proceeds of the forfeiture of property to be paid as compensation to the victims of terrorism.
Lord Empey
I thank the Minister for her reply. She referred to a number of powers in the Bill. I am all for those but they do not deal with the specific issues that I am trying to get at, where a state, or a representative of a state, has assets in this city, on a massive scale, that are frozen because of the United Nations resolution, which was followed by a European Union agreement, which, incidentally, was revised substantially in January last year. We have not addressed those issues. I am grateful that the Minister is going to take that back but dare I use the phrase, “I haven’t gone away, you know”? In the event that the Minister is unable to satisfy me on this matter, I reserve the right to bring it back on Report. With that, I beg leave to withdraw the amendment.
Baroness Vere of Norbiton
Baroness Vere of Norbiton
My Lords, today’s final group of amendments also concerns Part 2 of the Bill on the financing of terrorist-related activity.
Government Amendment 158 will extend the existing assault and obstruction offences in respect of counterterrorism financial investigators—CTFIs—to include assault or obstructing CTFIs who are exercising powers in relation to the disclosure order power introduced in Clause 33. This power is comparable to ones in Schedule 5 to the Terrorism Act 2000.
Amendment 160 would insert provision into the Terrorism Act so that court orders made in one part of the UK for the purposes of or in connection with the investigation of terrorist financing can be enforced in another. This power is comparable to powers in Schedule 5 to the Terrorism Act 2000.
Amendment 160 inserts provisions into the Terrorism Act so that court orders made in one part of the UK for the purposes of, or in connection with, the investigation of terrorist financing can be enforced in another. This power is being provided to ensure that the new powers in this Bill—for example, disclosure orders and further information orders—can be enforced more effectively. We are also taking the opportunity to ensure that existing provisions in the Terrorism Act—for example, production orders—can be enforced in the same way. The power to enforce orders across UK borders is already available for equivalent orders made under the Proceeds of Crime Act. I beg to move.
“Enforcement in other parts of United KingdomEnforcement in other parts of United Kingdom
After section 120B of the Terrorism Act 2000 (inserted by section 40 above) insert—“ 120C Enforcement of orders in other parts of United Kingdom(1) Her Majesty may by Order in Council make provision for an investigatory order made in one part of the United Kingdom to be enforced in another part.(2) In subsection (1)“investigatory order” means any of the following kinds of order—(a) an order under section 22B (further information orders);(b) an order under paragraph 5 of Schedule 5 (production orders: England and Wales and Northern Ireland) that is made in connection with a terrorist investigation in relation to terrorist property;(c) an order under paragraph 13(1)(b) of that Schedule that is made in connection with material produced or made available as a result of an order within paragraph (b) of this subsection;(d) an order under paragraph 22 of Schedule 5 (production orders: Scotland) that is made in connection with a terrorist investigation in relation to terrorist property;(e) an order under paragraph 30(1)(b) of that Schedule that is made in connection with material produced or made available as a result of an order within paragraph (d) of this subsection;(f) an order under paragraph 9 of Schedule 5A (disclosure orders: England and Wales and Northern Ireland);(g) an order under paragraph 19 of that Schedule (disclosure orders: Scotland);(h) an order under paragraph 1 of Schedule 6 (financial information orders);(i) an order under paragraph 2 of Schedule 6A (account monitoring orders).(3) An Order under this section may apply (with or without modifications) any provision of or made under—(a) an Act (including this Act),(b) an Act of the Scottish Parliament, or(c) Northern Ireland legislation.(4) An Order under this section—(a) may make different provision for different purposes;(b) may include supplementary, incidental, saving or transitional provisions.(5) Rules of court may make whatever provision is necessary or expedient to give effect to an Order under this section. (6) A statutory instrument containing an Order under this section is subject to annulment in pursuance of a resolution of either House of Parliament.””
Criminal Finances Bill
Monday 3rd April 2017
(7 years ago)
Lords ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 104-II Second marshalled list for Committee - (30 Mar 2017)
Baroness Bowles of Berkhamsted (LD)
My Lords, the Bill creates a second failure to prevent or facilitation offence for tax evasion, the first such offence being in the Bribery Act. It therefore makes sense to have an extended family of failure to prevent offences for other serious crimes for which the UK has spectacularly failed to prosecute large companies. The purpose of this type of offence, along with a defence of due diligence, is to make companies have better prevention procedures as well as providing deterrent and punishment. These offences have a far-reaching effect on corporate governance and culture, encouraging own-up instead of cover-up, responsibility instead of denial. I do not know how many more times it is necessary to listen to the public outcry, but public trust in business is at an all-time low, as reported in the International Business Times in January. There is an urgent need to fix a problem we have known about for a long time.
Amendment 161 and Amendment 163—the alternative, narrower version—explore putting additional failure to prevent offences into the Bill and bringing them into effect later. I suggest creating an option in this way because it gives time to evaluate the recent call for evidence and because of the limited legislative opportunities due to Brexit. Amendment 161 is broader and more flexible and uses a statutory instrument to introduce further failure to prevent-type offences. I know that sounds a bit scary, so I encourage noble Lords to look at the whole of the amendment, because there are significant constraints on the SI’s content. First, as specified in proposed new subsection (11), the new offences “must” have the same safeguards and procedures that the Bill introduces for tax avoidance. Importantly, this will include due diligence defence and provision of guidance concerning procedures for preventing the offence.
Secondly, the new offences are not plucked from thin air. Proposed new subsection (12) states that they have to be from the serious crimes listed in the Crime and Courts Act for which deferred prosecution agreements are possible. That list can be added to under that Act, but it will always be for serious crimes. Thirdly, to compensate for the flexibility, proposed new subsection (13) provides that each SI should introduce only one offence. The idea here is that each receives individual consideration and scrutiny.
Amendment 163 is the narrowest way I can see to pursue the same objective. It creates four specific additional offences and provides for separate commencement from the general commencement provisions in the Bill. There is also a sunset clause so that, if the decision is not to commence, there is no hanging about. The four offences are those named in the Government’s call for evidence: common law fraud, statutory fraud, money laundering and Theft Act false accounting. These are the high-profile and costly areas where we have failed to prosecute large companies. As before, the defence guidelines and procedures follow the same pattern. That is important for businesses so that there is no additional complexity.
Lord Rosser (Lab)
My Lords, I will speak to my Amendment 166, which is also in this group. It would require the Secretary of State to issue a public consultation on new criminal offences for corporate criminal liability and for economic crime within six months of the day on which the Bill becomes an Act, and for the Secretary of State then to bring forward legislative proposals in response to the consultation within 12 months of the day on which the Bill becomes an Act.
The Bill makes it a corporate offence to fail to prevent tax evasion and adopts a similar approach to prosecution of bribery offences. However, as the noble Baroness, Lady Bowles of Berkhamsted, said, gaps remain in the law as regards the practical possibility of prosecuting companies for important economic crimes such as fraud, false accounting and money laundering, let alone the severe harms caused to individuals, including those overseas.
As the noble Baroness, Lady Bowles of Berkhamsted, again indicated, the issue was raised at Second Reading, when the Government said that,
“it would be wrong to rush into legislation in this area”,
of corporate liability for economic crime, and that there was,
“a need to establish whether changes to the law are justified”.
The Government said that they launched a public call for evidence—the closing date for which has now passed—and that if the responses,
“justify changes to the law, a consultation on a firm proposal would follow”.
Accordingly, the Government declined to comment on a timetable for reform,
“should that be the way forward”.—[Official Report, 9/3/17; col. 1518.]
The Business & Human Rights Resource Centre recorded just over 300 allegations of human rights abuses made against 127 UK-linked companies between 2004 and 2014. Although there is clear evidence that some companies were potentially serial offenders, it seems that there have been no corporate criminal prosecutions. Nearly half the allegations were made against extractive companies.
If there is a consultation following the call for evidence—and that may well be a big if—will the Government also consult on the need, or otherwise, to change the law on corporate criminal liability on human rights violations as well as economic crime? When an individual injures or kills another person, a criminal prosecution is initiated, but when a company is involved in causing similar harm—not least overseas—the ability to prosecute companies successfully is much reduced to the point of it being almost a deterrent to proceeding at all.
Overall, the corporate criminal law needs to provide that companies can be held liable for committing offences and not just for omitting to prevent them. No UK financial institution has faced criminal charges as a result of the 2008 financial crisis, and there appear to have been some recent serious issues which have resulted in no prosecution against companies as opposed to an ability to resolve the matter through financial payment.
There is also the issue that it appears from a relatively recent case that, under corporate liability laws, it is not illegal for companies to mislead their auditors. As has been said, current laws seriously disadvantage small and medium-sized businesses compared with larger businesses. SMEs, where directors are more involved, are much more easily prosecuted under the existing corporate liability regime, since current UK corporate liability laws rely on a “directing mind” test that requires prosecutors to prove that senior board-level executives intended the misconduct to occur. The Crown Prosecution Service, for example, stated that because of corporate liability laws it could not mount a successful prosecution against the companies involved in the phone-hacking scandal.
When do the Government intend to commit themselves to address this issue of the deficiencies within the current corporate criminal liability laws? They could do so today by accepting one of the amendments in this group. They could do so today by accepting my amendment, with its timetable for a public consultation and then legislation. If that is more than the Government are prepared to do, they could today at least announce that there will definitely be a public consultation on a firm proposal on the issue, following the call for evidence, and say when that public consultation is likely to commence.
Lord Leigh of Hurley (Con)
My Lords, I declare my interests, principally as a member of the Chartered Institute of Taxation. I wish to speak particularly on Amendment 161. The noble Baroness, Lady Bowles of Berkhamsted, is right that the mood of the public has changed dramatically and significantly against those who practise tax evasion—and to some extent tax avoidance, which I think she mentioned, although we are focusing here on tax evasion—so having such a clause in the Bill is very welcome.
Turning my mind back to 20 or 30 years ago when I was a tax practitioner, in many respects it would have been remarkable to think that this clause might appear in a Bill. Indeed, many of your Lordships may have noticed in Sunday’s and today’s national papers a two-page advertisement by a large Swiss bank protesting that it does not in any way condone tax evasion. It is quite extraordinary to see that—and most welcome—and it has no doubt come about in part because of the pressure to change public opinion brought to bear by the Government and Members of this House.
However, in respect of Amendment 161, I agree that the damage caused by economic crime is very serious. I welcome the Government’s consultation on corporate criminal liability for economic crime, but this is an extremely complex legal area that could significantly impact on the UK’s financial sector, in which I work, and in particular on the UK’s SME financial sector, which has a lot on its plate at the moment. Therefore, I hope that the Government will bring forward a consultation on possible options for reform following the conclusion of the call for evidence, which I think has just ended or will close shortly. We should wait until that is completed before a decision is made on introducing new legislation.
Lord Beith (LD)
My Lords, my noble friend has explained with magnificent clarity the purpose and nature of her two amendments. However, in discussions that I have had with her, she has still not quite convinced me that the use of a statutory instrument to create further facilitation crimes is something that I ought to be enthusiastic about. I well understand the purpose that she is pursuing and the care with which Amendment 161 incorporates various safeguards both within its own text and by reference to other legislative provisions. My concerns are not raised by Amendment 163, which she offers as an option.
As your Lordships look further at this matter, I just hope that we can focus a little attention on the fact that, if anything is created as a crime by a statutory instrument, it is done by a process which, although affirmative in terms of the amendment, is not capable of amendment. Therefore, any defect in the way it is worded or presented can only result in either it going through in a faulty way or the Government accepting that they should withdraw the amendment and come back with a better one. I wish that they would do that more often and quite quickly, because it would resolve some of the problems that we have with statutory instrument procedure. However, I listened to that part of the debate with still unresolved anxiety about the use of a statutory instrument without further qualification.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I think it is worth making two points. I understand the point that the noble Baroness, Lady Bowles, was making and the importance of the topic that she has raised. It is quite a serious matter to introduce a change of this nature by a statutory instrument—an issue that has concerned your Lordships’ House in the past. I understand that the noble Baroness has drafted her amendment to try to avoid some of the worst excesses but it is something which—with Henry VIII powers and so on—we are very concerned about. Widening this provision through a statutory instrument could lead to some difficulties regarding the appropriate level of parliamentary scrutiny, given that statutory instruments are, by definition, not amendable.
My second point relates to Amendment 166 in the name of the noble Lord, Lord Rosser. I always support him when he wishes to do post-legislative scrutiny. I think that part of what he is getting at here is that we should look at whether all the holes have been blocked up. However, to do so within six months of the day on which the Act is passed will not give much time to see how the new legislative provisions are bedding down. Therefore, from my point of view, it would be more appropriate if a longer time was allowed during which the serious impact of the Act would, I hope, make itself felt.
Baroness Kramer (LD)
My Lords, I speak very much in support of my noble friend Lady Bowles on this occasion. The issue she is attempting to tackle is that of delay. There are serious gaps in the Bill—as they have just finished a consultation, I suspect that the Government recognise that. The “failure to prevent” focus which it has brought on a limited number of issues should have been applied to the broader range of very serious business and economic crimes. On these Benches, our great fear is that if occasion is not taken in this Bill to put in place the structure that will enable action to be taken on those issues, there will be a long delay, because bringing forward new legislation in the environment of Brexit will mean that everything is very seriously delayed. In that time, we will find ourselves in a situation where companies believe that they are potentially able to get away with it.
Lord Judge (CB)
My Lords, I had intended to speak at a little length but the noble Lord, Lord Beith, has said everything that I wished to say about the dangers of creating criminal offences by secondary legislation.
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, I am very pleased to be able to return today to our debate in Committee, beginning with the very important issue of corporate criminal liability. Through this Bill the Government are building on the efforts of the last Labour Government, when they created the Bribery Act, by creating new corporate offences of failure to prevent the facilitation of tax evasion. These are significant proposals and I look forward to debating them further shortly. The amendments in this group relate to corporate criminal liability for other types of economic crime—that is, other than bribery and the facilitation of tax evasion. This issue has, of course, arisen a number of times in both Houses during the passage of the Bill, and these amendments have allowed us to have an insightful and constructive debate.
As noble Lords have said, the damage caused by economic crime perpetrated on behalf of or in the name of companies—to individuals, businesses, the wider economy and the reputation of the United Kingdom as a place to do business—is a very serious matter. As this House will be aware, the Bribery Act is widely respected as both a sound enforcement tool and a measure that incentivises bribery prevention as part of good corporate governance. As I have said, this Bill makes similar provision in regard to the facilitation of tax evasion. That provision has followed a process of full and lengthy public consultation, as did the implementation of the Bribery Act. As my noble friend Lord Leigh alluded to, these are very complex legal and policy issues with the potential for significant impact on companies operating in the UK.
I hope noble Lords will agree that this level of detailed consideration of both the existing legal framework and any proposals to extend it was crucial. That is why the Government announced, at the time of last year’s London Anti-Corruption Summit, that we would consult on the creation of new forms of criminal liability. The Government’s public call for evidence on corporate criminal liability for economic crime was published on 13 January. It openly requested evidence for and against the case for reform, and sought views on a number of possible options, such as the Bribery Act’s “failure to prevent” model, as an alternative to the current common law rules. The consultation closed only last week, on Friday 31 March. The Ministry of Justice is now assessing the responses received, but, as noble Lords will appreciate, it is too early to confirm the outcome. Should the responses received justify changes to the law, the Government would then consult on a firm proposal, as the noble Lord, Lord Rosser, articulated. I hope that reassures him that we are continuing to explore this issue as his amendment proposes. I trust noble Lords will agree that it would be wrong to rush into legislation, or to commit to doing so in the future, prior to giving the matter the appropriate consideration, as my noble friend Lord Hodgson said.
Amendment 161 provides for the novel approach that we could add additional offences to the legislation by regulations. I commend the noble Baroness on her ingenuity—I was promised she would show it—but, as I have said, these are complex issues with potentially significant implications for companies across the country. The Government do not, therefore, believe that it would be appropriate to extend the failure to prevent offences via secondary legislation, which would not allow for the appropriate level of parliamentary scrutiny of proposals such as this.
The noble Baroness, Lady Kramer, asked about the timing of the failure to prevent measures and why the Government do not act now. She said we cannot afford to delay and made a point about the upcoming Brexit legislation. I remind noble Lords that the Bribery Act offence has been on the statute book for a number of years, allowing us to assess its effectiveness. We are now legislating on tax evasion and already looking closely and openly at the question of extending it to wider economic crimes. The Government are not delaying, we are acting—and we are doing so in a sensible and considered way.
The noble Baroness, Lady Bowles of Berkhamsted, asked about the standard of proof for the failure to prevent economic crime. Her Amendment 163 allows for the defence of reasonable procedures to be satisfied by the civil standard—that is, the balance of probabilities. I can confirm, as she wanted, that it mirrors the approach in the Government’s proposed offence of corporate failure to prevent the facilitation of tax evasion.
The noble Lord, Lord Rosser, asked whether HMG will legislate to create corporate liability for failure to prevent serious harm or human rights abuse. I wrote to the noble Lord about this—it is obviously seared in his brain or, probably, was passed straight to his outbox. All businesses are expected to comply with the legislation that comes under the jurisdiction of the UK, including that which relates to human rights. While the Government have no ability to regulate UK businesses operating in overseas jurisdictions, we encourage them to honour the principles of internationally recognised human rights wherever they operate. More broadly, in 2013, we were the first country in the world to produce a national action plan in response to the United Nations guiding principles on business and human rights.
Large UK-domiciled businesses must also comply with laws that require them to report certain human rights issues, including the Companies Act and our world-leading Modern Slavery Act, which requires them to produce annual statements on what they have done to ensure that such issues do not occur in their business and supply chains.
I hope I have fully answered noble Lords’ questions and that the noble Baroness, Lady Bowles, will feel free to withdraw the amendment.
Lord Rosser
My Lords, I suspect I am on a mission that is not going to succeed, but it is unfortunate that a number of key decisions are likely not to be taken by the Government until this Bill becomes an Act. The Minister said that the closing date of the public call for evidence in relation to corporate criminal liability has just gone, but do the Government expect to give any indication before Report as to whether or not they will be moving to consultation on a firm proposal or, alternatively, are they likely to indicate before Third Reading whether they will be moving to consultation on a further proposal?
Baroness Williams of Trafford
Perhaps I may look into that and let the noble Lord know because I am reluctant to make sweeping promises at the Dispatch Box without knowing exactly what the timescales will be. I will let him know, certainly before Report, what the expected timescales are.
Baroness Hamwee (LD)
Before my noble friend responds, the Minister referred to the Modern Slavery Act. I do not want to be overly pedantic but I do want to be a bit pedantic because this is an important point. She mentioned the requirement on certain companies to report on the steps that they are taking under Section 54 with regard to their supply chains. I think that she will agree that their statement as regards the steps they are taking can be a statement,
“that the organisation has taken no such steps”.
That would be regrettable. However, there seems to be a feeling that every organisation has got to report the detail of the steps when that is not quite the case.
Baroness Williams of Trafford
My Lords, I would say that the statement a company makes reflects the company, and if a statement of no effort is made, it will be for others to judge the efficacy of that company.
Baroness Bowles of Berkhamsted
My Lords, I thank the Minister and other noble Lords for this debate and of course I appreciate that it is a little awkward that the call for evidence and consultation process are lagging behind the progress of the Bill. That is why I had my novel idea that we could put in place a framework here which is only an option. The circumstances are such that it would not be an outcry if the decision was that you had to do it in a different way, so as in my Amendment 163, the provision would just fall away. Of course, that provision would not be introduced by statutory instrument, it is just a delayed commencement. I still feel that there is some mileage in taking a further look at this kind of provision.
As a result of this debate, I think we have the answer to one of the questions in the call for evidence because of what the Government have said that they are thinking of introducing for the four criminal offences I have picked up on and that it may be by statutory instrument for the others. We have heard some good reasons as to why statutory instruments are not such a good idea, and indeed I think the Minister has conceded that. That may be the outcome of the ticks in the call for evidence. I would like to know how many ticks were made in that box; perhaps she could count them and let me know.
I reserve the right to have another go along the lines of Amendment 163, but at this stage I beg leave to withdraw the amendment.
Baroness Hamwee
Baroness Hamwee
My Lords, this is a probing amendment. Clause 44(1) provides that the Chancellor,
“must prepare and publish guidance about procedures that relevant bodies can put in place”,
to deal with certain matters. My amendment suggests that organisations should “have regard to” such guidance, and is really intended to probe precisely what is meant here. The phrase “can put in place” strikes me as an interesting one to use in the middle of a piece of legislation. Does it mean “must put in place”, or if they want to have guidance on procedures, it is only what the Chancellor prepares and there can be no other procedures? I wonder whether the Minister can explain what is actually required in subsection (1). I beg to move.
Lord Leigh of Hurley
My Lords, I spent quite a lot of time reading the amendment and trying to understand it. I am grateful to the noble Baroness, Lady Hamwee, for explaining it to us. As I understand it, the clause does not require relevant bodies to put these procedures in place; it just mandates the Chancellor to produce some presumably helpful guidelines, which the amendment would then require those relevant bodies to adopt. I think that is the gist of it.
If the amendment is prompted by concerns raised about the guidance the Chancellor will have to offer as a result of the clause, I hope the Minister might consider returning to that issue at subsequent readings as no explanation is given in the clause as to what the guidance will be. It would be very helpful for corporations affected to understand how they can rely on the defence of “reasonable prevention procedures”, so that they can put in place an appropriate strategy to ensure compliance with their new obligations if those are put on them through this amendment, or possibly—as is perhaps my great concern—at a later stage in the Bill or by statutory instrument.
It must be sensible to allow corporations to build on their current policies and procedures already in place under other legislative requirements to show that they have a defence to this offence. If not, the compliance costs would be significant. Even where current policies are acceptable there will still be costs involved in training staff, certification and reporting processes. There is, therefore, clearly a need to ensure that the measures can be implemented in a way that mitigates additional costs as far as possible.
Guidance can help corporations to identify how they can demonstrate that they have followed satisfactory due diligence procedures and have a “reasonable care” defence in the event that one of their associates is discovered to have criminally facilitated tax evasion. However, it must be recognised that every business is different. The importance of the guidance will be enhanced if the legislation explicitly states that the courts should “have regard to” it. This would provide a valuable extra—although not absolute—safeguard for corporations that have relied on the guidance when implementing their procedures, although, of course, it cannot be a safe harbour.
In short, the amendment will be onerous to apply to every relevant body. I therefore speak against it.
Lord Kennedy of Southwark (Lab)
My Lords, I support Amendment 162, proposed by the noble Baroness, Lady Hamwee. It would strengthen Clause 44, which is in a part of the Bill concerned with corporate offences of failure to prevent tax evasion. Failure to pay the right levels of tax due as an individual or as a corporate body hurts everyone. Having robust procedures in place to combat these offences is important. Some corporate entities will employ lawyers and accountants to minimise their tax liability, but where that steps over the line into tax evasion we have to be prepared to take swift action.
The clause so far will place a requirement on the Chancellor of the Exchequer to publish and prepare guidance, using the word “must”, which is not something we often see in government Bills—I have always thought parliamentary draftspersons preferred “shall”—but since it uses the word “must”, noble Lords can draw from that that great importance is implied about this guidance on the procedures. The idea is to help relevant bodies. The Bill then moves on and says,
“can put in place to”,
which negates the emphasis in the earlier part of the clause.
The amendment from the noble Baroness would place the right emphasis, saying that relevant bodies “shall have regard to” this important advice prepared by the Treasury and published by the Chancellor. The Government clearly thought it was important that companies should be aware of this advice. I hope they will tell us why they think their wording is sufficient and that that of the noble Baroness is not necessary in this case.
Baroness Vere of Norbiton (Con)
My Lords, I am grateful to the noble Baroness, Lady Hamwee, for tabling this amendment, which allows us to discuss the Government’s guidance on the new corporate offences in Part 3 of the Bill. Part 3 creates two new offences for relevant bodies that fail to prevent the criminal facilitation of tax evasion. It also provides a defence for a body to show that it has put in place reasonable prevention procedures designed to prevent such criminal facilitation.
The Government produced guidance on the offences, and the related defence, in 2015 and conducted a full public consultation on it. Much of the guidance focuses on the operation of the defence and helps to inform businesses’ understanding of how to determine what prevention procedures are reasonable in their circumstances. The guidance has been discussed extensively with a wide range of businesses and organisations both within the UK and overseas. Following the consultation, the updated guidance was published last year.
In addition to the government guidance, officials have been working with a number of representative bodies to support them in producing their own sector-specific guidance, which can be endorsed by the Chancellor if it is clearly in keeping with the overarching government guidance. The Chancellor’s endorsement of external guidance will provide a hallmark of quality for individual businesses to identify good practice for their sector.
The government guidance makes it clear that it is just that: guidance. It does not set out a tick-box exercise of mandatory requirements for businesses but rather six principles to help each business decide what prevention procedures, if any, are reasonable for them in their individual circumstances.
The government guidance makes it clear that, for each business, there may be a number of appropriate approaches for them to take and that departure from suggested procedures will not mean that an organisation does not have reasonable prevention procedures. Likewise, different organisations may implement the same or similar procedures differently due to their individual circumstances. For example, what is reasonable for a large, multinational financial institution will be different from what is reasonable for a small, domestic retail business.
Conversely, while departing from the guidance will not mean that a relevant body does not have reasonable prevention procedures, nor does complying with the guidance necessarily guarantee that prevention procedures are reasonable. The guidance is not intended to be a safe harbour.
The new offences also provide a defence for a business where it was reasonable for it to have no procedures in place. A business can therefore avail itself of the defence without having followed the Government’s guidance if it was reasonable for it to have no procedures in place; for example, because the risks it faced were so remote that it would be unduly burdensome for it to put in place prevention procedures.
I hope that noble Lords will therefore agree that it is not necessary, and may impose undue burden, to force businesses to have regard to the government guidance. Those businesses which need to put in place prevention procedures and which seek to be compliant will likely already have regard to the government guidance. This has been demonstrated by the excellent engagement from many sectors on the development of the guidance. Accordingly, I invite the noble Baroness to withdraw her amendment.
Baroness Hamwee
My Lords, the noble Lord, Lord Kennedy, understood my thinking exactly, although I wonder whether it would be helpful to this House to use a procedure which is often used in the Commons to explain that one is probing to try to understand whatever is proposed and the thrust of a particular amendment—I was probing, as I had indicated to the Bill team.
I had not expected that answer, but I now understand the range of things which can happen under this clause. One is accustomed to phrases such as “for different purposes and for different persons”, which is what I think we are being asked to read into this provision. I note that the Minister said that guidance,
“can be endorsed by the Chancellor”—
I was not sure what route that was taking me down. I am grateful to noble Lords for indulging me. I, for one, now understand better what is proposed. I beg leave to withdraw the amendment.
Lord Kennedy of Southwark
“Exclusion of companies from public procurement
The Secretary of State must publish an annual report on the number of companies which have been excluded from tendering for public contracts under the Public Contracts Regulations 2015 or had an existing public contract terminated as a result of being charged with an offence under section 42 or 43 of this Act.”
Lord Kennedy of Southwark
My Lords, Amendment 164, proposed by myself and my noble friend Lord Rosser, seeks to add a new clause to Part 3 of the Bill requiring the Secretary of State to publish a report on the number of companies that have been excluded from tendering for public sector contracts, or had an existing contract terminated as a result of being charged with the offence of failing to prevent the facilitation of UK or foreign tax evasion offences. The more light that is shone into the whole area of corporate failure in respect of tax evasion, the better, as this in itself would force companies that are sloppy or that do not follow procedures to take more notice of the provisions, take greater care and be clear that the Government and the tax authorities do not take such matters lightly.
Amendment 165, again in my name and that of my noble friend Lord Rosser, would be, in effect, a supervision order imposed by a court on a company convicted of a serious offence in these matters. The court could appoint a third party, such as an expert or body, to supervise the probation period of companies that co-operate with law enforcement bodies to the extent that they are offered a deferred prosecution agreement. Companies convicted under the Corporate Manslaughter and Corporate Homicide Act 2007 may have an order imposed on them to remedy the management system that allowed the manslaughter to occur. However, there are currently no powers available to a court to impose such an order on companies convicted of non-manslaughter offences which have not co-operated sufficiently with law enforcement agencies for a DPA. The perverse result is that companies that co-operate with law enforcement bodies have greater external scrutiny of their corporate governance programmes than companies that do not co-operate with enforcement agencies. This lack of scrutiny represents a missed opportunity to improve corporate governance among convicted companies, but also a powerful disincentive for companies to co-operate with enforcement authorities.
Corporate probation orders are used in other jurisdictions. The US Sentencing Commission, for instance, has given the courts the power to introduce any probationary condition relating to the nature and circumstances of the entire case when sentencing companies convicted of criminal offences. Introduction of such a power in the UK would add another significant tool to the armoury of courts and prosecutors in dealing with financial crime and ensure that the discrepancy of treatment for companies that co-operate with law enforcement authorities and those that do not is evened out, creating a more level playing field for business.
Amendment 170, in the names of the noble Baronesses, Lady Bowles of Berkhamsted and Lady Kramer, and the right reverend Prelate the Bishop of Oxford, addresses the very real issue that senior executives rarely face any consequences when companies they run engage in criminal activity—a point made numerous times from all sides in Committee. The lack of senior executives being held to account properly is a serious matter of public concern. I look forward to the contribution of the noble Baroness, Lady Bowles, who will shortly be speaking to her amendment, and I beg to move.
Baroness Bowles of Berkhamsted
My Lords, I shall indeed speak to Amendment 170 and I thank the noble Lord for his comments on it. This concerns the procedure for disqualification of directors where there has been a criminal conviction of a company, or a deferred prosecution agreement. The amendment seeks to make it possible, following a criminal conviction of a company, for the court to consider whether any directors should be disqualified. This is not seeking to make a criminal conviction against directors—disqualification is a civil procedure—but to put company criminality procedures on a par with that which exists when there is a breach of competition law.
Baroness Butler-Sloss (CB)
My Lords, I have some doubts about Amendment 165. I find a corporate probation order to be rather unusual and although I am not an expert on crime, it seems to me that there would be considerable difficulties with it. Also, if one looks at subsection (5) of the proposed new clause in Amendment 165, the liability is,
“on conviction on indictment, to a fine”,
but it does not say how much. There would be a fine,
“on summary conviction in England and Wales”,
but there are limits to fines in the magistrates’ court. Whatever that figure is, it is not included. This seems an inadequately drafted amendment.
Lord Judge
My Lords, I add my voice to that. I support the general idea behind Amendment 165 but it proposes rather a bureaucratic new clause. Why cannot the court simply have power to make orders in accordance with its subsections (2)(a) and (2)(b), where it thinks it appropriate? Why do we need subsections (3) and (4) at all, as company B has already been convicted? It is a matter for the court to decide what sentence should be imposed; it does not need permission or an application by the prosecution. If I may say so, it seems that this would make a complex process to deal with something very straightforward. The court needs to be vested with the powers which are understood to be included on the basis of this amendment. Its compliance procedure would require an external body and, if we are doing that, can we perhaps add that there should be a report to the court about whether the appointed verifier is satisfied that verification has taken place?
As to Amendment 170, I am just a little troubled about subsection (2ZB) in its proposed new clause. It says:
“The court must not make any order under this section unless it is satisfied that the person bears responsibility”.
Fine—I understand that—but this is a penal decision. Are we saying that the court must be satisfied to a criminal standard or to a civil standard?
Baroness Kramer
My Lords, perhaps I may add one phrase only to this debate. I want to speak to Amendment 170 and suggest to the Government that this is frankly a no-brainer. We cannot afford to have inappropriate directors continuing to run companies, particularly when their inappropriate or inadequate behaviour has been exposed in the kind of circumstances discussed under Amendment 170. It is really important that the courts have a full range of tools. We no longer live in a world where the old-school tie and friendships determine who the appropriate directors of companies are. They have to be held to professional and appropriate standards. This proposed new clause would enable that to happen and I frankly cannot see why it should present any difficulties to the Government.
Baroness Williams of Trafford
My Lords, I am pleased that the amendments in this group have allowed us to have an extended debate on the tax evasion offences in Part 3 of the Bill. I am pleased to say that the Government are supportive of the intentions of these amendments, although that is not to say that further legislation is necessarily required.
Amendment 164 seeks to require the Secretary of State to publish an annual report on the number of companies that have, under the Public Contracts Regulations 2015, been excluded from tendering for public contracts, or had existing contracts terminated after being charged under the new offences. I fully agree that contracting authorities should be able to exclude bidders that have been convicted under the new offence. The Public Contracts Regulations allow for this in appropriate cases. They grant contracting authorities discretion to refuse to award a public contract to an entity that has been involved in grave professional misconduct. Such misconduct may include committing the new offences of corporate failure to prevent the criminal facilitation of tax evasion. However, government does not collect information centrally on the number of organisations that have been excluded from public contracts under the 2015 regulations. This is because these decisions to exclude are taken by individual contracting authorities on a case-by-case basis, and this may include the new corporate offences.
Introducing a reporting requirement would create a burden on contracting authorities. Each contracting authority would have to make a return to central government, detailing the occasions that exclusion from a bidding process has occurred, and central government would then have to collate all these reports in order to compile national statistics to be published in the report. Such a reporting requirement would go against the Government’s drive to simplify the public procurement process and to cut red tape.
Current efforts are focused on ensuring that contracting authorities have the necessary information to know whether those bidding for contracts have relevant convictions so that contracting authorities can make more informed decisions on whether to exclude them. This includes the introduction of a robust conviction-checking process to prevent bidders with convictions for relevant offences—including the new offences—winning public contracts. This was announced at last year’s anti-corruption summit and is about to be piloted by the Crown Commercial Service.
Amendment 165 seeks to introduce a system of corporate probation orders. This would allow a court to require relevant bodies found guilty of the new corporate offences to amend their prevention procedures. I welcome the noble Lords’ amendment. It is absolutely right that relevant bodies convicted of the new offences, and thus found to have inadequate prevention procedures, should be required to implement changes to those procedures. In response, I draw noble Lords’ attention to Clause 48(2) of the Bill, which adds the corporate offences to the list of offences for which a serious crime prevention order can be imposed under the Serious Crime Act 2007. This enables a court passing sentence on a person, including a legal person such as a corporate body, to impose a serious crime prevention order to prevent, restrict or disrupt their involvement in serious crime by imposing prohibitions, restrictions or requirements on them. The terms of these orders may require the relevant body to allow a law enforcement agency to monitor how it provides services in the future.
Relevant bodies convicted of the new offences are criminals. They do not require special or different sentencing powers. They can be adequately sentenced under the existing criminal law, using a serious crime prevention order to enforce change to prevention procedures. Such an order can do anything that a corporate probation order would. Alternatively, similar provision can be included within the terms of a deferred prosecution agreement. I trust therefore that noble Lords will see that their commendable objective can already be achieved within existing law.
I thank the noble Baroness, Lady Bowles, for Amendment 170. I share concerns about ensuring that those who are unfit to be directors are identified and disqualified from holding such posts. The amendment seeks to amend the Company Directors Disqualification Act 1986 in order to allow a company director to be disqualified by the court when a relevant body is found to have committed one of the new corporate offences, or a similar failure to prevent an offence under the Bribery Act 2010.
At present, under the Company Directors Disqualification Act 1986, a company director can be disqualified on conviction by the sentencing court. Alternatively, the Secretary of State for Business, Energy and Industrial Strategy can apply to the High Court for an order that a company director be disqualified. In either case, the company director would be a party to the proceedings, and thus given the opportunity to present their defence.
Baroness Bowles of Berkhamsted
The point is that a procedure exists when there is a breach of competition law. That does not have to be referred back to the Secretary of State. There is a subsequent hearing as to whether the director was culpable by not having established the right procedures. It does not automatically say that, if the company is guilty, the directors are guilty. If the circumstance is such that the judge says, “I think we should look further at this”, why should it not then be in the prosecutor’s toolbox to say, “We want to continue smoothly on to the next stage”, which the prosecutor has probably already investigated? It is a civil procedure to disqualify a director, I remind the Minister, so the human rights implications are slightly different. If it works for competition, why can it not work for criminality? It seems to be saying that there is a stricter rule, where directors sit up and take notice of the fact that it looks a little bit more automatic even though the same defence is there. Therefore, it has a huge impact on corporate governance in making sure that the procedures are there. It may even be on a piece of paper on the boardroom table. I have personally heard, “Oh, this is something we can get disqualified for if we don’t get it right”. That is exactly how more boards should be thinking. This kind of procedure induces that. Maybe the Minister can write to me and explain why it is good for competition and not for criminality.
Baroness Williams of Trafford
The noble Baroness foxed me when she asked that question the first time and she is still foxing me. I shall write to her before Report because I really do not know the answer.
Lord Kennedy of Southwark
My Lords, I thank all noble Lords who have spoken in this short debate, and I am pleased that the Minister understands the spirit and intention behind our amendment. The comments of the noble and learned Baroness, Lady Butler-Sloss, and the noble and learned Lord, Lord Judge, are points well made. They have vast legal experience and if I bring the issue back at all on Report, I shall take on board their comments and wise legal advice and draft my amendment accordingly. I certainly thank all noble Lords for their contribution today, and beg leave to withdraw the amendment.
Baroness Stern
“Public registers of beneficial ownership of companies in the Overseas Territories
After section 2A of the Proceeds of Crime Act 2002, insert—“2AA Duty of the Secretary of State: Public registers of the beneficial ownership of companies registered in Overseas Territories(1) It shall be the duty of the Secretary of State, in the furtherance of the purposes of—(a) this Act; and(b) Part 3 of the Criminal Finances Act 2017,to take the steps set out in this section.(2) The first step is that, between the date on which this section comes into force and 31 December 2018, the Secretary of State must provide all reasonable assistance to the governments of—(a) Anguilla;(b) Bermuda;(c) the British Virgin Islands;(d) the Cayman Islands;(e) Montserrat; and(f) the Turks and Caicos Islands,to enable each of those governments to establish a publicly accessible register of the beneficial ownership of companies registered in that government's jurisdiction.(3) The second step is that, no later than 31 December 2019, the Secretary of State must prepare an Order in Council, and take all reasonable steps to ensure its implementation, in respect of any Overseas Territories listed in subsection (2) that have not by that date introduced a publicly accessible register of the beneficial ownership of companies within their jurisdiction, requiring them to adopt such a register.(4) In this section a “publicly accessible register of beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006 (information about people with significant control).””
Baroness Stern (CB)
My Lords, I rise to speak to Amendment 167 in my name and those of the noble Baroness, Lady Kramer, and the noble Lords, Lord Kirkhope and Lord Rosser.
The amendment, as a proposed new clause, stems from our concern to fight grand corruption and tax evasion—two ills that damage the well-being of millions of people in a large number of countries, and increase insecurity, instability and violence worldwide. Specifically, the amendment addresses offshore banking and the secrecy that surrounds it. It is perhaps appropriate that we are discussing offshore banking and secrecy on 3 April—exactly to the day the first anniversary of the publication of the Panama papers.
The Panama papers revealed to the world very clearly the connection between offshore financial operators, shell companies and secrecy. One outcome of the publication which happened only two days later was that the Prime Minister of Iceland left his post because information about wealth he held in a company registered in the British Virgin Islands—information that had not been in the public domain—led to the Icelandic people losing confidence in him.
The amendment addresses those offshore financial centres that are British Overseas Territories. It excludes the Crown dependencies, where the constitutional issues are more complex. It calls for the Government to go further than they currently propose to do in ensuring that all the overseas territories that have financial centres—Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos—allow public access to registers of beneficial ownership. I stress that the list does not include Gibraltar. I am grateful to all those who have spoken to me about Gibraltar and its special situation at this time of Brexit negotiations. We recognise the unique status of Gibraltar. I hope that the noble and learned Baroness, Lady Butler-Sloss, who is very active on matters to do with Gibraltar, accepts that position.
It must be said that the Government have already made great, admirable efforts to encourage the British Overseas Territories to put their operations within the framework of transparency which is slowly being developed across the globe. Four years ago, in 2013, the then Prime Minister David Cameron wrote to them asking them to consider public registers of beneficial ownership. In May 2014, he wrote again, saying that he was hoping that they would,
“consult on a public registry and look closely at what we are doing in the UK”.
That encouragement has had some welcome results; registers are slowly being developed, and there is a commitment to producing them by June this year. I hope very much that when the Minister replies she can update us on that development. The registers will not be public but will be open to UK law enforcement officials; only Montserrat has so far committed to producing a public register. As noble Lords will know, the UK produced the world’s first fully open register of beneficial ownership, which became available last year. Other countries have said that they will do the same as the UK has done.
The amendment requires, first, that the Government give help with the process of establishing the registers in the overseas territories, with the aim that they are all in place and fully operational by the end of next year, 2018—five years since the first David Cameron letter. Secondly, the amendment requires that if that help, support and encouragement is not successful in getting the registers into the public domain, the Government should secure compliance through an Order in Council by December 2019. That gives another two and a half years from now for the registers to be fully developed and made public.
The Government have not accepted that timetable—and I thank the Minister for arranging a very helpful discussion with me this morning on this subject. They are now arguing that moving in the direction suggested by the amendment is not the route that they wish to follow, which is very disappointing, as it comes rather suddenly after the Government showed, by their world-leading work on anti-corruption, money laundering and tax evasion, that they were determined to take the steps needed to curb these evils. It was very disappointing to many in the other place, where there was support from all parties for an amendment along these lines. I imagine that it is disappointing to many in your Lordships’ House, too, and to the members of the House of Commons International Development Select Committee, who in their 2016 report, Tackling Corruption Overseas, concluded that,
“lack of transparency in the Overseas Territories and Crown Dependencies will significantly hinder efforts to curb global corruption and continue to damage the UK’s reputation as a leader on anti-corruption”.
It is well understood that there are difficulties. Clearly, it is not ideal for the Government to have to make threats of using Orders in Council. It would be infinitely preferable if the Orders in Council did not have to be used, but they are needed as a backstop if the Government are unsuccessful in persuading the overseas territories to publish their registers.
At Second Reading, the Minister told the House that the power to legislate for the overseas territories is almost always done with consent and that the Government legislate without consent only,
“on moral and human rights issues, such as homosexuality and the death penalty”.—[Official Report, 9/3/17; col. 1516.]
It is hard not to see the moral and human rights issues that stem from money laundering and grand corruption. An Oxfam report quoted by the International Development Committee says:
“Almost a third (30%) of rich Africans’ wealth—a total of $500bn—is held offshore in tax havens. It is estimated that this costs African countries $14bn a year in lost tax revenues. This is enough money to pay for healthcare that could save the lives of 4 million children and employ enough teachers to get every African child into school”.
I have great respect for the Minister and hold her in high regard, but to me that is both a moral question and a human rights issue.
The Government have stressed the progress that has been made and the advantages that will come from the current plans, which help prosecutors here by giving our law enforcement agencies speedy access to the registers. That is indeed a step forward, but it is not far enough—transparency is essential. As Andrew Mitchell MP, former Secretary of State for International Development, said in the other place,
“The point is to enable civic society to hold the powerful to account”.—[Official Report, Commons, 21/2/17; col. 934.]
That is what the Icelanders managed to do as a result of the transparency provided by the Panama papers.
Finally, when the Minister replies, will she explain the Government’s new approach, set out in their response to the International Development Committee report, that the overseas territories will only be expected to introduce public registers when they become “a global standard”? How will “a global standard” be defined? How many countries will need to introduce a public register of beneficial ownership before they become “a global standard”, and is any time limit envisaged in waiting for that standard to be reached? I beg to move.
Baroness Meacher (CB)
I support Amendment 167, so ably moved by my noble friend Lady Stern. I apologise to the House that I was not able to be present at Second Reading. I applaud the Government for bringing forward this important Bill, which will do much to improve our capability to recover the proceeds of crime and to tackle money laundering and corruption.
My particular interest in the amendment comes from my awareness, over the past decade in particular, of the devastation to many countries—particularly Colombia, Mexico, Guatemala and many others in central America and, increasingly, west African states— caused by the production of, and international trade in, narcotics. The Governments of the drug-producing countries have to spend billions of dollars dealing with the drug barons. These are scarce resources which need to be devoted to the development of their infrastructure and to social support for their people, who are, frankly, pretty poor. The secrecy surrounding bank accounts in our overseas territories enables huge wealth to accumulate untaxed, and to be used to control substantial tracts of these countries. For example, I understand that one-third of Guatemala is completely under the control of drug barons, not its Government. Perhaps the single most effective criminal justice response to the situation is through access to their bank accounts in tax havens.
The prevention of corruption and money laundering is therefore of the utmost importance to those countries and Britain, along with our European neighbours, is of course a major contributor to these problems. Britain is a substantial consumer of narcotic drugs: without the demand for these there would be no production or trade. We therefore have a particular responsibility to deal with corruption and money laundering by those involved in the drugs trade. The Minister did assure me that our overseas territories are making good progress towards producing registers of beneficial ownership of companies registered in their territories, albeit not public ones. Like my noble friend Lady Stern, I hope that the Minister will say more in her response about the progress made so far. For example, how many of the territories will actually have registers accessible to police services in place by the end of this year? When do the Government anticipate that all our overseas territories will have such registers in place?
The key element of Amendment 167 is that the registers must be publicly available. The potential for kidnap of innocent very rich people with large balances held in our overseas territories needs consideration. Clearly, none of us would want to create a system which would increase the risk of kidnap. However, rich people are very inclined to be easily recognised by their lifestyle—the size of their yacht or their private plane, for example. People who amass great riches generally do not want to hide them. They really do want the world to know what they have achieved. It is their own actions which appear to me to cause risk of kidnap. I therefore do not believe that we should reject the proposal in Amendment 167.
The important underlying point is that the UK, together with our tax havens, is still the biggest financial secrecy jurisdiction in the world. I have no doubt that much of the black money from the drugs trade in Central America and west Africa is lodged within the wider UK jurisdiction. Having led the world in legislating for a public register of beneficial ownership in 2015 for the UK, money will surely have been moved to our overseas territories. Is the Minister able to give the House any information about the transfer of funds to our overseas territories following the 2015 Act? Presumably, for the very reasons why we need Amendment 167, the Government may not be in a position to give us that information, which would be very helpful to know.
According to Christian Aid, Save the Children and other leading charities, Ministers have for more than three years made it clear that they want public registers of beneficial ownership in the overseas territories, and that they are working to get them. Despite the Minister’s comments to my noble friend Lady Stern a little earlier, I hope that she will therefore agree that the case remains as strong as ever to extend transparency to those territories and to bring them into line with the UK itself.
Lord Kirkhope of Harrogate (Con)
My Lords, I rise as a signatory to Amendment 167, which I fully support.
As the noble Baroness, Lady Stern, highlighted, the recent “global laundromat” revelations make the need for our amendment rather pressing. As she said, it is exactly a year since the Panama papers were published and we have yet another leak. Must we wait for the next one before we follow through on the commitment made by our former Prime Minister David Cameron?
In general, of course, I add my support to the overall measures in the Bill. I know that they will go a long way to addressing corruption. I think that almost all Members of Parliament and Peers who have spoken have supported its measures, which should give the Government comfort. I also agree that the Government deserve enormous praise for the work they have done both here in the UK and internationally to tackle corruption, tax evasion and avoidance. Since David Cameron put the issue at the centre of his 2013 G8 summit, the Government have shown global leadership on an issue that blights so many countries. I very much support the progress made on this agenda, particularly at the anti-corruption summit in May last year, and the work taken forward by the OECD to tackle corporate tax avoidance. It is also worth noting that the former Prime Minister committed himself to seek to persuade the overseas territories to introduce transparency. That is the element I want to take forward today.
We all welcome the progress that has been made by the overseas territories. I am pleased that they have now agreed on the importance of having registers of beneficial ownership and I look forward to them being in place very soon. However, we must also recognise that the UK’s Crown dependencies have made real progress on this in recent years. My understanding is that they will all have central registers of beneficial ownership. While these will not be publicly accessible yet, central registers are much easier to interrogate, and crucially they will be much easier to make public in due course. This contrasts with some of the overseas territories that have not yet put in place central registers. The British Virgin Islands and Cayman Islands are, as I understand it, instead implementing—or wishing to implement—a complex system of linked registers. Is my noble friend the Minister content with this? Exactly how would linked registers work in such places? If, for instance, the UK Government made a request, would the Government in the jurisdiction concerned then make a separate request to whoever administers that bit of the register? Is the Minister satisfied that these linked registers will give the UK Government the ability to request information quickly, and does she have any concerns about how they will work, and whether they will make making requests for information easier or harder for the UK Government?
Also, to what extent and with what vigour are the UK Government making representations to the overseas territories about introducing central registers, so that they will be easier to make public when public registers become the new global standard? Naturally, such registers are a good first step for law enforcement agencies to be able to access information quickly. But the Government have already accepted that in order to properly tackle corruption, this information must be open to public scrutiny. Journalists, NGOs and the public must be able to examine the information, not just for us in the UK but also for those developing countries which suffer most from corruption and need access to the information the most. People in developing countries cannot currently benefit from the huge plethora of information-sharing agreements that we have around the world.
I admit that I am a bit confused by the Government’s recent comments on this issue. I was of the impression that it was our strong desire to see public registers of beneficial ownership. I need hardly remind noble Lords again of David Cameron calling them the “gold standard” at last year’s very welcome anti-corruption summit in London. Yet, I noted the Minister’s comments in the other place that we do not expect our overseas territories to have public registers until and unless they become a global standard. My concern is that if we wait for this to happen, it could be an excuse for no progress to be made for many years. Can the Minister assure me that this will not be the case and say how we can guarantee faster movement? I understand that in some cases, there has even been a failure to respond positively to UK inquiries on the subject.
We should remember that the historic relationship with the overseas territories has benefits for all of us. It is fair to ask those jurisdictions that while their economy and defence depend on the stability and integrity of the UK, they should also be expected to follow the same rules of business and investment that we follow here. This is not about destroying a country’s economic business model or anything like that. That is why this amendment has given an extra two years to make registers public. It is about working with them and making sure that they are following the rules in taking clean money and not gaining from illicit finance. The UK’s global reputation is also very much at stake.
I know that there are concerns in this House about interfering in the affairs of overseas territories, but I remind noble Lords that we have done this before, as the noble Baroness, Lady Stern, said, on issues of equivalent moral importance. I confess that if the Government now think that we should not insist on these registers being made public, why on earth did they suggest it in the first place, and why did Ministers expend so much energy over such a period of time on it? Surely we should not give up at this point. David Cameron was right. We should keep trying as hard as we can and should give all the assistance we possibly can to the overseas territory Governments to achieve this.
Finally, can the Minister give an assurance that all overseas territories will at least have central registers of beneficial ownership by that June deadline? If not, when will all of them have them? The complex arrangements for linked registers seem overly problematic and will make publishing registers more difficult in future. What specific progress has been made in persuading the overseas territories to adopt those public registers? Simply saying that they will adopt them if other countries do it is not enough, and neither is not mentioning transparency while the private registers are being put in place.
As we look towards the UK’s role in a post-Brexit world, we must continue to lead in this important area of anti-corruption and transparency.
Lord Rosser
My Lords, my name is attached to Amendment 167, and I will also bring my Amendments 168 and 169 into play, not least because, unless I have misunderstood the situation, my noble friend Lord Eatwell will certainly wish to speak about one of my amendments in this group, if not all three of them.
I fully support Amendment 167 and will touch on some of the arguments in support of it when referring to Amendments 168 and 169. Amendment 169 would provide a duty on the Secretary of State to hold a consultation on the establishment of a publicly accessible register of the beneficial ownership of UK property by companies registered outside the United Kingdom within six months of the commencement of Section 1 of this legislation. It would also require the Secretary of State to bring forward legislative proposals to set up such a register within 12 months of the commencement of the section.
The Lord Bishop of Peterborough
My Lords, I support the amendment. I also support the Bill and I am grateful for it.
I particularly support and follow a point made by the noble Baroness, Lady Stern, about this being a moral issue. I refer to Amendment 167. This time last year, shortly after the publication of the Panama papers, there was a Question in the House about this issue. I asked a supplementary and was assured by the then Minister that this was seen by the Government as a moral issue. It is important that we hold to that.
It is particularly a moral issue because of the effect of tax havens on people in developing countries. According to the United Nations conference on trade and development, tax havens cost developing countries at least $100 billion a year. That means three times the global aid budget is lost to developing countries in this way. It is a huge amount, which would be able to do a great deal in terms of health, education and so on in those countries which so badly need it.
My right reverend friend the Bishop of Oxford spoke on this issue in the Second Reading debate. He is sorry that he cannot be here in your Lordships’ House today but, on his behalf and that of others, I gladly ally these Benches with the four signatories to Amendment 167, who come from four different parts of the House.
Lord Beith
My Lords, I wish to refer to Amendment 169, to which the noble Lord, Lord Rosser, has spoken. In doing so, I declare an interest as having been chairman of the Justice Committee of the House of Commons, which produced two reports about the constitutional relationship between the United Kingdom and the Crown dependencies. It made recommendations which were accepted by the United Kingdom Government and the Governments of the dependencies and appear to be working successfully. That relationship involves respect for the democratic nature of the dependencies and their jurisdiction as legislatures and sets clear limits on what it is appropriate for the United Kingdom Government to do.
An amendment was considered and voted on in the House of Commons which ignored the constitutional relationship. This Parliament does not legislate for Crown dependencies, the Channel Islands and the Isle of Man except by consent, and rarely does so even by consent. I am grateful that the noble Lord, Lord Rosser, has given some thought to this. We had a brief discussion about it and the amendment he has included in this group is a much more ingenious and respectful one towards those provisions but it is still somewhat in breach of the spirit, although not the letter, of them.
There are obviously real benefits to be had from public, open registers of beneficial ownership. In those areas and parts of the world where public authorities are taking no action in the kind of circumstances noble Lords have described, exposure and publicity can lead to action being taken. In circumstances where what was being done may not have been criminal but did not seem consistent with being the Prime Minister of Iceland, say, public reaction can play a real part.
There are also problems with public registers, particularly if you are in a jurisdiction that is competing with others which have no intention of going in that direction for legitimate financial business properly conducted—the position which, to some extent, the Crown dependencies find themselves in. The place to pursue the argument for public registers of beneficial ownership in the dependencies is of course in the legislatures of those dependencies, and that discussion ought to be taking place. However, there is another route, which the Government refer to rather negatively but is in fact quite positive. We should seek international agreement imposing similar conditions across the world, accepted by a whole range of nations which are engaged in the kind of trade that can legitimately be carried out but can also be grossly abused by those with wealth ill-got by criminal means. The importance of a global standard is that it would create a level playing field for the various jurisdictions involved, and that is why it is seen as significant in the dependencies. If agreement was reached internationally, the Crown dependencies would have to revise their current view; not only that, the UK Government would then acquire responsibility because the United Kingdom has a responsibility for international treaties to which the Crown dependencies are committed. The Government would have to represent their interests in any discussion about the achievement of a global standard when such a standard takes the form of a treaty. They would have a responsibility to make sure that the Crown dependencies abided by it, but that is not the situation we are in.
Nor is that the priority in this legislation, because here the priority is to achieve effective action by law enforcement and the tax authorities, and what they most need is accurate and up-to-date registers which can be accessed quickly in real time. By June there will be no Crown dependency which does not have exactly that: a central register which can be accessed in all cases within 24 hours, or significantly less in urgent circumstances such as a terrorist case. That is the main thrust of this legislation and we should not ignore the fact that that has been achieved. It is partly a result of the Cameron exchanges by letter which have been referred to, but also of developments that were already taking place in the dependencies. I mention these points simply to underline that the way to approach this issue in the Crown dependencies is different.
Lord Eatwell (Non-Afl)
My Lords, I regret that I did not have the opportunity to participate in the Second Reading debate on this Bill as I was abroad. I have, however, read with care the record in Hansard, in particular those speeches by noble Lords who referred to the matters under consideration in this group of amendments. I wish to speak to Amendment 169 and do so because I have a particular interest to declare. I am the chairman of the Jersey Financial Services Commission. The company register in Jersey, which maintains the register of beneficial ownership, is a division of the Financial Services Commission and hence Amendment 169 refers to matters which are my direct personal responsibility.
I should say at the outset that I will not comment on the main issue of this debate, which is whether a register should be publicly available, other than to comment on the claims by Her Majesty’s Government that link public availability to effective verification. The issue of public availability is a political matter. The JFSC is an independent regulator; that is, it is independent of the political authorities in Jersey and hence the question of public availability is not a matter for me. What is a matter for me is subsection (4) of the proposed new clause in this amendment which states that,
“‘a publicly accessible register of the beneficial ownership of companies’ means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006”.
It is of course this information that forms the basis of the register at Companies House. I regret that this subsection reflects a serious lack of relevant understanding of the issue of reliability both of the Jersey register of beneficial ownership and of the Companies House register of People with Significant Control. Reliability depends upon verification, whether the information is true or false. The Panama papers were so successful in revealing ill-doing because they happened to contain information that was broadly true. I am afraid that this is not the case in the Companies House register.
Jersey has maintained a register of beneficial ownership since 1989. Initially, the legal requirement was for a statement of beneficial ownership when a company was first registered. That statement had to be updated when there was a change in circumstances amounting to a 25% change in ownership. Today, the requirement is for regular updating. At this very moment a detailed survey of beneficial ownership is under way to provide a complete picture of the state of affairs on 30 June this year. Thereafter, it will become a requirement to update information in Jersey on a 21-day limit when information is available.
This information is subject to detailed supervision and verification. For example, trust companies are required under the money laundering order to obtain and maintain beneficial ownership information. Client files are checked on supervisory visits to ensure that they have done so. Record-keeping failures are subject to enforcement action with failures resulting in individuals being banned from the industry and firms being subject to significant remediation. As was noted earlier, the Jersey register is available to all relevant authorities, including the National Crime Agency’s financial intelligence unit, and in the next year or so will be available in real time. In addition to current procedures, an annual validation process on beneficial ownership and control is to be introduced in 2019 to replace annual company returns.
Jersey not only maintains a detailed register of beneficial ownership, but subjects that register to detailed supervision and verification. Compare this state of affairs with the UK’s register of People with Significant Control. Almost all UK companies are required to maintain registers of people with significant control, known as PSCs. This information is maintained on the Companies House register and is available publicly through the Companies House website. But note: Companies House carries out no noticeable verification of the information provided. It certainly does not in terms of annual returns or regular confirmation. Companies House has always seen itself as a repository of information—a library, if you like, but not a regulator. Of course, company formation agents are often used in the UK and they are subject to anti-money laundering supervision by Her Majesty’s Revenue & Customs. However, I understand it is standard practice for such agents to argue that setting up a company is a one-off transaction and thus exempt from anti-money laundering requirements. So HMRC does not verify either.
Just as in Jersey, it is of course an offence to submit false information to Companies House and a company will commit an offence if it does not declare its beneficial ownership information accurately. But I am afraid that enforcement of this offence is akin to the enforcement of the offence of not putting the ball in straight at a rugby scrum. The consequences for the UK register are well known. For example, an investigation in November last year by the organisation Global Witness noted that with respect to the UK register there were,
“2,160 beneficial owners born in 2016. Now either these are a very precocious bunch of toddlers or the data has been entered incorrectly”—
there is no verification. It continued:
“We also had people who listed 9988 as their year of birth—clearly a visitor from the future”.
It will not surprise noble Lords that the UK register has been the subject of some criticism, notably in the recent consultation on the fourth money laundering directive. Referring to such criticism in the consultation, Her Majesty’s Treasury argued:
“Some responses argued that consideration should be given to the accuracy of data on the PSC register, and the benefit of introducing verification measures in the incorporation process conducted by Companies House. The government is confident that maintaining one of the most open and extensively accessed registers in the world is a powerful tool in identifying false, inaccurate, or possibly fraudulent information. With many eyes viewing the data, errors, omissions or worse can be identified and reported. This means that the information held on the register can be policed on a significant scale by a variety of users. Ongoing consideration is being given as to whether this could be complemented by any additional measures”.
With all due respect, this is just wishful thinking. It amounts to saying that it is the responsibility of civil society to find out for itself what the structure of beneficial ownership might be, because our register is unreliable. Unearthing the reality of beneficial ownership requires the advanced skills of a financial services supervisor or, as I have learned, a forensic accountant. The deliberate provision of false, inaccurate or possibly fraudulent information is to deceive the authorities and civil society. We are not talking about simple mis-registration of a date of birth; it is false information which is the key. It is fanciful to suppose that many untutored eyes will identify clever fraud. I regret to say that, as a regulator, it is my personal opinion that Her Majesty’s Government’s unwillingness to verify the register of PSCs is a dereliction of regulatory duty.
Indeed, it is evident that, in reality, Her Majesty’s Treasury has no confidence in the Companies House register. In the draft regulations published by Her Majesty’s Treasury for the implementation of the fourth money laundering directive, Regulation 28 sets out the requirements for a firm to carry out due diligence on its customers. In doing so, Regulation 28(9) states that firms,
“do not satisfy their requirements … by relying only on the information … contained in … the register of people with significant control kept by a company under section 790M of the Companies Act 2006”.
In other words, Her Majesty’s Treasury will not accept information taken from the register at Companies House as fulfilling any due diligence responsibility. It does not believe the register.
Given that Her Majesty’s Treasury clearly regards the Companies House register as inadequate, I would be grateful if the Minister would tell the House what are the current conclusions of Her Majesty’s Government’s “considerations” as to whether the Companies House register will be verified. When will the UK produce a register that can be believed in?
To return to the main point, I hope that it is now clear that proposed new subsection (4) in Amendment 169, which calls for information in Crown dependency registers to be “broadly equivalent” to the Companies House register, would result in a major deterioration in the quality of the Jersey register. The amendment calls for the replacement of information that is subject to detailed and regular supervisory scrutiny with information that is not verified at all. I hope that, on this basis, noble Lords will not press their amendment, having been made aware of the damage that it would do to the cause of the availability of accurate and verified information on beneficial ownership.
Lord Naseby (Con)
My Lords, it is always a pleasure to follow the noble Lord, Lord Eatwell. I apologise to the noble Baroness for not hearing the totality of her speech.
I shall not repeat what the noble Lord has just said. He cited in particular Jersey. I declare an interest as vice-chairman of the All-Party Group for the Cayman Islands, and I necessarily had some discussions about this Bill. I also have a member of my family working in the Cayman Islands. As to verifying beneficial ownership, which is what we are primarily talking about here, the situation in the Cayman Islands is that it has been a legal requirement there for 10 years now, and the authorities do verify the accuracy of the information that is given, in contrast to what the noble Lord rightly says about UK Companies House, which is basically a self-registration system. That is clearly nowhere near comparable to the norm in the best of the overseas territories.
Baroness Butler-Sloss
My Lords, as vice-chairman of the All-Party Parliamentary Group on Gibraltar I am grateful to the noble Baroness, Lady Stern, for having noticed that I was here and expressly excluded Gibraltar from Amendment 167. It is possible, however, that the omission of Gibraltar might be misunderstood; consequently I want to put on record Gibraltar’s position on its financial affairs. It is compliant with all the financial requirements. The OECD, in its phase 2 review of Gibraltar, ranks it equal with the United Kingdom and the United States on transparency, effectiveness and exchange of information.
Gibraltar, as we know from earlier discussions in this House, is the only overseas territory within the European Union at the moment. It continues to be bound by EU law for at least the next two years and is transposing the fourth anti-money laundering directive by June of this year. That includes the creation of a central register of beneficial ownership, which points out that Gibraltar is doing well as a financial centre and is compliant.
Lord Hodgson of Astley Abbotts
My Lords, the theme of corruption and the damage it does to society has been the thread running through all our debates this afternoon and, indeed, on our first day in Committee last week. When you have powerful speeches from the noble Baronesses, Lady Stern and Lady Meacher, the right reverend Prelate the Bishop of Peterborough and my noble friend Lord Kirkhope, you have to be influenced by what they are telling you. When they link it to the idea of a gold standard of a publicly available register—although after the noble Lord, Lord Eatwell, had finished with Companies House, gold was no longer the metal that I would associate with that institution—you feel that there may be an exceptionally strong case. Equally, as you reflect on it, you begin to wonder whether the best may not become the enemy of the good.
In trying to clarify my thinking on this very difficult issue, I ask my noble friend on the Front Bench to focus in her reply on three points that are important to me. They relate to the big three of the overseas territories mentioned in the amendment: Bermuda, the British Virgin Islands and the Cayman Islands. The others are much smaller; they may be important in the future but the major difficulties will arise with the first three.
First, can my noble friend confirm what the noble Lord, Lord Beith, said—that those three territories are going to have an up-to-date register of company ownership—and the date by which it is going to be in place? If it is going to be in place, are the Government satisfied that each register operates effectively and accurately?
Secondly, I come to the verification point raised by the noble Lords, Lord Eatwell and Lord Naseby. Since information is put into these registers by third parties, which have titles such as corporate service providers—CSPs—trust or company service providers, and so forth, are the UK Government satisfied that the regulatory regime in each of these territories ensures that the CSPs operate to timely and accurate standards? Are there adequate checks on their performance? For example, are there, as we have in the City of London, fit and proper person tests to make sure that those who are providing the information have decent standards of behaviour imposed on them?
Thirdly and finally, as my noble friend Lord Kirkhope said, are UK law enforcement agencies satisfied with the level of co-operation and assistance provided by these regulatory authorities? Do they get prompt and helpful responses or are the responses dilatory and evasive? If my noble friend was to say that she could give the Committee assurances on those points, my concerns about the best being the enemy of the good would rise in significance. Of course we are seeking a gold standard but surely in the short term what is vital is not that I or other Members of your Lordships’ House should be able to interrogate the register but that the relevant law enforcement agencies should be able to do so, and should be able to do so promptly and to get information promptly. Then, I hope, as enforcement standards rise and, as my noble friend Lord Naseby said, the United States begins to bring all parts of its dominion into proper behaviour, the gold standard of full public disclosure may well be appropriate.
I quite understand why the noble Baroness wishes to do this but my concern is that if we go too far, too fast now, the malfeasant—and it will be those who go first—will drift away to still murkier regimes. We may have only half a loaf and the noble Baroness would like the full loaf, but at least we have half a loaf. If we go to murkier regimes, there will be no way of getting any sort of collaboration, co-operation or help at all to tackle what I think everybody in your Lordships’ House agrees is a really important problem and is imposing terrific damage and harm on our fellow citizens, particularly in the developing world.
I hope my noble friend can answer my questions. Are there going to be prompt and accurate registers in the major territories—and, if so, by when—or are they there now? Are those who upload information into the registers properly checked, verified and regulated? Do our law enforcement agencies really get wholehearted collaboration and assistance from their opposite numbers in those three territories?
Baroness Kramer
My Lords, I am a signatory to Amendment 167, which was moved so eloquently by the noble Baroness, Lady Stern. I have signed that amendment because I struggle to see any effective way forward other than a route that essentially follows the lines that she outlined.
In this House, I think that every Member is utterly dismayed by the level of corruption in many countries across the globe, particularly those with some of the poorest and weakest populations. But there are also kleptocracies with sophisticated developed populations which do huge damage to their countries and to international affairs. If we look at the strife that drives people to become refugees and migrate across borders, on a scale that we have hardly seen in the past, there are criminal groups which manage themselves so effectively. All of those groups are enabled—indeed, can survive—only because they can find a portal with which to interface with the legitimate financial services community.
The work we are trying to do with these amendments is to close down those portals because the impact of that would be phenomenal, and not just for developing countries. It would have a great impact on the developing world and potentially on us. There is almost nothing we could do that would have more impact in bringing peace, opportunity and prosperity across the globe. This takes great courage, but it is also a great prize.
On the argument being made today, first, I congratulate many of the countries which have moved forward, for example to establish central registers. Work is being done in the overseas territories—I know it is true in the Crown dependencies as well but I understand their different constitutional position, which is why they are not included in Amendment 167—to establish a powerful relationship with UK enforcement authorities. If that were sufficient to close down those portals to the people who we know should not be able to use them, I would be happy to stop at that point. But I have found no one who believes it is true that enforcement authorities would be able to act through those central registries in ways sufficient to close down the routes and effectively shut out so many of the people who we think should be shut out from the legitimate financial world.
The only route I can see to make this reasonably or wholly effective is transparency. I fully accept that transparency at the global level is the obvious ideal, but I am a realist. I do not think anybody in this House believes that a global standard of transparency, with public access to central registers, will be available in my lifetime—and probably not in my children’s lifetime. Achieving that global standard is near impossible, so how do we move forward and at least create the reality that more and more portals will be closed down to those who try to use them? I was proud of this country when it took a very strong and difficult position to lead not only on central registers, for example, but on transparency. It said that if nobody takes the lead and moves out in advance, the rest will never follow. There is no basis if one waits for everybody to move together. We still face that situation.
I have met with representatives of the BVI and Bermuda and I hear the case presented for the Cayman Islands, and others such as Jersey and Gibraltar. I fully understand that every country on our list, even those that think they are touched by the underlying principle of the amendment, are quite offended. They feel that they are reputable places which have done a great deal to make progress on the elimination of corrupt practices. I understand their sensitivity on that issue, but the problem with which we are dealing is so much bigger.
Lord Leigh of Hurley
My Lords, it may come as a surprise to some, but having carefully researched the matter, I find I have no interests or conflicts to declare in respect of this matter—perhaps sadly.
The financial services sectors of the overseas territories and the Crown dependencies are crucial as global hubs. Our close connections with them contribute to the UK’s position as a global financial centre—which is of course close to all our hearts—and, now more than ever, it is important we maintain and strengthen our ties with key economic partners.
At the same time, as with all financial services, there must be appropriate transparency to prevent abuse by those who would seek to exploit them for criminal purposes, as the noble Baroness, Lady Kramer, has just so eloquently said. It is quite clear to me that the UK is leading the way in this, which is in no small part due to the foundation stones set down by the former Prime Minister, David Cameron, who ensured that the issue of transparency was prominent in the coalition Government, from the time he chaired the G8 summit in Lough Erne and it was at the top of the agenda of that meeting.
That led to the PSC clauses in the Small Business, Enterprise and Employment Bill, on which I spoke quite extensively. Those applied only in the UK, but I recall that the noble Lord, Lord Watson of Invergowrie, commented in Committee that the overseas territories and Crown dependencies were next. Accordingly, I welcome the subsequent commitments made by the overseas territories and Crown dependencies to establish central registers of beneficial ownership—clearly, those territories are listening very carefully to Labour Peers in Committee. Once these have been implemented in June 2017, UK law enforcement will gain access to previously inaccessible information on entities registered in those jurisdictions. That will enable it to investigate corruption and money laundering through BOSS—beneficial ownership secure search systems. These are significant benefits for UK law enforcement, and I am pleased to see the overseas territories and Crown dependencies make strides towards improved financial transparency and integrity. It is an approach that will reap dividends for our law enforcement agencies and their ability to investigate financial crime, while maintaining the positive relations that we enjoy with these territories.
It is right that we should aspire to public registers of beneficial ownership, not just for the overseas territories and Crown dependencies but for all jurisdictions. I welcome the continued government commitment for public registers to be the global standard, as an aspiration. But it is clear we will achieve more by working in partnership and collaboration than by forcing legislation—to the extent we can—on independent jurisdictions with their own elected legislatures. If we threaten that, I foresee that those territories might not continue to co-operate gladly with the UK on issues such as this. We may even take backward steps.
My heart skipped a beat when the noble Baroness, Lady Stern, said that 3 April was an auspicious day: had someone told her that it was my birthday? No, it was because of the Panama papers. Panama is very different. To make the comparison with Panama is a false parallel. Part of Panama’s very different business proposition is a far lower level of financial regulation. The Financial Action Task Force gave Panama the worst rating—non-compliant—for 14 of its 40 recommendations in its most recent evaluation of Panama, one of the worst records for any country in the world.
Law enforcement agencies do not support public registers, as they do not improve their capabilities. David Lewis, formerly of the NCA and now heading the global anti-money laundering standard-setter, the Financial Action Task Force, told the Commonwealth anti-corruption summit last year:
“Incomplete, unverified, out of date information in a public register is not as useful as law enforcement agencies being able to access the right information at the point they need it”.
Tax authorities also do not support public registers, as they encourage people to report less fully and accurately. The OECD stated that for taxpayers to abide by their obligations, they,
“need to have confidence that the often sensitive financial information is not disclosed inappropriately”.
Those multilateral organisations, and the efforts to raise standards globally, are undermined by unilaterally adopting different standards, such as public registers. That is why OECD Secretary-General Angel Gurría said:
“A proliferation of different standards is in nobody’s interests”.
Indeed, much of the United States’ aversion to implementing international standards, as explained by my noble friend Lord Naseby, is the belief that it will lead to pressure to make personal information public. I cannot imagine that that situation will improve much with President Trump in the White House.
The UK rightly wants to raise implemented standards globally, but it cannot do so by undermining multilateral efforts to create a level playing field. We should not impose legislation on independent jurisdictions when financial services are matters for their internal affairs and their citizens have no representation in this House or the other place. Instead, I ask the Government to increase their efforts to raise global standards and make public registers the norm. The overseas territories and Crown dependencies have said that, should that happen, they will comply.
Equally, I am not convinced that we should unduly disadvantage the overseas territories’ economies. Indeed, an amendment such as that of the noble Baroness, Lady Stern, which excludes Gibraltar and the Crown dependencies, may give them an unfair advantage when competing for new investment with the Caribbean overseas territories. There should be a level playing field, but that means the vast majority of major financial centres moving in that direction, with encouragement from international bodies such as the Financial Action Task Force.
However, I encourage the Government to keep this matter under review and Parliament updated. That way, we can return to this issue in due course and assess the effectiveness of the central registers. That is the right thing to do, rather than hypothetically committing to legislation in two years’ time.
Lord Thomas of Gresford (LD)
My Lords, the right reverend Prelate the Bishop of Peterborough reminded us that corruption in the modern world is a moral issue—and so it is; perhaps one of the greatest moral issues that we face. I was reminded by the speech of the noble Lord, Lord Naseby, that the great moral issue of the late 18th century and the beginning of the 19th century was slavery. It was the judgment of Lord Mansfield in the 1780s that put an end to slavery in this country.
The anti-slavery movement then began to campaign on the basis that if slavery is abolished in this country, how can it be that we permit it in our colonies, so that when a slave from the colonies comes to this country, the shackles fall away? It took until 1833 for William Wilberforce to lead a movement to pass the anti-slavery Act. Even then, it did not abolish slavery in the East India Company territories or in Ceylon.
However, at that time slavery continued in the United States; it took a civil war to put an end to slavery in the United States. The arguments advanced then were that if we abolished slavery in the colonies and the West Indies, it would undermine the economies of those territories. The same argument again was used: how will those colonies in the West Indies be able to compete with the United States in the production of sugar and cotton if slavery is abolished there?
The important point is that this country laid down the standard. We did not wait for global standards to be brought about; we took the lead. I urge the Government to take the lead, along the lines that have been advanced today by the noble Baroness, Lady Stern, who sees not only the importance of having registers in the overseas territories but that there should be something behind it—the possibility of an Order in Council to deal with that moral issue if they do not take up the cudgels in the way that they should.
Lord Faulks (Con)
I have a very short and slightly less theatrical point than the noble Lord’s—although the point he made was good. It relates to Amendment 169, which concerns the Crown dependencies. As at Second Reading, I declare an interest as the former Minister with responsibility for the constitutional relationship between the Crown and the Crown dependencies. It is a relationship of considerable importance to all parties involved, and of particular importance now with the prospect of Brexit. It is important that we maintain the competence of the Crown dependencies and it is also important that we do not exceed our constitutional role, as the noble Lord, Lord Beith, said, in seeking to make laws that in my view are not consistent with the specific constitutional relationship that we have with the Crown dependencies.
I notice that the noble Baroness, Lady Stern, eschewed any reference to the Crown dependencies. Amendment 169 does not, however. Quite apart from the point made by the noble Lord, Lord Eatwell, in relation to subsection (4), I invite the Minister to accept that there is a real problem legally with this amendment and to endorse what I said at Second Reading: that all the Crown dependencies have made very real progress in co-operating to produce a register which is available to all law enforcement agencies.
Lord Borwick (Con)
My Lords, I became alarmed when I saw Amendment 167, and I then received a joint briefing on this specific amendment from groups such as Christian Aid, Oxfam and Save the Children—all great charities doing tremendously important work around the world.
What is clear is that this group of NGOs believes that countries like Bermuda cannot be trusted to run their own affairs and need orders from legislators in Britain. Noble Lords will know that Bermuda started its central register of beneficial ownership some 70 years ago—long before it was started in Britain. It is therefore offensive to believe that it is only the great parties here, and a bunch of patronising charities, that can help them. In fact, according to the IFC Forum, information on beneficial ownership of companies will be centrally held by all overseas territories from next year.
Data can be provided to the relevant authorities on the same day that it is requested. So Bermuda is actually ahead of other jurisdictions in this area. Targeting them, as has been done in this amendment, is especially misguided. In fact, the UK is the outlier. International standards do not require that we adopt a public register—and, unsurprisingly, most other countries are not adopting public registers. Our competitors in the US, Hong Kong and elsewhere will not be doing so.
We should consider what we risk losing. Reinsurance provision from Bermuda covered over 20% of flooding losses from the 2015 winter. It supports around 70,000 jobs in the UK and has provided our economy with £10 billion of capital since 2008. Forcing the overseas territories to go beyond what is required will simply mean that business moves elsewhere. It will move to financial centres that are less well regulated than ours—centres that will not co-operate with UK authorities—which is surely the opposite of what noble Lords are trying to achieve with this amendment.
Most politicians and civil servants simply do not understand the rule of unintended consequences. They think in straight lines, but the real world works differently. There are a large number of urgent problems in the world to be solved, and the efforts of these NGOs to create the ability for self-selecting, worldwide tax collectors to examine registers is unwise. Have these charities really decided that they have not got anything better to do?
Baroness Williams of Trafford
My Lords, I thank all noble Lords who have taken part in an excellent debate. I pay particular tribute to the noble Baroness, Lady Stern, along with others who have spoken with passion and given considered contributions on a crucial issue.
I have addressed much of what has been raised in correspondence with noble Lords, but I hope that the House will allow me to put certain points on the record. As David Cameron said last year, international corruption,
“is the cancer at the heart of so many of the world’s problems”.
The Panama papers revealed the extent to which anonymous shell companies are used to hide large sums of wealth and circumvent sanctions. The UK is a global leader in the fight against corruption, and we are proud to be at the forefront of international efforts to increase corporate transparency. This includes working with all UK overseas territories with financial centres, and with the Crown dependencies, to tackle money laundering, terrorist financing, corruption and fraud. The territories and dependencies are, in turn, committed to fully meeting international standards, and in some respects are going beyond them, and to working with us to ensure that they do not act as a hiding place for illicit financial flows.
Last year, the UK signed an exchange of notes with all overseas territories with significant financial centres and with the Crown dependencies, setting out new arrangements on law enforcement access to beneficial ownership data. The exchange of notes provides that, when they have not already done so, overseas territories and Crown dependencies must all set up central registers or similarly effective systems of beneficial ownership information. It also provides that UK law enforcement authorities should have the automatic right to access this information, which means that beneficial ownership information will be available within 24 hours, or within one hour in urgent cases. Ensuring that law enforcement authorities are able to establish who is the ultimate owner of companies registered in the overseas territories and Crown dependencies is a crucial part of tackling the complex criminal networks that can exploit the system.
These arrangements are due to be implemented no later than June this year and will put them well ahead of most jurisdictions in terms of transparency, including many of our G20 partners and other major corporate and financial centres, including some states in the United States. Once in place, these arrangements will bring significant law enforcement benefits. They will prevent criminals hiding behind anonymous shell companies and mark a significant increase in UK law enforcement authorities’ ability to investigate bribery and corruption, money laundering and tax evasion.
The noble Baroness and other noble Lords started off by asking for a global standard definition, and I thought that I might address that up front. There is no single definition of a global standard for reach and coverage, but organisations such as the OECD and the Financial Action Task Force are key to the development of international standards in this area. As the noble Lord, Lord Eatwell, said, the UK believes that a public register is a powerful tool, and we will continue to make that point in international fora. However, the OECD has focused on accurate, independently verifiable data as an important standard, which all the overseas territories are looking to implement.
The EU has also played an important role in advocating transparency, but the fourth anti-money laundering directive does not require EU states to make their registers public. In this context, I reiterate that the overseas territories and Crown dependencies are actually ahead of the current standard in implementing the exchange of notes. I will come back to this when I address the point made by the noble and learned Baroness, Lady Butler-Sloss. We are not saying that the global standard means that every country must have a public register, but we would certainly expect it to reflect the recommendations of groups like the OECD and FATF. The UK is leading the way in this area and we are, of course, working on transparency issues with international partners through these groups. I make it clear that the UK firmly believes that public registers are the gold standard. Our position has not changed, but putting a timeline on this work simply does not reflect the scale and complexity of these issues. The OTs and Crown dependencies will be significantly ahead of the global standard as it stands. They have their existing commitments and this, in itself, is moving the standard in the right direction.
Many noble Lords have asked about progress to date and I am pleased to be able to talk about that. We have been working closely with both the overseas territories and the Crown dependencies on implementation by the deadline. I can confirm that significant progress has been made and I will briefly share some highlights with noble Lords. The British Virgin Islands, one of the overseas territories, has already completed the technical construction and testing of its new cloud-based platform. It is now taking forward engagement with corporate service providers to ensure that data formatting is fully standardised in order to enable beneficial ownership data to be uploaded on to the system in advance of the deadline.
In December, the Cayman Islands Government passed an amendment to the Police Law, which is necessary for law enforcement co-operation, and have recently successfully amended three key pieces of legislation to underpin the functioning of their new system: the Companies Management Law, the Companies Law and the Limited Liability Companies Law. Bermuda has a long-standing central registry of beneficial ownership data. It is currently moving legislation through its legislature to enhance the register, including a requirement on legal entities in Bermuda to maintain registers of up-to-date information on their beneficial owners, and to file updated beneficial ownership information with the Bermuda Monetary Authority. Gibraltar is already committed to implementing the EU fourth anti-money laundering directive and has prepared legislation to take forward these commitments and the exchange of notes. The technical construction of its system is well advanced and it is now considering steps to populate the registry with data.
All these jurisdictions have also committed to the automatic exchange of beneficial ownership information, along with 50 other countries. This is important progress, but there is more to be done and we are not resting on our laurels. We are committed to following up on these arrangements to ensure that they deliver in practice. The exchanges of notes with all overseas territories and Crown dependencies make explicit provision for the Secretary of State and the Premier or Chief Minister to undertake a review of the arrangements six months after they come into force—that is, on 31 December 2017—and for further reviews to take place annually thereafter. The arrangements also provide for continuous monitoring by both parties. I hope this provides clear assurance that the effectiveness of the arrangements will be kept under careful scrutiny to ensure that they are meeting our law enforcement objectives.
The NCA has confirmed that it is already seeing enhanced co-operation from some overseas territories, and much shorter turnaround times for processing requests for information. We expect to see this further improved to meet the agreed standards by June this year. This progress demonstrates what can be achieved by working consensually with the overseas territories and Crown dependencies. It is reaping benefits and I believe it will continue to do so.
I turn to the amendments. Amendment 167 is similar to one tabled on Report in the Commons, in that it envisages a timetable for the adoption of public registers of beneficial ownership by the overseas territories. If they have not done so by the end of 2019, it would require the Government to force them to do so. The key difference with this amendment is that it does not cover Gibraltar.
Amendment 169 also requires the Government to support the Crown dependencies to establish public registers of beneficial ownership by the end of 2019, and to report to Parliament on the progress made. However, it does not require the Government to impose public registers on them.
A key feature of the Government’s approach is that it creates a level playing field between all of the overseas territories with financial centres and the Crown dependencies. By taking a different approach to the Crown dependencies and territories, these amendments risk disrupting this level playing field, creating weaknesses in certain jurisdictions that could be exploited and damaging the spirit of co-operation we have been able to create between them.
The noble and learned Baroness, Lady Butler-Sloss, made the point that Gibraltar need not be covered by Amendment 167 as it is committed to implementing the EU’s fourth anti-money laundering directive. However, it is important to note, as I said earlier, that the fourth anti-money laundering directive does not require member states to establish publicly accessible registers of beneficial ownership information, so to impose such a requirement on the overseas territories and Crown dependencies would go beyond what has been agreed with our neighbours in Europe. The provisions in the exchange of notes also go beyond the fourth anti-money laundering directive in providing UK law enforcement with access to information within 24 hours, and within one hour in certain cases.
Rather than imposing new requirements on the overseas territories, the Government feel strongly that we should continue to work with them and focus our efforts on the implementation of the existing arrangements, including the passage of new primary legislation in the territories and complex technological improvements. I recognise that it is the wish of some noble Lords that a timetable be set for public registers. However, the UK Government respect the constitutional relationship with the overseas territories and the Crown dependencies. My noble friend Lord Faulks queried whether there might be a legal issue. I suspect that he is right but I shall look into that before Report.
As I noted earlier, legislating for the overseas territories is something we have done only very rarely. It is done on issues such as the abolition of the death penalty, which raised issues of compliance with human rights obligations for which the UK retains responsibility. While tackling this kind of complex criminality and its consequences is extremely serious, there is a clear constitutional difference in the fact that financial services is an area that is devolved to territory Governments and, in the case of the Crown dependencies, the UK has never legislated for them without their consent. That may be the point to which my noble friend Lord Faulks referred.
Baroness Williams of Trafford
I am so glad that I read it right. The UK is directly responsible for the OTs’ and the CDs’ compliance with international obligations, including the European Convention on Human Rights. It is our responsibility in international law, as the overseas territories have no legal personality under international law. That was a key factor in the UK taking the rare step to legislate for the OTs on the issue of, for example, the decriminalisation of homosexuality. While I acknowledge the moral dimension of tackling criminal finances, the same responsibility does not exist for financial services policy, which is OT government responsibility.
Lord Rosser
Perhaps I may ask the Minister to clarify a couple of points. First, in the light of what she has said and what has been said in this debate about competitive disadvantage, are the Government arguing that accepting Amendment 167 would place the overseas territories at a competitive disadvantage and that that is a key reason for the Government opposing the amendment? Secondly, in view of what the Government have said about wanting to work with the overseas territories in particular, is the reality that if either the overseas territories or the Crown dependencies do not agree to public registers of beneficial ownership, then that will not happen in relation to the overseas territories and Crown dependencies?
Lord Rosser
Certainly. My question relates to what the Government have said about working with the overseas territories. Does that mean that if either the overseas territories or the Crown dependencies decline to agree to public registers of beneficial ownership, then that will not happen in relation to the overseas territories and Crown dependencies? Is that the Government’s position?
Baroness Williams of Trafford
My Lords, they are all committed to working towards the same end. It would be perverse if, having signed up to this arrangement, they then decided that they were not going to work with the Government. If they suddenly stalled on working with the Government, the Government would encourage them to do so in strong terms.
Lord Rosser
I did not realise they had signed up to public registers. Since the Government say they want to work with the overseas territories in particular, I am simply asking what would happen if either the overseas territories or Crown dependencies declined to agree to have public registers of beneficial ownership. Is the Government’s position that it would therefore not happen as far as the overseas territories and Crown dependencies are concerned?
Baroness Williams of Trafford
My Lords, the Government are fully committed to working with the Crown dependencies and overseas territories to achieve the ultimate end of public registers. I have now forgotten what the noble Lord asked me on Amendment 167.
Lord Rosser
I was simply saying that, in the light of what has been said in this debate by a number of noble Lords about the overseas territories being placed at a competitive disadvantage if the amendment was accepted, are the Government arguing that to accept Amendment 167 would place the overseas territories at a competitive disadvantage and that that is a key reason for them opposing the amendment? Or is the reason for the Government’s opposition to the amendment a dislike of what they would describe as imposing something on the overseas territories rather than working with them?
Baroness Williams of Trafford
The noble Lord’s latter suggestion is correct: we do not want to impose on the overseas territories but want to work consensually with them to achieve the aims that we seek. The overseas territories may face competitive disadvantage in the short term, but in the long term, the transparent and open way in which the territories intend to work, and we with them, will be to their advantage.
Baroness Stern
I thank all noble Lords who have spoken in this debate, which has been a cornucopia of oratory, wisdom and detailed, reliable knowledge. I am very grateful to my co-signatories for their strong support. I appreciate the words of the right reverend Prelate the Bishop of Peterborough that this is a moral issue, and the contribution of the noble Lord, Lord Thomas of Gresford, about the United States and the abolition of slavery. I am most grateful for the detailed information from the Minister on progress; it was a bit much to digest in one go, but I will read it with interest. There is much that has been said in this debate to reflect on and consider before Report.
I would also like to say that today is the birthday of the noble Lord, Lord Leigh, and I wish him many happy returns. On that note, I beg leave to withdraw the amendment.
“ _(1) Section 18 of the Civil Jurisdiction and Judgments Act 1982 (enforcement of UK judgments in other parts of UK) is amended as follows.(2) In subsection (2)(f), at the end insert “or an unexplained wealth order made under that Part (see sections 362A and 396A of that Act)”.(3) ”
“ _( ) In subsection (3) for “and (4ZA)” substitute “, (4ZA) and (4ZB)”.( ) After subsection (4ZA) insert—“(4ZB) This section applies to the following orders made by a magistrates’ court in England and Wales or Northern Ireland—(a) an account freezing order made under section 303Z3 of the Proceeds of Crime Act 2002;(b) an order for the forfeiture of money made under section 303Z14 of that Act; (c) an account freezing order made under paragraph 10S of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001;(d) an order for the forfeiture of money made under paragraph 10Z2 of that Schedule.”( ) In subsection (5)(d), for the words after “measure” substitute “other than an order of any of the following kinds—(i) a freezing order of the kind mentioned in paragraph (a) or (c) of subsection (4ZB) made (in Scotland) by the sheriff (in addition to such orders made by a magistrates’ court in England and Wales or Northern Ireland);(ii) an order for the making of an interim payment;(iii) an interim order made in connection with the civil recovery of proceeds of unlawful conduct;(iv) an interim freezing order under section 362I of the Proceeds of Crime Act 2002;(v) an interim freezing order under section 396I of that Act.””
“74A_ In section 414 (property), in subsection (3) before paragraph (a) insert—“(za) property is held by a person if he holds an interest in it;”.”
“( ) After subsection (7) insert—“(7ZA) “Settlement” has the meaning given by section 620 of the Income Tax (Trading and Other Income) Act 2005.””
“75A_ In section 438 (disclosure of information by certain Directors), in subsection (1)(e) at end insert “or 8”.75B_ In section 439 (disclosure of information to Lord Advocate and to Scottish Ministers), in subsection (1) at end insert “or 8”.75C_ In section 441 (disclosure of information by Lord Advocate and by Scottish Ministers), in subsection (2)—(a) in the words before paragraph (a), after “5” insert “or 8”;(b) in paragraph (d), after “5” insert “or 8”.”
“( ) section (Reconsideration of discharged orders)(2) and (3);”
“( ) section (Reconsideration of discharged orders)(4);”
“( ) section (Reconsideration of discharged orders)(5) and (6);”
“( ) section (Reconsideration of discharged orders)(4);”
“( ) section (Reconsideration of discharged orders)(5) and (6);”
Baroness Vere of Norbiton
Baroness Vere of Norbiton
My Lords, as my noble friend Lord Dunlop set out to your Lordships’ House last week when repeating a Statement from my right honourable friend the Secretary of State for Northern Ireland, the current political situation in Northern Ireland is highly unusual. The Government are, none the less, committed to the central principles of the Sewel convention. Noble Lords will recall that the Government have made a commitment to not commence provisions relating to matters devolved in Northern Ireland without the appropriate consents having been obtained. Although it should already be possible to commence provisions at different times in different parts of the UK, Amendment 183 puts this beyond doubt, helping to ensure that we can fulfil this commitment. I beg to move.
Baroness Hamwee
My Lords, if the Minister needs to answer my question after today, that will be fine. I well understand what the noble Baroness has said but some of the provisions to which this amendment will apply deal only with one area—mostly with Northern Ireland but one or two with Scotland. If there is a provision that regulations may apply to areas, how does that work when you have only got one area, as I understand it, being one of the four nations? They are not sub-divisible after that.
Lord Kennedy of Southwark
I am happy with the amendment. It is, unfortunately, necessary in this situation. I hope the parties can get round the table and get the Administration back and up and running again.
Baroness Vere of Norbiton
I thank the noble Baroness for her comments and, of course, I will write with further clarification.
Criminal Finances Bill
Tuesday 25th April 2017
(7 years ago)
Lords ChamberRead Full debate Criminal Finances Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 124-I Marshalled list for Report (PDF, 103KB) - (21 Apr 2017)
Lord Faulks
Lord Faulks (Con)
My Lords, the Bill, which has been welcomed across the House, has been the Government’s response to the undoubted need to give law enforcement agencies the necessary capabilities and powers to recover the proceeds of crime, tackle money laundering and corruption and counter terrorist financing. No one could doubt that these are very real problems, and we must ensure that we respond adequately to the threats posed by corruption in its many guises. Throughout the passage of the Bill through your Lordships’ House, the Minister and the Bill team have been very helpful in providing information and explanations in respect of this quite complex legislation. The Government have also tabled some useful amendments as the Bill has progressed.
I am particularly enthusiastic about the potential use that could be made of unexplained wealth orders, which are featured in Chapter 1. There has been precedent for this, provided principally by Ireland and Australia. By and large those orders have been useful, and they have the potential to provide the basis for investigating criminal offences and recovering the proceeds of criminal activity. My concern has always been to ensure that the provisions are as effective as they can be. The opportunities for further legislation in the next few years are going to be very limited, for reasons that the House is only too well aware of. I hope UWOs will be used much more than was suggested. The revised impact assessment indicated that only about 20 UWOs a year might be obtained. The Minister assured me that that was only an estimate, and I hope it was a very conservative one.
Until last Friday we had not seen the promised code of practice relating to UWOs and other provisions in the Bill. Somewhat at the 11th hour, after I had tabled a number of amendments, it arrived. I am grateful to the Minister for providing it, and I will of course factor its contents into my remarks on the amendments in my name and that of my noble friend Lord Hodgson.
We had a number of debates about the safeguards in the Bill. I feel confident that the House is satisfied that they are perfectly adequate, particularly now that there is even a provision for compensation for a respondent whose assets have been wrongly frozen. In addition, there are of course restrictions on the freezing orders that would normally accompany a UWO, and any orders can be varied and discharged.
My concern, however, remains how easy it will be for respondents to deal inadequately with a UWO and render ineffective the Bill’s provisions. It has to be accepted that UWO respondents who have invested the proceeds of tax evasion and/or bribery in specific property will be unlikely to want to be frank about their conduct if they can possibly avoid doing so. Why, then, can it not be appropriate for there to be a power to make an order to compel a respondent to give evidence on oath? It would be only a power, and in many circumstances I concede that a court might be satisfied with a statement, but if the statement is inadequate the very existence of the power, which could be exercised only by a High Court judge, would in my view be extremely salutary.
The Bill sets out the requirements that must be met before an unexplained wealth order is made, and allows a respondent a reasonable excuse for failing to comply with any order. I invite my noble friend to explain to the House why she still thinks it is inappropriate for this power to exist. Nothing in the code of practice gives any answer to that.
The remainder of the amendments with which I am concerned in this group—apart from that which relates to property, particularly in central London—are about provisions in respect of non-compliance. My no doubt simplistic view is that you either comply with an order or you do not. The references to purported compliance seem to leave open the possibility that a respondent could simply go through the motions of providing information and say that they have purported to comply with the order. I take the point that the Bill contains the proviso that a misleading or reckless statement can constitute an offence, but it is not so much the deliberately misleading statement that I am worried about; rather more I fear the short, uninformative, heavily lawyered response which will provide no useful information but may still technically be a purported compliance with the order.
I looked for assistance on this point on the recently provided code of practice. Paragraph 20 states that a respondent will be treated as having failed to comply with a UWO if, without reasonable excuse, he fails to comply with all the requirements imposed by the order. The paragraph continues by stating that it is important to note that where a response is provided to a particular requirement in the UWO but that response is considered unsatisfactory, this does not mean that the respondent has failed to comply with the order; this would amount to purported compliance. That was precisely the point that I was making in the original amendment. A footnote states that an example of this would be where an individual provides nothing more than the bare minimum of information necessary to address each requirement in the order and as a result the agency is not satisfied by his explanation as to the derivation of the property. The footnote goes on to state that, in those circumstances, the rebuttable presumption that the property is recoverable does not arise, but the enforcement agency may elect to take further civil recovery action against the property in the light of evidence or lack of evidence provided by the individual. I should be grateful if the Minister could set out why the Government think it so important, in a number of areas identified in the amendments, to have these provisions about purporting.
Amendment 2 in this group and Amendment 24, which we will debate in the next group, concern a substantial problem: in central London, property—often extremely valuable property—is being bought by overseas companies and then left either empty and dark or occupied for only short periods. Parts of central London are entirely dark at night and, although London is the most obvious example, there is plenty of evidence of buying-up of property in other major cities and in some rural areas. Apart from the fact that it cannot be desirable that property is owned by those whose money has often come from illegal activities, there is the knock-on effect that it is having on the property market in general. Noble Lords are only too well aware of the intense difficulty faced by young people in buying property anywhere remotely near where they work, particularly in London, or indeed buying property at all. There are a number of reasons for this, but the situation is hardly helped when, according to the Land Registry figures, 100,000 properties are registered in the name of overseas companies. Unlike some countries, there is no restriction on foreign ownership of real property, and at the moment there is no sign of any decrease in the enthusiasm with which foreign investors are approaching the possibility of buying property here. Because of our respect for the rule of law and the independence of our judiciary, among other reasons, we are an attractive country in which to invest—particularly, I am afraid, to those who have ill-gotten gains for which they want to find a safe haven.
Baroness Hamwee (LD)
My Lords, like the noble Lord, we want to see the Bill as strong as possible. I have a few questions on the noble Lord’s amendments but I am grateful to him for bringing these matters back to the House. Amendment 1 would require questions to be answered on oath. Like the noble Lord, I felt that the answer from the Dispatch Box at the previous stage did not take us a great deal further. The Minister said:
“It would already be a criminal offence for the respondent to knowingly or recklessly provide false or misleading information”.—[Official Report, 28/3/17; col. 496.]
Unexplained wealth orders are court orders, so my question—I am not sure whether it is to the noble Lord or the Minister—is: does contempt of court arise here? That is not to support the amendment or otherwise, but to flesh out understanding of the procedure.
On Amendment 2, has the noble Lord been more timid than necessary by referring to the respondent or others having taken the step of registration as a beneficial owner, rather than using the criterion that he is such an owner? I agree on compliance: one either complies or one does not. Surely purported compliance is not compliance. This is quite a difficult area in legislation and it should be clear, and not raise more questions about whether the criteria are fulfilled.
My final question is on government Amendment 6. Will the Minister explain why, unusually, “a person” does not include a body corporate? I was interested to see that it is apparently necessary to include a definition. The definition itself is interesting: if it is read literally, references include bodies corporate and so on, regardless of whether they hold or obtain property. Does that restrict which bodies corporate are the subject of this new provision? I gave the Minister notice of my question so I hope she will be in a position to assist the House. I reiterate our strong support for getting this Bill through. I have spoken as briefly as I can because I know the House wants to get on with it and do just that.
Lord Mackay of Clashfern (Con)
My Lords, I support these amendments. I first came across unexplained wealth orders in Inland Revenue fraud proceedings where people had been accused of not paying their income tax. One of the methods of revealing that is by demonstrating that they suddenly have more wealth than their Revenue account suggests. Therefore, there is a question about whether the assets came from taxable income. That was the presumption at that time. That was before the terrific expansion of other forms of unexplained wealth that could arise. The explanation that someone had done something unlawful would not be a particularly good answer to a tax inquiry but perhaps that was not thought of. Certainly, that was a very useful tool in the armoury of the Inland Revenue in days past and is still so today. It is a very valuable method of dealing with this trouble. I find it very hard, however, to understand what is meant by purported compliance. As has just been said, it seems to me that you either comply or you do not. I must say that the explanation given in the draft practice system does not enlighten me any further. It suggests, indeed, that purported compliance covers certain aspects of non-compliance. It is a difficult definition to put in. I would have thought the measure would be better without it.
I raise questions with regard to the register. It is required to be done within six months of the passing of the Act. However, the commencement provisions of the Act allow the Act to come into force in accordance with regulations or orders made by the Secretary of State. I assume that the passing of the Act in this amendment is intended to refer to its getting Royal Assent. Strictly speaking, however, the Act comes into force only in accordance with orders made by the Secretary of State under the commencement provisions except in relation to certain aspects of that.
Lord Judge (CB)
I wish to add a few words of my own on purported compliance. I am not quite sure what we are supposed to cover. Obviously, there will be the individual who is potentially made subject to this order who will try his or her best to produce the necessary information. That may not be good enough, in which case the court will allow an adjournment so that a genuine attempt to produce the information can be made. That will then be compliance. On the other hand, some people will obfuscate and deliberately make life difficult to avoid the true facts coming to light. They will say, “That is purported compliance”, but it will not be—it will be a failure. Therefore, the words “purported compliance” simply do not apply and will not help.
Lord Kennedy of Southwark (Lab)
My Lords, the noble Lord, Lord Faulks, has raised some very serious issues, expressing the concerns of a number of noble Lords, and he made some of those points at earlier stages. The Government have clearly not satisfied him or many others in the House, and we share their concerns. The noble Baroness, Lady Hamwee, made similar remarks.
The point about “purports to comply” was particularly well made by the noble Lord and others, including the noble and learned Lords, Lord Mackay of Clashfern and Lord Judge. I hope that, in responding, the noble Baroness, Lady Williams of Trafford, will be able to satisfy the noble Lords who have spoken, as well as the rest of the House, that we have got this issue right. We are all very keen to get this legislation on to the statute book as quickly as possible. We certainly support its general aims—it is a good Bill—but the worst thing to do would be to put something on to the statute book that is not very well drafted and would cause more problems or be an aid to people who do not want to comply properly with the orders. This is a very important point and, although we want the Bill to pass quickly, the noble Baroness needs to satisfy the House that we have this measure right.
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, before I begin, I want to make a few comments. Following the decision last week to call a general election, this is likely to be the last opportunity for the House to scrutinise this legislation. As noble Lords have said, it has had cross-party support throughout its parliamentary passage and I am very grateful to noble Lords, through the usual channels, for enabling us to take both Report and Third Reading today. Time is very short, but we all agree that this Bill will deliver valuable powers to fight money laundering, prevent the financing of terrorism and combat corruption. I hope we can maintain consensus on the way forward and return the Bill swiftly to the Commons.
Perhaps I may also take a moment to thank the noble Lord, Lord Empey, who might have brought back an amendment today but, given the shortness of time, has decided not to do so. He would like it placed on the record that this in no way undermines his support for the victims groups that he has supported over many years.
As well as the amendments in the names of my noble friends, this first group is composed primarily of government amendments that seek to fine-tune the Proceeds of Crime Act 2002. These are consequential on matters already in the Bill and should not, I suggest, raise any particular concerns. However, I will address each of them for the benefit of noble Lords.
Amendments 6 and 7 make explicit that unexplained wealth orders can be used in cases where the property of interest is registered in the name of an overseas company. UWOs should be a significant tool to help probe the ownership of UK property with suspected links to illicit funds, and these amendments seek to address the helpful intervention in Committee of my noble friend Lord Faulks about the London property market. Although it is already implicit that UWOs can apply to cases where property is held in the UK but registered overseas, this explicit clarification is helpful. However, it should in no way cast doubt over the other provisions in POCA, or elsewhere in law, where such an explicit clarification is not included. For example, Sections 84 and 414 of POCA define property in respect of confiscation and investigation powers respectively. These have been applied to property registered in the names of overseas companies where persons in the UK hold this property in some way. Those provisions must continue to operate in that way and I fully expect them to do so.
Our amendments clarify that the UWO provisions apply to property held by foreign companies, and our existing provisions already require a respondent to set out,
“the nature and extent of his interest”,
in a property. It is clear from this that a beneficial interest in property will be captured where a UWO is served on a serious criminal or a non-EEA PEP.
Regarding the specific points about the bodies corporate regardless of whether they hold or obtain property, the amendments provide clarity and certainty that the UWO provisions apply in this circumstance. We introduced the amendment, after discussing the point with my noble friend Lord Faulks, to make absolutely clear that UWOs can apply in respect of overseas companies. I made the important point that this clarification does not cast doubt on the normal application of the term “person” elsewhere in POCA or the statute book. I hope that this will address the concerns of my noble friend Lord Faulks in Amendment 2, which goes to the heart of the category of individuals on whom a UWO can be served. We have already previously clarified the wide scope of what is meant by “holding property”, which includes a person who has effective control over the property.
We have carefully considered the categories of potential respondents to a UWO and I was pleased to have the opportunity to discuss this with my noble friend. The Government do not consider that it is appropriate, or indeed proportionate, to add a third category of potential respondents to a UWO, when inclusion in that category is dependent only on the way in which an individual holds property. Property could, of course, be held in this way perfectly legitimately.
I will now refer to other points that were made. My noble friend asked about the annual tax on enveloped dwellings, which we have homed in on before. The annual tax on enveloped dwellings does not enable corporate or foreign ownership of property; it is a reality of UK law. I sympathise with the concerns raised, but I assure my noble friend that there is no evidence that the tax encourages money laundering. Many legitimate companies own property in holding companies.
On the point about the London property market that we have also touched on previously, I assure both my noble friend and noble Lords generally that the UWO is an important addition to the tools that can be used here. We are doing more: BEIS has launched a consultation on a public register of overseas ownership of UK property. Such a register would help to highlight abuses of this sort and deter investments of this type. We have created a public register of beneficial ownership and the register makes publicly available details of those who have a 25% stake or greater in a company’s shares or voting rights. The forthcoming set of money laundering regulations currently out for consultation will require estate agents to conduct customer due diligence on those purchasing property as well as those selling property. This will likely lead to more suspicious activity reports linked to property purchases and create more opportunities to use UWOs.
A number of noble Lords asked about purported compliance. They made the point that either a person complies or they do not. The term exists to balance against the serious consequence of not complying with a UWO. If you do not comply with one, the property is presumed to be recoverable in any subsequent civil recovery proceedings. This is without the need for the enforcement authority to provide evidence that the property is the proceeds of crime. This is reversing the burden of proof, which is a significant and unusual approach in our law, so purported compliance is to recognise that if a person engages with the process by answering all the points of a UWO, they will be protected from the presumption that their property is automatically recoverable, and issues as to whether they have complied or not will fall away. The onus transfers back to the enforcement authority to prove that the property is a proceed of crime in the usual way, and the term provides certainty as to the circumstances in which the presumption of recoverability will arise—which will be important in respect of any further proceedings against the property.
In addition, when the UWO is obtained the applicant agency has a broad scope to tailor the requests for further information and documents required by the order, meaning that the likelihood of a poor-quality response is reduced. Also, if a person provides a response, the UWO has been successful in flushing out evidence. The enforcement authority can decide whether to further investigate on the basis of that evidence or to launch proceedings.
I turn now to Amendments 15, 16 and 50, which clarify our existing provisions to ensure that in Scotland the ability to obtain vacant possession of a property can be dealt with at the same hearing as civil recovery relating to that property. Related to these provisions, Amendments 25 to 31 correct an inconsistency in the Bill. They will allow Scottish Ministers and Northern Ireland Ministers to make consequential amendments to legislation, including UK legislation, that is within their legislative competence. To ensure that any changes do not create unforeseen issues, they would be required to consult the Secretary of State prior to doing so.
The Bill provides HMRC and the Financial Conduct Authority with the power to pursue civil recovery proceedings and with supporting investigation powers. On further analysis, it was unclear whether their existing information sharing gateway powers would allow them to receive information for the purposes of these new functions. Amendments 45 to 48 make that certain.
The remaining government amendments in this group are a series of minor and technical amendments to POCA, particularly in respect of “free property”—that is, property belonging to a defendant that can be liable for confiscation. They insert correct references, ensure consistency of language and remove ambiguity to ensure that relevant powers work as they should.
Finally, I will address the other amendments tabled by my noble friend. Amendment 1 seeks to introduce a possible requirement for an individual served with a UWO to answer questions “on oath”. As my noble friend will recall from our earlier discussions on the Bill, a UWO is a civil, investigative power, and it is already a criminal offence for a respondent to a UWO to knowingly or recklessly provide false or misleading information. If a person engages with the UWO process by answering all the points of a UWO, we believe that it is right that the presumption should not apply, even if it is arguable that the person has not fully complied. The onus transfers back to the enforcement authority to prove that the property is a proceed of crime and can be recovered.
In Committee, I committed to publishing the draft code of practice in relation to UWOs and disclosure orders. I am pleased to confirm, as my noble friend already has, that I have since written to noble Lords who spoke in Committee and enclosed the draft code for their review. When I wrote I also committed to publishing the code on the GOV.UK website. I regret that we have been overtaken by events and that doing so now would not be consistent with pre-election guidance. However, I have placed a copy in the Library of the House to ensure that noble Lords can scrutinise it ahead of the public consultation that will follow in due course.
We will be considering addressing issues such as statements of truth in giving evidence and purported compliance in the POCA investigation code of practice. It will then be open to noble Lords to make any representations relating to that code once a final draft, subject to the required public consultation, and the order bringing the code into force are subject to the affirmative resolution procedure. It will be debated in the House before being introduced.
Lord Faulks
My Lords, I am grateful to my noble and learned friend and all noble Lords who spoke in this debate, and to the Minister for her response. It is a pity that the Government did not respond to these amendments in Committee. They have received support today and the code of practice does not seem to me to deal with them. On the simple question of purporting to comply, a number of speakers have said that one either complies or does not, and I say with respect that I fail to understand the response to those points. I think it was said that, even if there were purported compliance and not much information was obtained, it would still be technically successful as a UWO. That sounds very much like saying that the operation was a great success but the patient died. However, my noble friend the Minister seems convinced that this is sufficient and I bear in mind the fact that the agencies have no doubt had input into the provisions contained in the Bill.
Likewise, I am disappointed that there is no provision for a requirement to give evidence on oath. The mere existence of that power is likely to inhibit those who might otherwise wish to mislead the court. Of course, if they then came to give evidence, quite apart from the question of contempt of court, they could be prosecuted for perjury. That might give some more teeth to these provisions. I am, however, reassured that it will still be possible to feed some of these ideas into an improved code of practice, and I hope that these debates may have affected the minds of those who seek to improve that code of practice.
On the question of the London property market, I am afraid that I am still in the dark about the envelope tax. The existence of that tax does not seem to be consistent with the overall thrust behind the Bill. Its continued existence is an embarrassment, frankly, to the Government—but there it is. As to the amendment in relation to London property, the noble Baroness, Lady Hamwee, suggested that I had been a little timid in respect of that amendment. In some ways she is right, but the attempt was to tie it specifically to the register that we were told was to come into existence. My noble and learned friend was quite right about the date of commencement—but, for reasons that will be apparent, I do not think that we need to trouble ourselves too much with that.
As my noble friend the Minister quite rightly said, the position is that we are against a time limit. It is important that the Bill becomes law, and any attempt to prevent that would not be helpful since there is all-party support for this. It is very much a step in the right direction and I do not wish to spoil the party. In those circumstances, I beg leave to withdraw the amendment.
“( ) References to a person who holds or obtains property include any body corporate, whether incorporated or formed under the law of a part of the United Kingdom or in a country or territory outside the United Kingdom.”
“( ) References to a person who holds or obtains property include any body corporate, whether incorporated or formed under the law of a part of the United Kingdom or in a country or territory outside the United Kingdom.”
“Co-operation: beneficial ownership information
In Part 11 of the Proceeds of Crime Act 2002 (co-operation), after section 445 insert—“445A Sharing of beneficial ownership information(1) The relevant Minister must prepare a report about the arrangements in place between—(a) the government of the United Kingdom, and (b) the government of each relevant territory,for the sharing of beneficial ownership information.(2) The report must include an assessment of the effectiveness of those arrangements, having regard to such international standards as appear to the relevant Minister to be relevant.(3) The report—(a) must be prepared before 1 July 2019, and(b) must relate to the arrangements in place during the period of 18 months from 1 July 2017 to 31 December 2018.(4) The relevant Minister must—(a) publish the report, and(b) lay a copy of it before Parliament.(5) The reference in subsection (1) to arrangements in place for the sharing of beneficial ownership information between the government of the United Kingdom and the government of a relevant territory is to such arrangements as are set out in an exchange of notes—(a) for the provision of beneficial ownership information about a person incorporated in a part of the United Kingdom to a law enforcement authority of the relevant territory at the request of the authority, and(b) for the provision of beneficial ownership information about a person incorporated in a relevant territory to a law enforcement authority of the United Kingdom at the request of the authority.(6) In this section—“beneficial ownership information” means information in relation to the beneficial ownership of persons incorporated in a part of the United Kingdom or (as the case may be) in a relevant territory;“exchange of notes” means written documentation signed on behalf of the government of the United Kingdom and the government of a relevant territory setting out details of the agreement reached in respect of the arrangements for the matters mentioned in subsection (5)(a) and (b);“relevant Minister” means the Secretary of State or the Minister for the Cabinet Office;“relevant territory” means any of the Channel Islands, the Isle of Man or any British overseas territory.””
Baroness Williams of Trafford
My Lords, I am again grateful to the noble Baroness, Lady Stern, and others for their amendment, which allows us to return to the important issue of company ownership transparency in the British Overseas Territories. As noble Lords will be aware, the Government have tabled their own amendment and I am pleased to have been able to discuss this with colleagues prior to today’s debate. The group also contains an amendment in the names of my noble friends Lord Faulks and Lord Hodgson of Astley Abbotts, no doubt prompted by concerns about the abuse of the London property market. I intend to address this in my closing remarks.
Before I turn to the government amendments, I hope I might be allowed to detain noble Lords for a few moments while I reiterate certain important points on company ownership transparency in the British Overseas Territories and Crown dependencies. As part of our international efforts to increase corporate transparency, the Government continue to work closely with our overseas territories with financial centres to tackle money laundering, terrorist financing, corruption and fraud. In Committee, I described the exchanges of notes the UK signed last year with overseas territories with financial centres and with the Crown dependencies, setting out new arrangements on law enforcement access to beneficial ownership data.
These arrangements are due to be implemented by June this year. They will put the UK and the wider “British family” of the OTs and CDs well ahead of most jurisdictions in terms of transparency, including many of our G20 partners and other major corporate and financial centres, including some states in the US, and demonstrate our continued leadership. I reiterate that we should be proud of this fact and of the progress achieved. These arrangements will bring significant benefits in the capacity and information that UK law enforcement authorities will have at their disposal to tackle criminal activity and to investigate bribery and corruption, money laundering and tax evasion. They will prevent criminals hiding behind anonymous shell companies incorporated in the overseas territories and Crown dependencies, ensuring that these jurisdictions are not open to exploitation by those seeking to hide the proceeds of their crimes.
The UK has continued to work closely with the overseas territories on implementing the arrangements. Indeed, we arranged for the London representatives to attend a meeting in the House this morning so that noble Lords could hear about their progress at first hand. I am very pleased to report there have been some further positive developments since I provided an update in Committee which I will briefly share with noble Lords.
The British Virgin Islands will shortly introduce the beneficial ownership secure search Bill, which will be known as the BOSS Act 2017, to its House of Assembly. This will reinforce the existing process for sharing information with UK law enforcement authorities.
The newly elected Premier of the Turks and Caicos Islands has confirmed that legislation will be introduced on an urgent basis to establish a central registry of beneficial ownership information in its existing companies registry, and to determine access to such information. She expects that the register can be established by the June 2017 deadline, albeit that it will take longer to populate the register fully with data on corporate and legal entities incorporated in the jurisdiction.
Montserrat had in fact committed in November 2015 to establish a public register of beneficial ownership. Although Montserrat is therefore not covered by the exchange of notes, we receive regular updates on its progress. Officials advise that a draft companies Bill will shortly be put to its Cabinet for approval.
The NCA has confirmed that it is already seeing enhanced co-operation from some overseas territories, with turnaround times for processing requests for information much shorter than previously. We expect to see this further improved to meet the agreed standards by June this year. This demonstrates what can be achieved by working consensually with the overseas territories and the Crown dependencies. It is reaping benefits and I believe that it will continue to do so.
Rather than imposing new requirements on the overseas territories, the Government believe that we should continue to work with them and to focus our efforts on the implementation of the existing arrangements, including the passage of new primary legislation in the territories and complex technological improvements. I know that noble Lords would like a timetable to be set for public registers. However, the Government respect the constitutional relationship with the overseas territories and the Crown dependencies. As previously noted, legislating for the overseas territories is something that we have done only very rarely, on issues such as abolition of the death penalty which raised issues of compliance with human rights obligations and thus areas for which the UK retains direct responsibility.
While tackling this kind of complex criminality and its consequences is extremely serious, there is a clear constitutional difference in that financial services is an area devolved to territory Governments. In the case of the Crown dependencies, the UK has never legislated for them without their consent. Doing so would be likely to lead to the territories withdrawing their current level of co-operation, jeopardising the progress made and the spirit of working in partnership that we have fostered with them. I hope that noble Lords will see that this is not a course of action we should take.
It is quite right that we should ensure that the territories’ existing commitments are effectively implemented and deliver real benefits for UK law enforcement—this point was emphasised by the noble Lord, Lord Rosser, in Committee. Following careful consideration, I have brought forward Amendments 8 and 32 to address the concerns raised by him and others. The amendments provide for a report to Parliament on the effectiveness of the bilateral arrangements in place between the UK and the Governments of the overseas territories with financial centres and the Crown dependencies on the exchange of beneficial ownership information.
As I noted in Committee, the Government are committed to following up on these arrangements to ensure that they deliver in practice. There is already provision in the exchange of notes agreements with the overseas territories and the Crown dependencies for reviews of the arrangements six months after they come into force—that is, on 31 December this year—and for further reviews annually thereafter. The arrangements also provide for continuous monitoring by both parties. However, placing a review of the first 18 months of operation of the arrangements on a statutory basis will provide further assurance that careful parliamentary scrutiny will be given to their effectiveness and demonstrate that they are being implemented properly, working effectively and meeting our law enforcement objectives.
As I have said previously, the UK is the only G20 country to have established a public register, and it is this Government’s long-term ambition that publicly accessible registers of beneficial ownership will in time become a global standard. At that point, we would expect the overseas territories and Crown dependencies to implement this standard. The government amendment includes provision that, in the review of the effectiveness of the arrangements, we can consider relevant international standards. This further demonstrates our intention to ensure that we and our overseas territories and Crown dependencies remain ahead of the curve on international standards and will continue to consider the bespoke arrangements set out in the exchange of notes in relation to those standards as they evolve.
Given that so many jurisdictions fail even to reach the standards set by the Financial Action Task Force for beneficial ownership transparency, it is right to focus our efforts on persuading others to up their game while ensuring that the overseas territories and the Crown dependencies deliver on what they have promised. We will of course continue to engage with partners through the key international groups such as the FATF and the OECD to increase levels of transparency worldwide.
I pay tribute to all noble Lords who campaigned on this issue. The fight against global corruption is a priority for the Government and we listened carefully to all those who made representations, not least the noble Lord, Lord Rosser, the noble Baronesses, Lady Stern, and the noble and learned Baroness, Lady Butler-Sloss. I hope that the House will recognise the strong rationale for the Government’s proposed approach and that noble Lords will be minded to accept the concessionary amendment we have proposed in light of our debates. I look forward to responding to noble Lords at the conclusion of the debate, when I will also seek to address the amendment in the name of my noble friends Lord Faulks and Lord Hodgson. I beg to move.
Baroness Stern (CB)
My Lords, I will speak to Amendment 14 in my name and those of the noble Baroness, Lady Kramer, and the noble Lords, Lord Rosser and Lord Kirkhope. This amendment has already been discussed in Committee and is unchanged. Since the debate in Committee, I have been fortunate to have had lengthy and very enlightening discussions with the representatives in the United Kingdom of the British Virgin Islands and Bermuda. I also thank the Chief Minister of the Isle of Man and his colleagues for meeting me. I am grateful to the House of Lords Library for its excellent briefings and to Christian Aid and Transparency International for the additional briefings they provided and the work they do in this area.
The background to this amendment is the growing public understanding of how the lack of transparency in offshore financial centres helps the corrupt to find a haven for their ill-gotten wealth and tax evaders to sleep easily in their beds. Those in poor countries feel the effects of this most because they do not have the resources to pursue the money that has been taken from them. The understanding of this need for transparency was considerably enhanced by the publication of the Panama papers in April 2016.
On 8 November, the Chancellor of the Exchequer made a Written Ministerial Statement to Parliament on the work to date of the cross-agency Panama Papers Taskforce, a group of law enforcers set up to pursue the information that related to the United Kingdom about the illegality revealed. He said in his Statement that since the publication of the papers the task force had: opened civil and criminal investigations into 22 individuals for suspected tax evasion; identified a number of leads relevant to a major insider-trading operation; identified nine potential professional enablers of economic crime, all with links to known criminals; placed 43 high net-worth individuals under special review while their links to Panama were further investigated; identified two new UK properties and a number of companies relevant to a National Crime Agency financial sanctions inquiry; established links to eight active Serious Fraud Office investigations; and identified 26 offshore companies whose beneficial ownership of UK property was previously concealed and whose financial activity had been identified to the National Crime Agency as potentially suspicious. In addition to pursuing those 74 individuals, 26 companies, links to eight Serious Fraud Office investigations and other leads on insider trading and sanctions, a number of individuals had come forward to settle their affairs before the task force partners took action against them.
All the law enforcement activity I list is the result in just six months of bringing transparency to the files of just one legal firm in just one country. It gives an indication of the huge extent of illicit activity and illuminates the rationale behind the measures in this very welcome Bill. In passing, with great respect, I ask those noble Lords who oppose public registers whether they feel it is not worth bringing that number of people to justice, or whether they have a proposal other than transparency for achieving that end.
Undoubtedly, government Amendment 8, to which the Minister just spoke so eloquently, is a step forward in trying to curb the criminal activity, tax evasion and laundering of corruptly gained wealth that is illustrated by the work of the Panama Papers Taskforce. It is very welcome and makes clear that the Government look to the overseas territories and Crown dependencies to keep good and accurate information. Let us remember that half the companies disclosed by the Panama papers—some 140,000 of them—were incorporated in the British Virgin Islands.
However, Amendment 14 goes further than the government amendment. In relation to the overseas territories, it aims to bring transparency to their financial operations by allowing public access to registers of beneficial ownership. I note that Montserrat has already agreed to establish such a public register. This amendment would put a timetable in place for the British Overseas Territories to have public registers. It would require the Government to give all reasonable assistance possible to the overseas territories to help with this. If registers have not been made public by the end of 2019, the amendment requires that public registers should be brought in by an Order in Council.
In Committee, the Minister made it clear that she could not accept the amendment. However, in doing so she did not use the argument raised so frequently in discussions on this matter, that requiring the overseas territories to have public registers while other offshore financial centres maintain their secrecy puts them at a competitive disadvantage so that, in the evocative words of the noble Lord, Lord Hodgson,
“the malfeasant … will drift away to still murkier regimes”.—[Official Report, 3/4/17; cols. 898-899.]
I welcome very much the noble Baroness’s rejection of that line of argument. She said:
“The overseas territories may face competitive disadvantage in the short term, but in the long term, the transparent and open way in which the territories intend to work, and we with them, will be to their advantage”.—[Official Report, 3/4/17; col. 911.]
In Committee, her main reason for rejecting the amendment was that there would be a constitutional problem in accepting it. She repeated that today. Yet since Committee, I have been sent many documents on this subject, which I studied carefully. They make it clear that ultimately the UK Parliament could legislate for the overseas territories if it so wished but I understand completely why the Government would prefer to proceed with consent. So would I and I am sure there is wide agreement on that.
I remind the Minister of what she said in Committee: for the purposes of international law, the overseas territories are British. That Britishness is significant. In my various discussions, it has become clear to me that the attraction of the financial services in the overseas territories is primarily related to British identity and language, access to a common-law legal system, final recourse to the Privy Council and the appeal, as it is seen, of the Union Jack. It is worth repeating the words of the noble Lord, Lord Kirkhope, in Committee. He said:
“It is fair to ask those jurisdictions that while their economy and defence depend on the stability and integrity of the UK, they should also be expected to follow the same rules of business and investment that we follow here”.—[Official Report, 3/4/17; col. 888.]
We in the United Kingdom have a public register. It might not be perfect—I am sure that the noble Lord, Lord Eatwell, would agree with me on that—but it is our policy. We have one because we believe it is right and that it helps to prevent serious crime. I hope that by tabling this amendment we have made it clear that we in the United Kingdom understand the huge impact that secret offshore financial services can have on the poor countries of the world, good governance, democracy and security. We understand that the overseas territories are a United Kingdom responsibility and we hope very much that transparency of their financial operations will come sooner rather than later.
Finally, I thank the Minister for the way she has carried this hugely important Bill through the House, and for her support and helpfulness at all times.
Lord Kirkhope of Harrogate (Con)
My Lords, as one of the signatories to Amendment 14—and its predecessor, which we looked at in Committee—I thank the noble Baroness, Lady Stern, and congratulate her on her amazing vigour and courage and, indeed, her intuition in pursuing this matter, which is so important.
When I spoke in Committee, I made it very clear from the beginning that, first of all—and this is important still—the Government deserve enormous praise for the work they have done both here in the UK and internationally to tackle corruption and tax evasion and avoidance. I credit that also to the previous Government because one of the reasons I have been interested in this matter is that I followed the right honourable David Cameron’s lead when he put this issue very much at the top of the agenda at the 2013 G8 summit and subsequently, as was referred to in an earlier discussion, at the anti-corruption summit in May last year.
Of course, Mr Cameron and others did not refer just to global standards. Indeed, one of my noble friend the Minister’s responses in Committee was to talk about awaiting global standards before any further pressure was placed on overseas territories to comply with the public register or the enhanced register. But the truth is, of course, that the former Prime Minister referred to the gold standard, which the United Kingdom itself was very much in the vanguard of. This was accepted and understood, and it left this country, as it is now, in an enormously advantageous position in dealing with other countries as we go forward.
For my sins, I was one of those involved in the drafting of the fourth anti-money laundering directive. My friends always introduce me as an expert on money laundering. I do not like that description but undoubtedly we are looking in this enormously important piece of legislation at how we respond to the requirements under that fourth money laundering directive as well.
I maintain that the amendment I have co-signed is the best way forward but I also pay tribute to the Minister for the way she has listened to the concerns of those who hold our views. She listened very carefully in Committee—and not just listened. Often I think our Ministers listen but that is about it. She has in fact acted. Therefore, I will refer quickly to government Amendment 8, which is an enormous stride forward. It also gives us the ability, which is so important, to review the situation actively in two years’ time, when we can have reports to see how the overseas territories are getting on with the introduction of public registers. She has also given us good news this evening about developments even since Committee. We should welcome that and thank the Government for their interest in proceeding in that manner.
I am still of the belief that we need a level playing field and we need an agreement with our overseas territories that is at least compatible with and equivalent to the requirements that we place in the domestic setting. It makes no sense not to have that. I recognise the Government’s position on this and I realise they wish to proceed by consent. Of course, we all agree that consent is always better than enforcement. I wish the Government great success with this. As we proceed, I hope we will be getting regular updates and then, in due course, when the reports come in, we will have the opportunity, if necessary, to return to this matter. But this is a very important Bill in so many other regards as well. I certainly wish us to pass the Bill and allow it to proceed from here.
Lord Judd (Lab)
My Lords, I declare an interest: I was Minister for Overseas Development, before moving on to the Foreign Office. I have served both professionally and voluntarily in the development sphere in various non-governmental organisations, including as director of VSO and subsequently Oxfam. To all of us involved in that work, the importance of the Bill, which I very much endorse, and of the amendment that has just been spoken to, cannot be overemphasised. Indeed, I noticed the other day that the Prime Minister, in saying in the Conservatives’ election campaign that they will stand by their commitment on overseas aid, emphasised that what was important was to make sure that the aid was being spent in the most effective way and not wasted.
It is terribly important to recognise that the people of too many developing countries are being robbed by their leaders, and that existing arrangements enable those leaders to get away with it. If we are going to talk about the effective use of aid, it seems to me that where we have the authority to take highly relevant and effective steps, we should do so. Yes, of course, we must put on record that Britain has taken great steps to provide world leadership in this sphere. It is leading the world already. That is why the remaining gaps are very ugly anomalies. I do not like to put it in these crude terms but it always seems to me that people either have some reason for not implementing immediately what is proposed or they do not, and if they do not, let us do it. If they are going to find ways of delaying—having still to work out arrangements and so on—this must raise suspicions that arrangements are going to be made in other respects as well.
From that standpoint, I say simply that, with all my experience in this sphere, this is a crucial matter. I congratulate the noble Baroness and her co-signatories on having stood by their guns. I hope the amendment will be taken seriously because I believe there could be a very important consensus in this House if we are prepared to put ourselves on record.
Lord Blencathra (Con)
My Lords, I wanted to intervene earlier in this debate following the speech of my noble friend Lord Kirkhope because I, too, wish to refer to Mr Cameron and the G8 summit.
First, I shall say that Amendment 8 is unnecessary but harmless, so I shall support it—but Amendment 14 is wrong and misguided for a number of reasons. First, we have no right, neither legal nor moral, to seek to impose our rules on law-abiding, self-governing British Overseas Territories. When I hear some of the NGOs outside this House talking about our overseas territories, I am appalled at their old-style colonial arrogance. One notorious campaigner against so-called tax havens has even suggested in his book that they should be closed down and the natives made to depend on overseas aid once again—and he calls himself moral. He is also one of the architects behind these proposals. I believe that we have no moral right because the United Kingdom creates more dodgy shell companies than some of the tightly regulated overseas territories and Crown dependencies. We need to come up to their standard, not the other way round.
Secondly, we should not impose these public register rules because the rules themselves are rubbish, as I shall attempt to explain. Not a single other country in the OECD is implementing this—and they have made clear that they never will. This public register wheeze was invented by my right honourable friend Mr Cameron in 2013. No other country will touch it with a barge-pole and the only reason that he was so keen then to foist this system on the overseas territories was so that he could point to others being in the same boat as himself and would not look isolated.
I was involved in the background at that time and had a meeting with prominent NGOs prior to the G8 in 2013. I asked them why they were not campaigning against the real tax havens of this world—Luxembourg, Delaware, Mauritius et cetera—but targeting the good guys such as our overseas territories. They responded that they had no chance of influencing policy in those tax havens, but that Mr Cameron was so desperate for a win at the G8 that he and the overseas territories were an easy, soft target.
I should make it clear for the record that at that point I was the director of the Cayman Islands office in London but that I have no connection whatever, either financial or otherwise, with the Cayman Islands Government now. However, I still deeply admire the way the territory is run and the exceptional level of integrity that it brings to financial services, which is greater than in the United Kingdom. I shall attempt to justify that.
Why do I say that our UK policy is farcical? Because it says that the way to get at dodgy persons setting up dodgy shell companies is to have a public register so that nosey parker NGOs can trawl through them and out those people. No—what you must do is stop them setting up dodgy shell companies in the first place. Jersey and Cayman are the top jurisdictions in the world, with by far the tightest regulations and checks on people setting up dodgy shell companies.
A few years ago an Australian professor at Griffith University, Professor Jason Sharman, did a huge experiment with his team on setting up shell companies. They created dozens of email and other addresses at different places around the world, from Islamabad, Nigeria and Moscow to London, New York and elsewhere. Many of the locations were highly reputable; others were places where you should hang on to your wallet if you get an e-mail saying you have £10 million to invest within them. The researchers sent messages to hundreds of corporate service providers around the world, which varied in credibility from, “We wish to establish an export base in your country for our long-established company” to messages from addresses in Pakistan saying, “We have a few million dollars and want to set up some companies in complete secrecy and want some fake bank accounts”. What was astonishing, according to Professor Jason Sharman’s research, is that while the majority of CSPs did not respond to the latter, highly suspicious messages—or told them to get lost—a very large number responded and were willing to help.
Professor Sharman’s team invented a rating system for the responses—and guess who came out top as the most difficult, indeed impossible, places in which to set up fake shell companies without supplying beneficial ownership information? Yes, it was little old Cayman and Jersey. I have Professor Sharman’s chart here, with them achieving 100%. Who was at the bottom of the heap, where you could almost walk in with a suitcase full of terrorist cash and set up a company with no questions asked? It was not Panama but individual states in the United States such as Delaware, Montana and Wyoming. They are way down at the bottom of the chart.
There are 2 million new companies created in the United States every single year. If you want to set up a dodgy shell company, you go to the United States—or rather, you go on to email and do it in under half an hour for less than $300. These states have said quite bluntly that they do not care what the President signs up to at federal level or at the OECD; they are in charge of company registrations in their state and will never in a million years go for public or central registers. They will not go for any more scrutiny before setting up companies.
Where does the United Kingdom come into this? Unfortunately, your Lordships can guess who was 13th from the bottom of the heap—below Vietnam, Panama and Ukraine. Yes, the United Kingdom was 13th from the bottom on creating dodgy shell companies, because we do it with insufficient verification of the beneficial owners. So clobbering Cayman, Bermuda and the BVI with rules which only they, not the other 19 countries of the OECD, would follow is misguided and foolish. I agree with my noble friend Lord Hodgson that we do not make the world a better or a more transparent place by hitting the good guys, encouraging the bad and letting all the Mugabes of this world go to the real tax havens to set up accounts.
Neither does the OECD ask for these public registers. The OECD merely wants all legitimate authorities to get speedy access to the relevant information so that the police, security services and financial regulators can check the legality of owners and their transactions. That is the point of access to beneficial information. I know that the Cayman Islands has been providing that information without any objection whatever for the last 10 years and has now implemented a system to give that information to legitimate authorities within 24 hours, seven days a week. That is a far better system than publishing registers.
It is perfectly legitimate for many individuals to create companies and seek to keep the ownership information private. There is no right for the public, nor for anti-capitalist NGOs, to know who owns private companies. But there is a need for legitimate law enforcement authorities to get speedy access to that information—and the overseas territories are in the forefront of providing it. What is more, I know that the information provided by the Cayman Islands, for example, will be verified by the authorities—as opposed to what will be supplied by Companies House, which does not verify the accuracy of anything. It is left to individuals to say to Companies House, “I promise that I’m telling the truth and I am who I say I am”. The overseas territories do not accept that.
So I ask this: will my noble friend the Minister give me an assurance that, in due course, the UK Government will make an attempt to get our beneficial ownership information in Companies House as up to scratch and as good as that in the best of the OTs? Our overseas territories should be lauded, not criticised, for their work on financial services. For these reasons, I oppose Amendment 14 and believe it should be rejected.
Lord Beith (LD)
My Lords, I declare a simple interest as a former chairman of the Justice Committee in the House of Commons, where we sought to clarify and underline the constitutional relationship. That probably explains why, while I generally support government Amendment 8, I have some doubts as to whether it is desirable to have included the Crown dependencies and overseas territories in the same amendment when their constitutional relationship has a very different history.
Of course, the amendment as framed does not claim to place any requirements on the jurisdictions to which it refers; it simply requires UK Ministers to report to the UK Parliament on how it is all going, which is obviously a good thing and something that we can very much welcome. Parliament needs to know about the effectiveness of information sharing, not only in respect of the overseas territories and the Crown dependencies but in respect of all the jurisdictions in which business is already carried out or to which it might transfer as a result of the steadily improving regulation in some of the territories that have been referred to in this debate.
A lot of the public concern arises from two things. One of them, which was mentioned by the noble Lord, Lord Judd, is the appalling record of corruption in many developing countries. The other is the revelation of much of that in the Panama papers. The noble Baroness, Lady Stern, deserves credit and tribute for her campaigning on this issue. She referred to the number of proceedings being considered or started. Many of them have arisen not from inadequate public registers but from the useful publication of a great deal of information from one law firm. As it happens, it was the biggest law firm in Panama, Mossack Fonseca, both of whose named partners are currently in detention in relation to matters in Brazil.
The Earl of Kinnoull (CB)
My Lords, I declare my interests as set out in the register of the House and, in particular, that I was chief executive of a class 1 major reinsurer in Bermuda for a number of years and have very wide experience of financial services in that country and generally.
I pay tribute to the Minister and also to the noble Baroness, Lady Stern, in their respective ways. I am afraid that I can pay tribute to the noble Baroness, Lady Stern, but I disagree with her fundamentally. While I feel that the appalling catalogue of problems that she read out is terrible, worrying, vile and awful, Amendment 14 is not a good way of addressing the issue. She challenged me to try to provide a better way, and I will in the course of my remarks.
People often do not understand how big a jurisdiction Bermuda is. Bermuda overtook London as a centre of reinsurance in 2004. London remains number two in the world. No major insurer in this country would be able to trade without the reinsurance that it purchases from Bermuda. The amount of money, capital and sophistication in Bermuda is enormous. The BMA—the chief regulator there, of which more in a second—is an extremely professional and very tough regulator. Bermuda was not responsible for even one of the revelations in the Panama papers and is a very clean jurisdiction, and it is particularly unfair that it is named in this amendment.
I have four particular points, on two of which I can be very quick. The first is a general point about interference by Westminster in the affairs of these self-governing regimes. I agree with the Minister, and I will say no more. The second is a general point about shifting the problem to another jurisdiction. I agree that shifting a bad thing is a good thing in many ways, but shifting a good company is a bad thing because you are simply damaging the jurisdiction. There are many good companies, and I will explain in a second why this amendment would have the effect of shifting good companies. It would be very wrong for us to impose damage on our loyal overseas territories and possessions.
My third point is about the three things that control and look at naughtiness in financial services, which are the tax authorities, the police authorities and the regulators. As a chief executive of a big company, of course one is worried by tax authorities and policemen, but the person who can walk into your office and stop you trading immediately is the regulator. He has the most power, and he is the toughest. I regret that in the many debates we have had the power of regulators has not really been discussed, nor has how sophisticated they are and how close they are to what is going on. It is not possible for one of these shell companies to be set up without a regulator being involved because that company will require a bank account. Banks are heavily regulated. If the shell company does not require a bank account, it will require a fund manager to look after its money. They are very heavily regulated. A person running the support business in a high-integrity environment such as Bermuda would not allow someone —one bad client—to come in and kill off their whole business. They would be very careful to make sure that that does not happen. You are scared of regulators. You are of course scared of tax and police authorities, and you are more than willing to give up any information that will protect your business because no one client is worth it. Your business is your business; your staff are your staff. That is how everyone feels—I hope noble Lords can hear a level of emotion in my voice.
A sub-point is that in our society we rely on the forces of law enforcement to deal with naughtiness on our behalf. We do not have vigilante posses running around trying to do things. I worry that if everything were publicly available people would suddenly see themselves as being promoted into some sort of enforcement environment. That is wrong. We should leave these things to the professionals—the tax authorities, the police authorities and the regulators—and trust. If they do not do a good enough job, we should bash them. We should not allow vigilante posses.
I move to my fourth point, which is the most worrying point for me. I have mentioned it to the noble Baroness, Lady Stern. For many years, Hiscox, the group I worked for for so long, looked after the possessions of well-off people all over the world. It is also the leading kidnap and ransom insurer throughout the world. During my time at Hiscox, we logged 40,000 man days of kidnap problems around the world. Hiscox’s market share was more than 50%, so it understood the issues. In this country, we are very lucky to live in an environment where we are safe and secure. I will walk home tonight and think nothing of it. I can get into a smart car and think nothing of it. That is not the case in countries such as Mexico. In Mexico, you cannot keep your company with a local bank or keep your money there. In quite a lot of countries, you need to go to offshore environments, and you are a good client because you have earned your money. Hiscox’s perfect client was someone who owned a beer factory in Mexico or something because it knew they were straight and honest and could see how they had made their money. People were very scared. Part of kidnap and ransom is advising clients. Hiscox advised them to keep quiet about it and to be discreet. That is the chief weapon that will stop nastiness going on. When the nastiness happens, it happens not to the guy running the beer factory but to his daughter. It happens in a nasty way. I worry that the effect of this sort of thinking, without a proper impact assessment being sorted out and thought about very carefully, could be that we would be sentencing some people who have made their money honestly to physical harm and the invasion of their homes.
I finish by saying that of course I do not want any of this naughtiness to go on, but I feel strongly that Amendment 14 is not the way to go about it. We should rely on the police, the tax authorities and the regulators to do it for us. We should look very carefully at their performance in all of these countries and carry on, as the Government have been doing so successfully, getting incremental improvement. This House should make sure we carry on pushing the Government to push the authorities to get that incremental improvement. But I plead with the House not to support Amendment 14.
Lord Eatwell (Non-Afl)
My Lords, first, I declare an interest as chairman of the Jersey Financial Services Commission and therefore the person responsible for the beneficial ownership register in Jersey. The question addressed in Amendment 14, of public access to registers of beneficial ownership, is not one for me, and I will not address the value or otherwise of making a register public—that is a political issue. The regulator in Jersey is independent, and I therefore have no role in those political decisions, but I am concerned about whether a register of beneficial ownership is accurate and therefore useful.
A number of speakers have referred to the public availability of the register of beneficial ownership here in the UK—essentially the Companies House register. As I pointed out in Committee, that register is not a useful one, since it is not verified and, because of that, the information in it can be seriously misleading. Indeed, because it is not verified, the people in developing countries and indeed civil society as a whole are on their own with respect to attempting to identify wrongdoing through the structure of the register. The register does not do the job. Regrettably, the UK is not a leader in providing verified, accurate information about beneficial ownership.
I want to address two issues with respect to the amendments. First, what I have just said will make clear why I regard Amendment 14 as seriously defective in not including the word “verified”. The characterisation of the information in proposed new subsection (4) is of a,
“publicly accessible register of beneficial ownership”,
with information “equivalent” to that under the Companies Act. The word “verified” does not appear. Therefore, the information can be inaccurate and misleading, with nobody required here to check it.
For the second point, I go back to the Minister’s amendment. Amendment 8, which has not been discussed very much up until now, says not only that “relevant” territories will provide information to the UK and we will have a report on how that information is provided but that the UK will provide “beneficial ownership information” to the relevant territories. I presume that includes my registry in Jersey. But I would like to know what information is going to be provided. If it is the Companies House information, we should really not bother; if it is some verified information, I will be very pleased to receive it. I would be grateful if the Minister, when she sums up, could tell us exactly what information is going to be provided by the UK, whether it is going to be verified and, if so, by what authority. Only if we have accurate information will the objective of those supporting Amendment 14—the revelation of wrongdoing —be achieved. If information is not verified, that goal is not achieved. Amendment 14 is defective in that respect, and I would be grateful if the Minister, when summing up, would tell me exactly what sort of information will be provided by the UK to my registry in Jersey and by whom it will be verified.
Lord Naseby (Con)
My Lords, the Minister rightly wishes the United Kingdom to be ahead of the curve. In relation to Amendment 8, which is the principal amendment that we are considering, she is absolutely right. If she is saying that the objective is co-operation on beneficial ownership information in order to deal with tax evasion and stamp out corruption, money laundering and terrorist finance, that is greatly to be welcomed and is welcomed, as far as I can see, by those in the overseas territories. I will come back to this in a minute, but the amendment will mean that the overseas territories have, as I understand it, committed themselves to provide real-time, 24-hour information in response to requests from the legal authorities in the United Kingdom. That is a massive step forward in this area of great difficulty and challenges and is to be welcomed.
However, I too am concerned about some of the detail of this new clause. It is unfortunate that a clause of this importance has appeared in the Marshalled List so late in the process. Of course, I recognise that my noble friend on the Front Bench is in some difficulty in that this is a major Bill and here we are at the 11th hour having to look at an absolutely vital amendment, and one has to make some allowance for that. But I share the view of the noble Lord, Lord Eatwell, about exactly what information is going to come from the UK and who on earth will verify that information. The overseas territories have every right to be told exactly what the information is and how it has been verified. In addition, there seems to be a great rush to have this work done in the next period so that it will all be based on one year’s experience. This is a major step forward and I wonder whether 12 months is enough. We have heard this evening from my noble friend that the Turks and Caicos Islands are hoping to get started soon, but one year is really asking an awful lot, and not many statisticians would work on the basis of one year’s information. Nevertheless, we are where we are.
I have one other concern. Proposed new subsection (2) states:
“The report must include an assessment of the effectiveness of those arrangements, having regard to such international standards as appear to the relevant Minister to be relevant”.
We do not know who the Minister may be in the next Government or what international standards are to be used. I do not blame my noble friend for this, but I suggest to her that when the report comes forward, we shall want to have great clarity about what international standards are being used and whether they are being consistently used in the analysis of implementation that flows from the new clause in Amendment 8. However, the basic point is that there must be great joy both in the overseas territories and in the law enforcement agencies of the United Kingdom that they are now going to get a first-class service which ought to have a major impact on the areas that I have described.
I have had the privilege of working overseas in Pakistan, India and Sri Lanka, and I spent part of my national service in Canada. Certainly when I was in commerce, with the Reckitt & Colman Overseas group, one of the bugbears about international trade—I am talking about several decades ago, but I am afraid it has not changed—is that it is not a level playing field. Here we are, approaching Brexit and hoping to trade internationally, but the tragedy of the situation is that somehow neither we in the United Kingdom nor other countries have ever managed to persuade the United States, Hong Kong and Singapore to have a central, non-public register. We have not even got that far. Even on the basis of what we are doing now, we have rivals. Make no mistake about it: most of our overseas territories are in the Caribbean, their main competitor is the United States and they do not even have a central beneficial ownership register. Not only will they lose business if we go too far but if the other parties, particularly the US, Singapore and Hong Kong, take business from our overseas territories, the net result will be that where we are getting information out of our overseas territories, if the business goes elsewhere then the co-operation that the UK gets from those territories—which is good and is going to be even better—will be totally undermined. Frankly, we will not get any information from the US, Hong Kong or Singapore.
On Amendment 14, which keeps reappearing, I certainly do not think that Her Majesty’s Government are committed to producing anything on a public register at the end of the review on beneficial ownership. The review should be solely on that subject, and there may well need to be further amendments or extensions to that situation. I remind noble Lords that neither the law enforcement agencies nor the tax authorities support public registers. UK intelligent law enforcement is a key part of our foreign policy, and we look for co-operation from friendly countries across the world. That will be jeopardised still further if there are these public registers.
So I say to my noble friend on the Front Bench that I support very much what she has done on the Bill and the way that she has pushed forward progress with the overseas territories. However, let us be quite clear: beneficial ownership is one thing, and it is very important, but in my view public registers are totally à décours.
Lord Luce (CB)
My Lords, I support government Amendment 8. I apologise to the House for the fact that I have not been here for the earlier proceedings because, among other things, I have been visiting one of the overseas territories, Gibraltar, as I am chancellor of the new university there. As a former Governor of Gibraltar I am probably the only person in the Chamber who has been a governor of an overseas territory, so I thought I ought to say something in this very important debate.
The noble Baroness, Lady Stern, and all those who have added their names to the amendment have done a service to the House in ensuring that we debate the vital issue of standards of regulation in overseas territories. After all, at the end of the day it is our Government who are ultimately accountable to Parliament for the performance in our overseas territories. Therefore the Government must satisfy themselves that the standards both in this country and in the overseas territories meet those required by the OECD and elsewhere, so I congratulate my noble friend on the leadership that she has shown in ensuring that we debate this issue.
However, there is a delicate balance to be struck—from listening to the debate, I think the House understands that—because we are now in a non-colonial era. I remember that after I became Governor of Gibraltar, the late Robin Cook became Foreign Secretary two or three months later and one of the first things he did, very sensibly, was to drop the term “colonial” from our overseas territories so that we have the title we use at present, “British Overseas Territories”. We have to approach these issues in a very non-paternalistic and non-colonial fashion. To my mind, that is essential. The danger with the devolved powers that we have in these overseas territories—quite rightly, in my view—is that if we try to impose in a paternalistic fashion our views and policies upon them, we will be doing them a great disservice. Above all, we want to avoid having to impose direct rule, which could be the implication of taking some of these measures. At the same time, we have to ensure that there is a level playing field, which includes us as well, and that in making progress on this we do not do so at the expense of the overseas territories.
The Government have shown tremendous initiative in responding to the amendment from the noble Baroness, Lady Stern, with their Amendment 8 because it provides a framework with which we can move forward in negotiation and dialogue with the overseas territories over the next two or three years to try to move the whole issue forward. Many of the overseas territories, as we have already heard today, have made good progress. I congratulate the Government on this and strongly support their amendment.
Baroness Butler-Sloss (CB)
My Lords, I support very much what the noble Lord, Lord Luce, has just said and respectfully associate myself with it. I strongly support Amendment 8. If I may put it this way, I think the Government, and particularly the Minister, have been extremely shrewd in taking the sting out of the points made by the noble Baroness, Lady Stern, who has very wisely brought these issues to this House. The Government have picked them up and produced what seems to me to be the right approach to dealing with the overseas territories. The amendment provides a useful nudge to the overseas territories that the Government are looking at what they are doing, without imposing what is unacceptable upon these independent countries with their own constitutions and parliaments.
I do not agree with Amendment 14. I was at the meeting this morning where representatives from a number of overseas territories explained to us what they were doing. We have already heard about Bermuda and the Cayman Islands, the British Virgin Islands, which are doing very good work, and from Anguilla and Montserrat about the efforts they are making. We have heard from the Minister about the Turks and Caicos Islands, which with their new Government are now working to get this through. So the areas contained within Amendment 14 are already on the way, if not ahead of us in some cases, and it is not necessary that they should be referred to specifically in it. I do not want to hold everyone up. I support Amendment 8 and I do not think Amendment 14 is really necessary now.
Lord Faulks
My Lords, I shall speak to Amendment 24 in my name and that of my noble friend Lord Hodgson of Astley Abbotts in this group. It concerns the setting up of a public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK. Those are more or less the words that are the subject of a call for evidence issued by the Department for Business, Energy and Industrial Strategy in April this year. I do not know but I assume that the Home Office did a great deal to bring forward the publication of that report in the light of the debates which took place in Committee about the concern that was generally expressed about corruption and the acquisition of property in central London by overseas companies hiding behind anonymity.
The establishment of a public register was indeed a commitment made by the Government. Why do we need a register of this sort? I can do no better than quote briefly from the call for evidence, which says,
“the government is concerned about the potential for illegal activity to take place through overseas companies investing in the property sector. Some properties are owned through off-shore companies in order to obscure their true owners. This can make it difficult for regulators, legitimate businesses and the general public to know who the true owners are and can make it very difficult for law enforcement agencies to carry out effective investigations … Greater transparency of property ownership will make the job … easier and will discourage criminals and the corrupt from choosing the UK to hide or launder their money”.
It is made quite clear that the Government intend to introduce a register of beneficial owners of overseas companies but, as it is a call for evidence, it does not seek to prescribe the nature of that register but calls for advice and information to assist it in formulating the register. It may well be influenced by what the noble Lord, Lord Eatwell, said about verification to make any such register particularly useful.
The amendment in my name and that of my noble friend Lord Hodgson simply asks the Government to do that and make it a part of the Bill. If we do not, there is real feeling that there will not be legislative time even in the Parliament that may start in June. I ask the Minister to reassure us that the register will be set up in short order.
The Earl of Sandwich (CB)
My Lords, I was not here for Committee and I apologise for rising at this late hour. I thank the Minister for her attendance at our meeting this morning, which was very productive. I admitted then that I had not seen government Amendment 8. Now that I have read it—in fairness to the noble Baroness, Lady Stern, I know that people have said that it is very welcome—it is actually quite disappointing for the aid organisations that have been campaigning. That should be on the record. It is really a restatement of existing government policy, and is not a compromise in that sense. I prefer to support my noble friend and others on Amendment 14 because it is only common sense. If we look back to discussion in Committee, we see that all they are asking is for the Government to complete their own programme of persuading the OTs to adopt public registers. This was a worldwide campaign, which we admire the Government for leading. It is now intended to include the overseas territories, although I fully recognise that there has been a slow take-up and that Orders in Council may be required.
I have worked with Christian Aid and many other organisations, as has the noble Lord, Lord Judd, which support the proposed new clause in Amendment 14. They are, to my mind rightly, concerned that the need for transparency should apply to overseas territories and developing countries just as much as to us. I hope the Minister now recognises that and will see her way to further compromise in future. The aid agencies feel strongly about this—after all, they are thinking of the majority of people living in those countries, not those sitting on the money.
Finally, I quote one informed reaction from Christian Aid to the new amendment. It states:
“The Exchanges of Notes signed between the UK Government and Overseas Territories in April 2016 on sharing beneficial ownership information already provide for a joint review of the operation of the arrangements six months after their coming into force, and thereafter on an annual basis. The report envisaged by amendment 8 is therefore already committed to. All this amendment does is put an existing commitment into law”.
The amendment does not mention transparency; nor does it mention developing countries. I therefore see no reason why we cannot support Amendment 14 and Amendment 8.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I have added my name to Amendment 24, which is about the UK register of overseas property. Before I speak to it, as the noble Baroness was kind enough to refer to my remarks in Committee about drifting away to murkier regimes, I took it from the way that she quoted it that she did not approve of that. I was relieved that my noble friend Lord Blencathra quoted it with approval, which shows that you cannot please all the people all the time. However, I do not want my noble friend, or indeed the noble Baroness or the House, to think that that remark was made in isolation.
I said that the status quo was unsustainable and that at least three issues should be tackled as part of the new regime: first, there should be a register; secondly, our law enforcement agencies should have full-hearted access to it in a way that is prompt, helpful and consistent with a working relationship; and, thirdly, the Government should be satisfied with the probity and effectiveness of the register regime in the overseas territories and Crown dependencies. It seems to me that government Amendment 8 meets those tests, which is why I support it. Rather than talking about drifting away to murkier regimes, I should be saying that we must not let the best become the enemy of the good.
With that, I turn to Amendment 24. It is important not to see the issues raised by my noble friend Lord Faulks as a problem for only central London and the inner suburbs. There is a knock-on effect from what is going on in central London with continuing overseas investment in London properties. That makes the urgency to which my noble friend referred a moment ago all the more pressing. First, there is a ripple effect on properties in the south-east of the United Kingdom: as the settled population sell their properties closer to the middle of London, they have further money to buy properties elsewhere in the region. A very interesting article in the Financial Times on Monday 3 April pointed out that house prices have increased by 102% since 2002, compared to a 38% increase in earnings; that Londoners now need to pay 12.9 times their earnings, up from 6.9 times in 2002, to buy a London house; and that if you wish to buy a house in Kensington and Chelsea, the heartland of the area that my noble friend has in his gunsights, you now need 31 times the median salary to afford it. There is a real sense that we need to get a grip and some clarity on what is going on.
There is a second impact because, as London has become more expensive, foreign investors have begun to look at other cities. The Times of Friday 7 April pointed out that Number One Cambridge Street in Manchester, a development of 282 flats over 29 storeys, has investment purchasers from Azerbaijan, China, Japan and Zimbabwe—18 nationalities. Only two of the 282 flats are owned by Britons. The developer wrote:
“The generously proportioned apartments … appeal to owner-occupiers, investors and renters. In other words, the scheme is appealing several sectors of the market, including those looking to make the step towards getting on to the housing ladder and more established owner-occupiers”.
I must say that I think first-time buyers in Manchester might wonder whether 99.2% overseas investors and 0.8% local ownership is a fair reflection. Here I offer my noble friend Lady Stern some comfort: one investor based in the British Virgin Islands has purchased 125 flats. A company called OFY paid £25.7 million for those properties.
Although the amendment is no silver bullet, it sets out an important direction of travel, which is why I support it.
Lord Judge
My Lords, there have been many speeches and I, too, was unable to speak at an earlier stage, so I shall be brief. Amendment 8 is good, but Amendment 14 is better. The reason it is better is simply this: it adds greater certainty to the idea that we and the British Overseas Territories are doing our level best to destroy this scourge of corruption which infests so many countries and does so much damage throughout the whole world. It may be that we are at the start of this process—I think the Bill is the very beginning of a process—but we have to start somewhere, and this is where we should start.
Baroness Kramer (LD)
My Lords, I have the privilege of being a name added to the amendment moved by the noble Baroness, Lady Stern. I will use this opportunity to congratulate her not only on raising the issue but on pursuing it with so much energy. We can see from some of the results that the argument has moved; the profile of this issue has been very significantly raised and I think that government will struggle to ignore it going forward. We have had a small concession from the Government. I agree very much with the noble Earl, Lord Sandwich, that it would have been encouraging to have a stronger response, because this is indeed the encapsulation of existing government policy and existing notes of exchange into statute. It is better to have it in statute than not to have it in statute. There is a little bit of movement forward, but it is extremely small.
What has disappointed me in a lot of the debate today is the range of views expressed opposing transparency. I am very appreciative of those who have spoken out who recognise the importance of transparency. The Panama papers have been an extraordinary illustration of what transparency can do, and does, to engage regulators and enforcement agencies to pursue what is not just naughtiness—it runs far deeper than that. It is real misbehaviour that distorts economies, including our own. Amendment 24, from the noble Lords, Lord Faulks and Lord Hodgson, in many ways illustrates the distortions that have happened in property markets in the UK, with huge consequences for many of our young people and many of those on lower incomes. There is a very big knock-on beyond just the initial misuse of bank accounts and investments.
I made a much longer speech on the issue in Committee, which I shall not repeat, but we have to face the reality that many of the problems that we face across the globe, including civil war in Syria, hunger in Africa, the absence of democracy in countries such as Russia and the impact of withdrawn democracy in places such as Turkey, depend on the capacity of those who are politicians or Governments who abuse their people and who are corrupt—vast criminal networks that exploit in every way—to take advantage by moving illicitly obtained money into the legal financial sector. When we look at anywhere around the world that functions in any way as a haven or portal for that transition from the illicit world to the legal world, we are facing a situation where we have to try to close down the ability of those funds to move. The impact of that would be huge in so many ways across the globe, including for us.
I very much support—and I am sad that not everyone did—the work that the previous Prime Minister, David Cameron, did in this area, and the stand that he took, saying that, first, we have to make the kinds of changes that give us central registers. I am very glad that this Government continue to move to make sure that that extends right across all our overseas territories and Crown dependencies. Many of them are ahead of us, as has been said—but this will now be a universal description of the UK, with its overseas territories and Crown dependencies. But I am sad that the principle of public registers is now being so thoroughly challenged. We all know that if we wait for a global standard we will wait generations. Secrecy provides the kind of cover used extensively by all those whom we would wish to stop. They are the people who will be very pleased today that Amendment 14 is not going to be put to a vote and potentially carried. They will be absolutely delighted, because that is the cover that enables them to continue to make the transfer between the illicit world and the legal world.
This is a path down which I am sure that the noble Baroness, Lady Stern, who has been so vigorous on this issue, is going to continue. There will be many others around this House—we have heard from the noble and learned Lord, Lord Judge, and the noble Earl, Lord Sandwich—who will continue, and I hope that the noble Lord, Lord Rosser, will be in that group as well. We must achieve that transparency. If we do not take leadership, there is no way that we can turn around to the United States or any other location and insist that they carry out those same measures, when we say that we are not willing to do it ourselves or to use our relationship with the overseas territories and Crown dependencies to achieve that goal.
I wish that the Minister could tell us more about a timetable to achieve greater transparency. That would give us a great deal of comfort, but there does not seem to be one with much force or energy behind it, which I find exceedingly sad. But this is a day when we recognise the pressures and needs delivered by wash-up, so I very much accept the need to support government Amendment 8, and recognise with regret that we are very unlikely to have an opportunity to push on Amendment 14.
Lord Rosser (Lab)
First, I start by making a reference to the amendment in the name of the noble Lords, Lord Faulks and Lord Hodgson of Astley Abbotts. We certainly support the objectives of the amendment; it is a matter that we, as well as the two noble Lords, have raised in Committee, Unless I have misunderstood its intention, the amendment says that action should be taken within a certain period of time, which I think is described as within six months of the day on which the Bill is passed.
When the matter was discussed in Committee, the Minister referred to the fact that the Government had announced at the London anti-corruption summit last year that the Government’s intention was to create a register of overseas company beneficial ownership information where the company owned UK property. On behalf of the Government, the Minister also said that the Government intended to publish a call for evidence that would set out the policy proposals in full in the coming weeks, and would also introduce legislation to implement the register as soon as parliamentary time allowed.
As the noble Lord, Lord Faulks, said, the call for evidence on a register showing who owns and controls overseas legal entities that own UK property or participate in UK Government procurement has now been issued; it has come from the Department for Business, Energy and Industrial Strategy. But I imagine that the key concern, from what the noble Lord said, is about how long it may take for anything to happen with regard to setting up the register. I assume that the Minister will probably not be in a position to say very much about that. She could, of course, tell us what the intentions would have been of this Government—but they will not be around for very much longer. There will be a new Government after the election, and it will be an issue for that Government to decide what priority they are going to give to it.
Certainly, the omens do not necessarily seem very good, since there seems to be a general view that much of the legislative time that any Government have after the next election will be taken up with the issue of the implications of our withdrawal from Europe. I hope that the Minister will at least be able to say what the intentions would have been of this Government when she comes to respond to the specific point raised in the amendment spoken to by the noble Lord, Lord Faulks, about putting a time limit on when something is actually going to happen and not leaving it as something that may well drift well into the future.
I thank the Minister for moving government Amendment 8, which is clearly—at least in part—a response to Amendment 14, spoken to by the noble Baroness, Lady Stern, and to which my name is attached. I do not intend to reiterate the arguments and points made by the noble Baroness, with which I fully concur. I will concentrate my comments on government Amendment 8. As the noble Baroness, Lady Stern, has already said, this does not go as far as Amendment 14, since it contains no reference to the Government having to bring forward an Order in Council by the end of 2019—or, indeed, by any other time—and then taking all reasonable steps to ensure its implementation, requiring any overseas territories listed in Amendment 14 that have not introduced a publicly accessible register by the end of 2019 to do so. The government amendment provides for a report to be prepared before 1 July 2019 with an assessment of the effectiveness of the arrangements in place between the UK Government and the Government of any of the Channel Islands, the Isle of Man or any relevant overseas territory for the sharing of beneficial ownership information, having regard to such international standards as appear to the relevant Minister to be relevant.
Will the Minister give more information on the criteria against which the Government will assess the effectiveness of the current arrangements? I ask that in the context of what the view would have been of this Government on that issue. We are presumably all seeking to reduce the incidence of money laundering and corruption in particular, as well as the avoidance of paying tax, either by illegal means or through elaborate schemes that have not been cleared by the tax authorities. Will the level of such reduction achieved, or not achieved, in these areas be a key part of the assessment of the effectiveness of the arrangements in place, and will that be reported on in specific terms in the report to be placed before Parliament, to which reference is made in the government amendment?
Further, is it this Government’s intention that there should be a debate on the report in both Houses of Parliament in government time? What does the reference to,
“having regard to such international standards as appear to the relevant Minister to be relevant”,
actually mean? What do the Government consider the relevant international standards are at present, and how would those standards at the end of 2018 be determined? Are international standards internationally binding agreements, and is an international standard what is being achieved by the country with the best record of effectiveness and transparency in this area or by the one with the worst? I believe that the Minister said that the regard to international standards would be to the highest standards, but I would be grateful if she would confirm that when she responds.
A concern that has been expressed during the course of our discussions on this issue has been the potential or actual use of overseas territories and Crown dependencies by corrupt individuals, organisations or people in positions of real power in other countries to cream off money for themselves that was intended to be used for the benefit of a nation as a whole, or a significant part of a nation. An advantage of a publicly accessible register of beneficial ownership is that people and organisations in such countries would have access to such a register, which would help them identify where, and by whom, corruption and money laundering may be taking place and thus be better able to expose what is going on—the prospect of which would, in itself, also act as a potentially significant deterrent.
The Government’s amendment refers to an exchange of information between the Government of the UK and the Government of each relevant territory. How will this government amendment address the issue of the use of overseas territories and Crown dependencies for corruption and money laundering purposes by individuals, organisations or people in positions of real power in countries outside the United Kingdom? Does the amendment mean that the UK Government would seek information on beneficial ownership from a relevant Crown dependency or overseas territory in respect of individuals, organisations or people in positions of power in countries other than the United Kingdom? Where a credible request for such information comes from individuals, organisations or Governments within those other countries, is it the intention of this Government that the information on beneficial ownership obtained would be passed on unless there were overriding reasons why to do so would jeopardise life or security?
There is a basic difference between ourselves and the Government. The Government believe that a process of persuasion will lead to publicly accessible registers of beneficial ownership in line with what is to be UK practice—albeit I note the trenchant comments of the noble Lord, Lord Eatwell, about the lack of verification of the register in the UK. However, the Government do not want to set any time limit for when the voluntary approach has to have delivered, following which legislative action would be taken. We are not convinced that this approach will deliver the required outcome, particularly in light of the Government’s change of stance from the days of the previous Prime Minister, so the commitment now appears to be to expect overseas territories and Crown dependencies to follow suit only if publicly accessible registers of beneficial ownership become the international standard.
In other words, it appears as though the United Kingdom will not be taking the lead as far as the overseas territories and Crown dependencies are concerned. This Government expect them only to “follow suit”. Can the Minister at least indicate that, while there are no time limits in the government amendment within which the voluntary approach to the introduction of publicly accessible registers of beneficial ownership should be implemented, the Government will nevertheless not resile from taking legislative action to achieve that objective at some undefined point in the future if that were shown to be necessary?
We are now in a situation where this Parliament is about to end, pending the general election in June. As has been said, the Bill has received widespread support, in both this House and the Commons, where the areas of difference of view have been over what the Bill does not include rather than over what it does. In this situation, a judgment has to be made. The Government have been persuaded to move further with Amendment 8, providing for a report to Parliament to be prepared by the middle of 2019. This will enable the issue to be kept alive, and for the case for, and objective of, publicly accessible registers of beneficial ownership in both overseas territories and Crown dependencies to continue to be pursued. This is assuming that the Government of the day do not come to the conclusion themselves that firm action needs to be taken to deliver that objective in the light of the progress—or lack of it—being made by the voluntary approach and the effectiveness—or lack of it—of the arrangements in place for the sharing of beneficial ownership information. The amendment does represent progress, albeit not as much as we would have liked.
Nobody wants to see this Bill, or even significant parts of it, actually bite the dust. We do not believe that, an election having now been called, government MPs are going to do anything other than support their own Government’s Amendment 8 at the expense of Amendment 14—assuming that that amendment could still have been carried in this House in the light of the Government’s amendment. For the reasons I have given, we will support Amendment 8. It does not go as far as we would wish—that position is reflected in Amendment 14—but it does represent progress and we thank the Minister for her work in that regard.
Baroness Williams of Trafford
My Lords, I thank all noble Lords who have spoken so passionately on Amendments 8 and 14. I particularly thank the noble Baroness, Lady Stern, for all the work that she has done in promoting her Amendment 14. I also thank all noble Lords who attended the meeting with the overseas territory this morning. I hope they found it was useful and that they can see that progress is already being made.
I begin with Amendment 24 in the name of my noble friends Lord Faulks and Lord Hodgson of Astley Abbotts, which would provide for the creation of a public register of beneficial ownership of foreign companies that own property in the UK. I am pleased to have the opportunity to return to this issue. The clear abuse of the London property market and high-value properties across the country—I was particularly interested to hear about the properties in Manchester—to launder money, including the proceeds of corruption, has to be stopped. We must not allow this city to be a haven for kleptocrats hiding their ill-gotten gains. That is why the Government share the ambition of creating such a register. As my noble friend Lord Faulks told us, on 5 April, the Department for Business, Energy and Industrial Strategy published a call for evidence on our proposed register and how it will work. In the call for evidence, the Government sought views on the design of the register and how it will interact with the UK property market to ensure that it is effective.
This policy enshrines the UK’s position as world leader in corporate transparency policy. However, as this register is novel and ambitious, its development should not be rushed. The UK will be considered world leading in this agenda only if the register works. The Government have therefore taken time to develop effective proposals and ensure that they deliver full transparency without creating undue burdens on business or adversely impact commercial property transactions. Publishing the call for evidence earlier this month demonstrated the Government’s ongoing commitment to this agenda. Subject to the outcome of the general election, it remains our intention to introduce legislation to create the register as soon as parliamentary time allows. I hope this provides my noble friends with the reassurances that they seek.
Moving back to the overseas territories and Crown dependencies, I welcome noble Lords’ recognition of the value of the Government’s amendments. They will help us to ensure that the jurisdictions successfully implement their commitments and that the UK law enforcement agencies can pursue investigations into money laundering and corruption as a result. As I have previously noted, a key feature of the Government’s approach is that it creates a level playing field between all the overseas territories with financial centres and the Crown dependencies. By taking a different approach to the Crown dependencies and overseas territories, the noble Baroness’s Amendment 14 would risk disrupting this level playing field, creating weaknesses in certain jurisdictions that could be exploited and damaging the spirit of co-operation we have been able to create between them. The Government’s amendment has the merit of treating all relevant overseas territories and the Crown dependencies on an equal basis, ensuring that they are held to the same standard and are subject to a level playing field.
The noble Lord, Lord Rosser, asked whether the information provided to UK law enforcement agencies can then be shared with operational partners in other countries, including those where grand corruption is rife. The exchange of notes are bilateral agreements with the overseas territories and Crown dependencies to enable the exchange of accurate and timely beneficial ownership information. On an operational case-by-case basis, and subject to each agency’s legal position, the UK agencies may share this information with operational partners in other countries. If a subsequent UK law enforcement investigation recovers property that relates to criminal activity or corruption in another country, we may also seek to return it to such a country under the terms of existing agreements or memoranda of understanding.
Noble Lords should also note that, if we were to impose legislation in a field of activity that is devolved to the overseas territories, we would need to ask ourselves to what degree we could ensure that such legislation would be implemented successfully in practice. Although Westminster has the legal power to legislate, enforcing practical implementation of legislation in this case would be fraught with difficulty. We could, in fact, significantly undermine the progress that we are making in return for little or no real benefit.
The noble Lord, Lord Rosser, asked what the review will cover. It will take into account the impact on law enforcement outcomes such as the number of cases concluded, the quality of evidence received and the overall impact on combating economic crime. He also asked whether there would be a debate in both Houses. He will understand that I cannot commit the next Government to scheduling a debate on the report but this will, of course, be a matter for business managers in due course. However, I am sure that interest in this issue will remain in both Houses and there would be considerable support for such a debate at the relevant time. Of course, there is no bar to such a debate being held in your Lordships’ House.
The noble Lord, Lord Eatwell, asked about data being provided to overseas territories being verified, and another noble Lord talked about verification. The UK’s persons with significant control register is publicly accessible and is accessed more than 1.2 billion times a year. This enables information to be cross-checked with other data sources to improve accuracy and the quality of information on an ongoing basis. This is the information which will be shared with overseas territories and Crown dependencies under the exchange of notes. The legislation that underpins the UK register includes its own statutory review clause, which will require its effectiveness to be reviewed and a report to be provided to Parliament by 2019.
My noble friend Lord Naseby asked which international standards would be considered for the statutory review. As he stated, the statutory review provided for in Amendment 8 will take into account evolving international standards such as new FATF standards. The UK will be assessed against the new FATF standards over the next 12 months. Other jurisdictions such as the overseas territories will be assessed at a later stage. While the exchange of notes is focused on improving law enforcement outcomes rather than emerging assessments against international standards, our review will, of course, take into account the wider context.
The Government have listened and brought forward a concessionary amendment. I hope noble Lords will be satisfied that the issue of company ownership transparency will remain a high priority in the next Parliament, and that the statutory review, which will be laid in Parliament, will ensure that this is the case. On that basis, I hope that the noble Baroness and my noble friends will feel inclined not to press their amendments.
Baroness Vere of Norbiton
Baroness Vere of Norbiton (Con)
My Lords, we now come to a group of government amendments relating to improvements to the operation of Chapter 2 of Part 1 of the Bill. I hope the House will agree that these are technical and uncontroversial.
Clause 9 permits extensions to the moratorium period for suspicious activity reports, and Clause 11 allows the National Crime Agency to apply for a further information order. These powers will be available in all the UK jurisdictions. However, we have consulted the Scottish Government, who have confirmed that the wording in the Bill does not accurately reflect the common-law position in Scotland, which recognises the role of the Procurator Fiscal in directing criminal investigations. Amendments 9, 11 and 12 reflect that principle in Scotland so that the moratorium extension and further information orders should be applied for only by the Procurator Fiscal.
Clause 10 permits, on a voluntary basis, the sharing of information between regulated-sector entities for the purpose of tackling money laundering. This currently allows those entities up to 28 days to share information following an initial notification and to provide a report to the NCA. Following further discussions with the regulated sector, we have concluded that more time is needed to ensure more effective sharing in complex cases, where numerous banks, for example, may hold relevant information. Amendment 10 increases this time limit to 84 days, which will still maintain a proportionate limit on how long these companies have to share information.
Finally, Amendment 49 amends POCA to ensure that extensions to the moratorium period and further information orders that are issued in one jurisdiction in the UK, such as Scotland or Northern Ireland, will be recognised in the others. I beg to move.
Lord Mackay of Clashfern
My Lords, I am glad that the Government have taken account of the special situation in Scotland.
Lord Sharkey
“( ) After section 316 insert—“316A Duty of the Financial Conduct AuthorityWhere a financial penalty is awarded against a firm by the Financial Conduct Authority arising out of a Financial Conduct Authority investigation, the Financial Conduct Authority must withhold a proportion, to be determined at its sole discretion, of any discount to the penalty until it is satisfied that the firm which is a party to the settlement has completed any internal disciplinary actions agreed in the settlement.””
Lord Sharkey (LD)
My Lords, I should start by thanking the Minister and her officials for being so generous with their time over the last couple of days. I am extremely grateful for her courtesy and patience. I also want to acknowledge that this is not the ideal timing for debating an issue that has so many complex aspects. We had all expected to have more time to do this.
Amendment 13, which stands in my name and that of the noble Lord, Lord Mendelsohn, sets out to help the FCA. A key part of the FCA’s job is the detection and punishment of misconduct. Another key part of its job is instilling and incentivising a culture of fair treatment of clients and a respect for the regulations in both spirit and letter—in other words, trying to prevent cultures in which financial misconduct is winked at or incentivised. The amendment aims to help with both those tasks.
The FCA has certainly been very busy with the business of the detection and punishment of misconduct since it took on its current form and mandate in 2012. In the four years from 2013 to 2017, it has imposed penalties on 82 occasions. The fines on firms in this short period amounted to over £3 billion. The latest fine was £163 million, imposed in January on Deutsche Bank. In fact, the headline fine was £230 million, but the FCA awarded a discount of 30% for prompt settlement of its action against the bank, and that is an entirely typical arrangement. Sixty-six out of the 82 enforcement actions brought by the FCA were settled at the first stage of the enforcement process and received a 30% discount. Eight were settled at the second stage and received a 20% discount. Eight were contested and received no discount at all. In all, the FCA in four years has given firms early settlement discounts of almost £1 billion and the amendment simply proposes to put this gigantic sum of money to better, or at least additional, use.
When the FCA reaches a settlement, it will impose conditions, some of which may call for internal disciplinary proceedings to be taken against those responsible for the misconduct. The amendment would ensure that those disciplinary proceedings took place. It mandates the withholding of a proportion of the discount until the offending firm has demonstrated conclusively, and to the satisfaction of the FCA, that proper and proportionate disciplinary action has in fact taken place. The substantive burden here lies with the firms and not with the FCA. This mechanism will free the FCA from the cost and use of resource that any follow-up investigation of non-compliance would require. In any case, it is not clear whether substantive follow-up investigations are routinely undertaken.
The FCA mission statement, published last week, talks about revisiting cases. On page 15, under the heading “Evaluation”, it says that,
“post-implementation analysis is not cost free. Additionally, the dynamism and complexity of the market means it is often difficult to isolate the impact of our actions against other factors”.
It goes on to say:
“Where it is less cost-effective to conduct detailed analysis, we will monitor and publish key indicators that help to demonstrate the impact of our interventions”.
I entirely sympathise with that sensible and realistic approach. I have spoken in this Chamber before about my concerns that the FCA is underresourced, underpaid, undervalued and overburdened, and the amendment helps in that kind of situation. It effectively automates, or nearly automates, the process of compliance with settlement conditions. It removes the need for substantive reinvestigation by the FCA and, instead, places a burden on the offending firm to demonstrate compliance. It offers a powerful financial incentive for doing so at no additional cost to the FCA or to the taxpayer.
Lord Mendelsohn (Lab)
My Lords, I rise briefly to speak in support of Amendment 13, proposed by the noble Lord, Lord Sharkey, and to which I have added my name. He has raised a very important point in relation to how the discount is applied and we are all very grateful to him. He has made a compelling case, and I should like to make a couple of comments in this context.
Since the financial crisis, $321 billion has been paid out globally in fines, compensation and legal costs, and the UK has contributed some $60 billion of that. KPMG reported in 2015 that, between 2011 and 2015, 60% of bank profits had been paid in fines, compensation and legal costs. Since the financial crisis in general, payouts in legal fees, fines, compensation and bonuses are basically equivalent to the entire profits generated, with all the consequences for shareholders, corporate governance, the reputation of the financial sector and losses to the taxpayer. At its very core, the attempt to deal with culture, conduct and, in some cases, apparent contempt for customers has lacked one key element: accountability. Using the discount to emphasise this element of accountability is one of the compelling parts of this proposal.
We on this side do not agree with the argument that the FCA is not up to the job; nor do I believe that it has not used its powers or that its procedures are flawed. The noble Lord, Lord Sharkey, has found a very important gap, which needs to be plugged: there is an incentive that does not work because there has been no downside. Even the FCA has moved towards the senior management regime to support the noble Lord’s central argument.
I, too, am grateful to the Minister for her openness and engagement and for the provision of officials—a quite copious amount of officials—to try to help address these sorts of matters. We have enjoyed those discussions and are looking forward to them continuing. Further openness on the cases where the discount has been applied would be extremely beneficial. As the FCA moves towards pursuing less significant fines, and has limited resources to both police and investigate, the approach of the noble Lord, Lord Sharkey, is helpful in ensuring compliance, and places a sensible responsibility on the financial sector. It can mean that we can feel confident—and I hope that I am not tempting fate—that when the most egregious fines and compensation sums are probably now behind us, the lower aggregate level of cost does not allow us to believe that the industry is properly policed. Only the accountability and responsibility in this amendment will do so.
Baroness Williams of Trafford
My Lords, I start by thanking the noble Lords, Lord Mendelsohn and Lord Sharkey, for the time that they have taken in entering into discussions with me and officials and representatives of the FCA, both today and yesterday. The discussions were very helpful but, as the noble Lord said, we have more to go.
Amendment 13 basically requires the FCA, as the noble Lord has said, to withhold a proportion of the discount to a penalty applied to a financial firm until that firm has completed any internal disciplinary actions agreed in the settlement. I really welcome the noble Lord’s objective of improving compliance and the culture across the financial services sector. The Government share this objective and we have made significant progress in the area in recent years. We have, for example, introduced the senior managers and certification regime, to which the noble referred. This will, where appropriate, ensure that the FCA can take action against individuals where they are at fault. I know that the culture at firms is also a priority for the FCA, which has observed that it is both a key driver and a potential way of mitigating risk, and therefore plays a role in the achievement of its statutory objectives. The senior managers and certification regime is a key workstream in the FCA’s work programme on culture, as is the FCA’s focus on those aspects of remuneration policy that drive individual behaviour and culture.
Noble Lords spoke about disciplinary action to be taken against individuals working for firms. At the outset, I want to emphasise that if the FCA thinks that a disciplinary action should be taken against individuals, it can and does take action itself, as opposed to leaving it to the companies to do so. The FCA and other enforcement agencies have powers to fine individuals, or to take other action such as prohibiting them from continuing to operate in the financial services industry. This approach can be seen in a number of high-profile cases, including those involving LIBOR manipulation. The FCA settled eight cases with firms totalling £758 million. It is also conducting a number of separate enforcement actions against individuals. There have been seven completed actions against individuals in cases that involved settlements with firms in relation to LIBOR or Euribor, but others are still ongoing. More generally, the FCA issued fines against 64 individuals between 1 April 2013 and 24 March 2017 totalling £15.5 million. They might be the cases that the noble Lord was referring to. Many of these were connected to previously settled cases against firms, although I am afraid that I am unable to provide noble Lords with an exact number.
That said, the FCA also expects firms to consider what action they themselves should take. If a firm has not taken appropriate action by the time the FCA imposes a penalty on it, the FCA can increase the penalty as a result. We went through a lot of that today. I am saying that not for the benefit of the noble Lord, but mainly for the benefit of the House, because we have been through this. Of course, in appropriate circumstances, the FCA can impose a requirement that a firm consider further whether it needs to take any additional action to remedy the breaches identified.
The noble Lord asked me today whether it would be a better arrangement to have an automatic system of withholding a proportion of the discount, so as to make it directly in the interests of the firms to take the action that they are supposed to take, rather than the FCA having to make an assessment later of whether it ought to impose an additional penalty. I commend him on his ingenuity, but having consulted with operational partners and Treasury officials, the Government’s view is that the existing regime gives the FCA the flexibility to apply penalties and impose requirements on a case-by-case basis. It allows it to leverage those requirements wherever needed in order to ensure that the firm acts appropriately. While there might be options to enhance this approach and better achieve the outcomes that we all seek, we should be clear about the potential benefits before pursuing any such options. That is kind of where we left it today.
I trust that noble Lords will agree that we should not seek to reform or amend without exploring the implications, both the advantages and any unintended or undesirable consequences. For instance, we are concerned that this amendment would weaken the incentives for firms to settle early with the FCA, given that the settlement would not be final, subject to the full discount being granted. As a result, they might instead choose to engage the FCA in costly and protracted action rather than all being involved in focusing on remedying the underlying issues.
Moreover, further detailed consideration would need to be given as to how this amendment would interact with established principles of employment law. In particular, when a firm disciplines an individual, it needs to follow due process rather than agreeing in advance a predetermined course of action. For the amendment to work effectively, consideration would need to be given as to whether the FCA would need to be given a power to require firms to take such action against their employees; otherwise the amendment would put the FCA at risk of liability when undertaking the duty the amendment creates. Moreover, appropriate amendments would also need to be made to the Employment Rights Act 1996 to ensure that such action does not give rise to unfair dismissal claims by relevant employees against their firms. It is also not clear whether the proposed approach would be the best way of achieving the aim of improving the culture of firms.
In summary, we can all agree that this an extremely complex issue, which seemed to be made even more complex as discussions went on today. We share the same objectives of improving compliance and the culture in the banking sector. Ultimately, the FCA already has significant powers to address the issues underlying the noble Lords’ amendment, not least the power to sanction relevant employees in appropriate circumstances. I trust that the House will see that it is far from clear that the amendment would deliver the positive outcomes that have been described. That being said, I found the discussions today to be very interesting, as did the relevant officials, and hope this has been an equally insightful discussion to the two noble Lords. There might be ways of enhancing the existing regulatory system; the FCA is, in fact, conducting a review of its penalties policy at present, and I know that it would welcome the opportunity to continue this discussion with both noble Lords.
I can confirm that, subject to the outcome of the election, I expect that the Government will consider how best to facilitate further discussions on this issue, and, as I outlined to the noble Lord, Lord Sharkey, this would be my intention. I am very grateful to the noble Lords for their amendment. However, I ask them to withdraw it so that action not be taken in haste. I hope they feel comfortable to do so following some of the undertakings I have given.
Lord Sharkey
I am very grateful for the Minister’s response. She will not be surprised or, I hope, offended when I say that I am still not entirely convinced by some aspects of the situation. However, I acknowledge that the issues raised are very complex and that there is certainly a need for further in-depth discussions. I very much welcome the Minister’s proposal to facilitate a meeting for further discussions with her, myself, the noble Lord, Lord Mendelsohn, and her team. As was mentioned, the FCA and the Treasury have very generously expressed an interest in joining those discussions, and we would welcome the Treasury’s presence. Under those circumstances, I beg leave to withdraw the amendment.
“( ) After section 245 insert—“245ZA Notice to local authority: Scotland(1) This section applies if, in proceedings under this Chapter for a recovery order, the enforcement authority applies under section 266(8ZA) for decree of removing and warrant for ejection in relation to heritable property which consists of or includes a dwellinghouse.(2) The enforcement authority must give notice of the application to the local authority in whose area the dwellinghouse is situated.(3) Notice under subsection (2) must be given in the form and manner prescribed under section 11(3) of the Homelessness etc.(Scotland) Act 2003.(4) In this section—“dwellinghouse” has the meaning given by section 11(8) of the Homelessness etc.(Scotland) Act 2003;“local authority” means a council constituted under section 2 of the Local Government etc.(Scotland) Act 1994; and “area”, in relation to a local authority, means the local government area for which the authority is constituted.””
“( ) After section 269 insert— “269A Leases and occupancy rights: Scotland(1) This section applies where, in making a recovery order, the Court of Session also grants decree of removing and warrant for ejection under section 266(8ZA) in relation to any persons occupying the heritable property.(2) Any lease under which a person has the right to occupy the heritable property (or part of it) for residential or commercial purposes is terminated on the granting of decree of removing and warrant for ejection.(3) Any other right to occupy the heritable property (or part of it) which subsists immediately before the granting of decree of removing and warrant for ejection is extinguished on the granting of the decree and warrant.(4) Subsection (3) does not apply in relation to a right under a lease to occupy or use the property other than those mentioned in subsection (2). (5) Where the heritable property is vested in the trustee for civil recovery under the recovery order, the following enactments do not apply in relation to the heritable property—(a) sections 34 to 38A of the Sheriff Courts (Scotland) Act 1907 (removings, notice of termination of tenancy and notice of removal);(b) the Tenancy of Shops (Scotland) Act 1949;(c) the Matrimonial Homes (Family Protection) (Scotland) Act 1981;(d) Parts 2 and 3 of the Rent (Scotland) Act 1984 (security of tenure and protection against harassment and unlawful eviction);(e) sections 4 to 7 of the Law Reform (Miscellaneous Provisions)(Scotland) Act 1985 (termination of certain leases);(f) Part 2 of the Housing (Scotland) Act 1988 (rented accommodation: security of tenure etc.);(g) Chapter 3 of Part 3 of the Civil Partnership Act 2004 (occupancy rights and tenancies);(h) Part 5 of the Private Housing (Tenancies) (Scotland) Act 2016 (security of tenure, termination of tenancy and eviction).””
“(f) it is the forfeitable property in relation to an order under paragraph 10I(1) of that Schedule.””
“(f) it is the forfeitable property in relation to an order under paragraph 10I(1) of that Schedule.””
“(f) it is the forfeitable property in relation to an order under paragraph 10I(1) of that Schedule.””
“Office for Professional Body Anti-Money Laundering Supervision
(1) Within six months beginning with the day on which this Act is passed, the Secretary of State must by regulations made by statutory instrument create a body to be known as the Office for Professional Body Anti-Money Laundering Supervision, with responsibility for improving standards of supervision and law enforcement in respect of money laundering.(2) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
Lord Hodgson of Astley Abbotts
My Lords, in moving Amendment 20, I will speak also to Amendments 21 and 22. With these amendments we return to an issue we discussed in Committee in a somewhat different format, but the underlying purpose this evening is the same: to increase the effectiveness and value for money of the current money laundering regime. Let me make it clear again, as I did in Committee, that this is not an attack on the utility of money laundering regulation in the fight against financial crime. However, I argue strongly that the present regime encourages mindless compliance, whereas it should be encouraging principled behaviour. As a consequence of this, the money laundering regime enjoys a very low level of public support and is too often regarded as a form-filling joke. That is a bad place for a regulatory regime to find itself. Its efficacy would be greatly improved if it were able to win over the hearts and minds of people, as opposed to earning their solemn acceptance.
Why do I think the present regime is ineffective? It is based very largely on the SAR regime—the suspicious activity report regime. Last year, just under 400,000 SARs were delivered. In the years since the present regulations were introduced in 2007, probably over 2 million SARs have been recorded. Consider the cost of their preparation and analysis. According to a freedom of information request, the outcome was that there were no convictions at all under the regulations in the first five years, from 2007 to 2012, and only four convictions and five more proceedings in the five years since. The National Crime Agency managed to recover assets totalling only £25 million last year, but claims that there are billions passing through London illegally all the time. If that represents success, I find it hard to think what failure would look like.
There is a Faustian pact between, first, the regulators, who are pressed to gather even little scraps of information, no matter how irrelevant; secondly, the compliance departments of the regulated firms, which are enjoying the opportunity for untrammelled growth in their activities and personnel; and thirdly, the professional firms that enjoy the fees earned from checking these ever-increasing compliance activities. No one ever steps back to get perspective and to see how this undoubtedly important activity could be done more effectively.
In Committee, I argued that to break into the cycle the National Crime Agency should be required to follow the principles of best regulatory practice, as laid out in Amendment 21, which we are discussing tonight. My noble friend would not, I am afraid, accept this line of argument, saying that:
“The NCA can and will act where there is criminal activity relating to money laundering. However, it does not have a regulatory remit, and to require it to have one would deflect it from its purpose of tackling serious and organised crime”.—[Official Report, 28/3/17; col. 532.]
I am not sure that I follow exactly that line of argument, but never mind—we have moved on from there. Now, we have the new body: the office for professional body anti-money laundering supervision, or OPBAS. It clearly should follow the principles of best regulatory practice. Amendment 20 requires the Government to set this body up within six months. This is an important body with an important role and therefore we need to get on with it, and to give Parliament sight of its structure and remit by means of requiring its establishment through an affirmative statutory instrument.
Amendment 22 lays down the principles that the body must follow. It must be proportionate, accountable, consistent, transparent and, most importantly, targeted at cases in which action is needed. Amendment 22 also lays down a series of processes by which the new body will ensure that the bodies it is responsible for regulating follow these principles. There is a series of ways of doing that, including publishing advice and guidance, and carrying out investigations to ensure that the operation is working effectively.
Before I conclude, to underline the seriousness of the situation we now find ourselves in, let me give the House a couple of examples of the mindlessness and the consequent drawbacks of the present regime. My most recent money laundering inquiry included a couple of dozen questions. Among them was the following: “We see you have links with a company called NS&I. Please explain these”. Since the inquirer had access to my bank account, they could see that it was an entry of £25 alongside NS&I. NS&I is, of course, National Savings & Investments. It was a premium bond winning; sadly, not £1 million, but never mind—every little helps. Does the NCA really think that the Government’s own saving authority is involved in money laundering?
A second question was: “We see that you worked in North America in the 1960s. What were your earnings?”. That was half a century ago. It is hard to think that I started money laundering the year after I left university and have so far carried on for more than 50 years, undetected. I was sufficiently irritated to answer this second question with the words, “I haven’t a clue”. Patently, that was an inadequate response, but comeback there was none. Perhaps the form was not read and just filed and the box ticked, or it was read and it was concluded that this was not an important or relevant question. Either way, it was an awful waste of the bank’s and my time. This is going on thousands and thousands of times around the country.
One can laugh about my case, but for many people triggering a money laundering inquiry catapults them into a Kafkaesque world where no one can discover who is accusing them or what they are being accused of. Since we last met in Committee, I have been sent various examples but will give only one this evening. A 43 year-old ex-soldier with a 16-year good-service record built up a capital sum of about £69,000 from his Army redundancy and other sources. On 14 February it was paid into his account at the bank where he had banked for 20 years. On 27 March, when he tried to withdraw part of the money to make his annual ISA subscription and to buy a car, he was told that the account had been frozen. Now, a month later, it still is. He has missed the opportunity to make his ISA investment because the tax year has ended. The bank will not—perhaps cannot because of the regulations—tell him what the problem is, and the Financial Ombudsman appears unable to intervene. He is also concerned that this incident will damage his future credit rating and he will have no way of obtaining redress. So there are very serious cases where this money laundering regime is not working effectively to catch the individuals it should really be aiming at.
In Committee, I referred to the increasing prevalence of de-risking by regulated entities. Under pressure from the money laundering authorities, they close down whole categories of accounts irrespective of their behaviour and performance because they might be risky from a money laundering point of view. I referred to a long-standing friend of mine who lives in Pakistan—a British citizen—who has had his account unilaterally closed. Since Committee, I have heard more examples of smaller charities about how they are finding it difficult to operate overseas because of money laundering regulations. Most recently, the Gurkha Welfare Trust is having difficulty obtaining banking facilities to transmit money to ex-Gurkha soldiers living in Nepal who have fallen on hard times. They live in Nepal and that is a red flag.
In the event that my noble friend cannot accept my amendments, although I am sure she is going to—
Baroness Butler-Sloss
I am extremely interested to hear—I fear that I did not hear it in Committee—about the proposal in Amendments 21 and 22. But how does the noble Lord see this office of professional body anti-money laundering supervision working, for instance in the case of the man whose money has been frozen? It is an interesting idea but I just wonder, as a former lawyer, how it would work in practice.
Lord Hodgson of Astley Abbotts
I am grateful to the noble and learned Baroness for that intervention, but I can glide this down to third man, if I may use a cricketing analogy, because this is a government proposal. The Government are proposing to set up this new body, so I am sure my noble friend, when she comes to wind up, will have all the detail of how this body will work. I merely wish to ensure that it is sent down the right channels. I know that my noble friend, with her usual aplomb and ability, will deal with that by stroking it effortlessly to the boundary, if I may continue the cricketing analogy.
It is important to do some serious re-engineering of the general approach to money laundering to increase its effectiveness and public confidence in it. That the National Crime Agency can, in its annual report, trumpet the fact that SARs went up by 7.82% over the last year as a badge of success without any reference to the impact it is having, shows that there is much to do. I beg to move.
Baroness Hamwee
My Lords, when the noble Lord responds to the debate, will he tell the House whether he thinks “I haven’t a clue” is purported compliance.
Lord Rosser
In light of the last comment from the noble Lord, Lord Hodgson of Astley Abbotts, one can only hope that the points he made will not leave the Minister stumped. I hope it gets better.
I thank the noble Lord and the noble Lord, Lord Faulks, for tabling these amendments, since they enable me to raise a concern that I expressed in Committee about the Government’s intention to create a new office for professional body anti-money laundering supervision through a statutory instrument, without any apparent reference to such a body in the Bill that we are currently discussing—which is why the noble and learned Baroness, Lady Butler-Sloss, had to raise her question. Nobody has a clue what the Government intend because they have not chosen to put anything in the Bill to enable us to have a discussion about it. It was only in a government document issued around the time of the Bill that the Government declared their intention to set up this body.
A briefing that no doubt we have all received from the Solicitors Regulation Authority refers to the amendment from the noble Lord, Lord Hodgson of Astley Abbotts, as “proposing” the creation of an office for professional body anti-money laundering supervision—which could, perhaps wrongly, be interpreted as meaning that the Solicitors Regulation Authority was unaware that that is what the Government were already proposing, albeit keeping rather quiet about it as far as proper parliamentary scrutiny is concerned.
Baroness Williams of Trafford
My Lords, I congratulate my noble friend Lord Hodgson of Astley Abbotts on neatly batting off the question asked by the noble and learned Baroness, Lady Butler-Sloss—I could not resist; we have all made cricket jokes. I thank noble Lords for their interest in the outcomes of the Government’s recent review of the anti-money laundering supervisory regime. As a result of this review, the FCA has agreed to create a new team—the office for professional body anti-money laundering supervision, otherwise known as OPBAS—to strengthen the regime and help to ensure that professional body AML supervisors, such as the Law Society and the Institute for Chartered Accountants in England and Wales, comply with their obligations in the money laundering regulations. It is important to note that OPBAS will be a new team hosted in the FCA and is not in itself a new regulatory body.
Amendment 22 would require that the FCA would have powers to directly monitor and advise all practitioners subject to criminal finances legislation. This would be a significant extension of the FCA’s responsibilities. Rather, our intention is that the FCA’s new objective will be carefully targeted to address weaknesses identified through last year’s call for information, while preserving the existing strengths of the regime by focusing on helping to ensure that professional body AML supervisors comply with their obligations in the money laundering regulations. The noble Lords’ proposals would duplicate the role that existing AML supervisors play in safeguarding the UK’s financial system and would increase unnecessary burdens on businesses.
Amendment 21 would also require the FCA to have regard to regulatory best practice principles in delivering its new objective. However, I assure the House that the FCA will comply with its existing governance and safeguards as it goes about delivering its objective. As such, this amendment would be redundant and duplicate existing requirements on the FCA.
Lastly, Amendment 20 would require the powers the Government will pass to the FCA to fulfil this objective to be subject to an affirmative statutory instrument. It is our intention that this will instead be achieved in line with existing precedent; previous regulations to grant similar powers to the FCA have been subject to the negative procedure. I hope colleagues agree that we should follow that precedent on this occasion. Subject to the outcome of the general election, the Government intend to publish draft regulations for consultation over the summer before laying the relevant secondary legislation to underpin OPBAS later in the year.
To pick up on some specific points noble Lords have raised, my noble friend Lord Hodgson talked about de-risking being excessive and impacting disproportionately on normal people, as he has previously. He gave some compelling examples. The Government encourage the financial sector to take a proportionate approach based on the risks faced. Guidance for the financial sector, which is written by industry, is being updated for the latest money laundering regulations and is open for consultation until the end of this week. It is of course open to my noble friend to make his views known through this process.
The noble Lord, Lord Rosser, asked why the Government are not splitting the supervisory and advocacy functions of professional body supervisors. I can advise him that the 2017 money laundering regulations, which transpose the fourth money laundering directive, will require all professional body anti-money laundering supervisors to ensure that their supervisory functions are exercised independently of the advocacy functions, including, for example, the Law Society and the Solicitors Regulation Authority.
The noble Lord also made the point that the Government are subverting scrutiny by using the negative procedure. As I have mentioned, providing the FCA with new powers via the negative procedure is not new. It is in line with the wider transposition of the fourth anti-money laundering directive. There are a number of other powers that have been conferred to the FCA by the negative procedure. For example, the Money Laundering Regulations 2007 and the Money Laundering (Amendment) Regulations 2012 provide the FCA with powers to oversee financial institutions’ compliance with the money laundering regulations. The current set of MLRs provide the FCA with supervisory powers to oversee financial institutions’ compliance with the money laundering regulations. These include enforcement powers and supervision powers.
I am very grateful to the noble Lords for allowing me to address their points, which I hope I have. I hope, on that note, they will feel happy not to press their amendments.
Lord Hodgson of Astley Abbotts
My Lords, I thank the noble and learned Baroness, Lady Butler-Sloss, for her helpful intervention and my noble friend for her very full response. There is a really serious issue here that needs to be tackled. It is not just about bureaucracy and cost, but about unnecessary interference with people’s lives. Increasingly, it is also about damage to this country’s reputation as a place where you can get clarity. The question will be whether the new body can bring focus. The proof of that pudding will be in the eating. We shall have to wait to see whether it happens. My noble friend encouraged me to make my views known to the review. She need not worry; I have not missed that opportunity. I have written a letter already, so it has my views. We will have to see how it develops, but it will require vigilance, focus and care by the FCA to improve the regime, which is currently not working as well as it should. With that, to continue the cricket analogy, I will return to the pavilion and withdraw the amendment.
Baroness Kramer
“Whistleblowing
(1) The Secretary of State must by regulations made by statutory instrument provide for the Financial Conduct Authority to undertake the administration of arrangements to facilitate whistleblowing in respect of corrupt or suspected corrupt practices in systematically important financial institutions including in particular with regard to fraud, tax evasion, money laundering or mis-selling.(2) The Authority shall have powers—(a) to give directions as to the records kept by each institution and to check compliance with its directions including by audit;(b) to award financial compensation to any person voluntarily providing information to—(i) the Authority;(ii) the Prudential Regulation Committee of the Bank of England;(iii) the Serious Fraud Office; or(iv) any other organisation designated by the Secretary of State;leading to enforcement action against the institution sanctioned by way of penalty of not less than £500,000; and(c) to set the level of compensation awarded in each case between 10% and 30% of the total collected.(3) The Secretary of State must by regulations made by statutory instrument make provision with regard to retaliatory action against whistleblowers.(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament. (5) For the purposes of this section, a “systematically important financial institution” is an institution designated by the Bank of England in consultation with the Financial Stability Board and the Basel Committee on Banking Supervision.”
Baroness Kramer
My Lords, I recognise that the hour is very late. I will try to be brief. Noble Lords will also be delighted that my knowledge of cricket is so limited that I shall have to abandon that theme.
This amendment is on whistleblowing. I tabled it in Committee. Essentially, this is a very similar amendment that does two things. It would provide for the regulator to give additional protection to whistleblowers in the financial services industry and require the regulator, as part of those powers, to provide mandatory compensation to whistleblowers who provide original information that leads to prosecution or sanction with financial consequences for the institution. This is very much modelled on Dodd–Frank and a much longer tradition of mandatory compensation for whistleblowers in the United States, which underpins its very successful culture of whistleblowing and tackling financial crime by financial institutions.
When I brought this amendment forward in Committee, the objection was to creating an office of the whistleblower, so under this revised version the powers would go to the FCA, which may decide how it would like to set up that arrangement. I recognise that this has no future in this Bill because we are in wash-up, but this is another of those issues that will carry over to future pieces of legislation, essentially for three reasons that I will touch on quickly.
First, the way we have dealt with whistleblowers in the financial industry is, frankly, an utter disgrace. Since I moved the amendment in Committee, I have been put in contact with more people in the industry who have been whistleblowers whose lives have been completely destroyed. People have lost all employment and had to rely on spending their savings and assets. They have faced serious attack from the highly skilled, very capable and aggressive lawyers of the financial institutions and have, frankly, been let down by the regulator. In many cases, I think no one would question that kind of description of the experience that whistleblowers have had to deal with in the industry.
Lord Rosser
I support what the noble Baroness, Lady Kramer, has said in setting out the case for her amendment. She has already made reference to recent further examples of serious concern over the approach to whistleblowing and whistleblowers—she referred specifically to the situation at Barclays Bank in the light of apparent actions by its chief executive in seeking to unmask a whistleblower. There are meant to be strict regulations in the financial services industry for encouraging and protecting whistleblowers, but it does not look as though they are very effective.
It is difficult to believe that the apparent attitude at the top of Barclays Bank is an exceptional one-off, as opposed to being indicative of a rather more widespread culture, to which the noble Baroness referred, in the financial services sector. The reality is that whistleblowers will not come forward if they think that the reaction of the people at the top will be to try to find out who they are rather than investigate the issue to which they have drawn attention. Neither will people come forward if they think that being identified as a whistleblower will jeopardise their future employment prospects in the financial services sector, which is alleged to be the reality in that sector in particular. I hope that the Government in response will be able to offer something more than claims that existing arrangements and procedures address the concerns raised by this amendment, when it is clear that it is not the case.
Baroness Williams of Trafford
My Lords, I thank the noble Baroness for bringing forward this amendment, which would introduce new regulations so that the FCA could undertake the administration of arrangements to facilitate whistleblowing in the financial sector.
The FCA is already a prescribed person in relation to the financial sector. It actively promotes the whistleblowing framework to employees and employers in the sector so that prospective whistleblowers know where to turn and firms have appropriate internal whistleblowing policies in place. Other prescribed persons related to financial services include the Bank of England, the Serious Fraud Office, the Financial Reporting Council and the Prudential Regulation Authority. To each of them, whistleblowers will be one of several sources of information and intelligence about potential malpractice in support of their regulatory activities.
The Government believe that the right body to investigate the concerns of a whistleblower is the body that regulates the issue about which concerns are raised—I know I have said that before. That body is in the best position to see the disclosure in context; for example, to judge the seriousness of the allegations, to make connections with any related investigations under way and to consider whether some regulatory action is appropriate to prevent occurrence.
The amendment that the noble Baroness proposes would introduce a power to award compensation to any worker voluntarily providing information on wrongdoing to organisations in the financial sector. As I set out in Committee, we do not think that money is the main motivator for genuine whistleblowers. I do not think the noble Baroness thinks so either, but she expressed views on how a financial incentive system to encourage whistleblowing works well in the US. I can advise noble Lords that the FCA and Prudential Regulation Authority whistleblowing management teams visited the US in late 2013. At the time, there was limited empirical evidence of incentives leading to an increase in the number or quality of disclosures received by regulators. Introducing incentives would require a complex and costly governance structure.
Incentives could also undermine effective internal whistleblowing mechanisms, a requirement the FCA introduced in September 2016 for banks, insurers and deposit takers. If the FCA were to incentivise whistleblowers to report to the regulator, it could discourage them from reporting internally within their firms. It would risk delivering mixed messages by encouraging firms to set up costly systems which it then undermines by incentivising whistleblowers to disclose directly to the FCA. However, the FCA is considering reviewing the case for incentivisation again in financial year 2017-18. I would be happy to provide an update following that review.
The amendment also contains a provision with regard to retaliatory action against whistleblowers. I reiterate and reassure noble Lords that such a provision is unnecessary. Workers who have evidence that their employer has provided a negative reference, have been unfairly dismissed or have otherwise suffered detriment for making a public interest disclosure already have a route to seek compensation against their employer through an employment tribunal.
Some concerns were raised that we have seen a decline in the number of whistleblowing cases for the second year in a row, from 1,340 in 2014-15, to 1,014 in 2015-16 and 900 in 2016-17. The FCA does not have a target for the numbers of whistleblowing reports. Its aim is simply to ensure that those who prefer to report to an independent body know about its role and that, if they need to take the often difficult step of reporting on an employer, they and their information will be treated sensitively and professionally. New rules came into force in September 2016 that require banks, building societies and insurers to have internal whistleblowing arrangements in place and to appoint an internal champion. We understand many firms began to implement these measures earlier than the commencement date, so we believe that this has affected the numbers going directly to the FCA. This is a positive message as many complaints are resolved earlier and without regulatory intervention, or lead to self-reports by firms themselves.
I want to address one point made by the noble Baroness: how we became aware of the issue regarding the investigation of the whistleblower’s identity by the CEO of Barclays and what action the FCA is taking. I recognise the concern that the noble Baroness raised about the Barclays example and I agree that behaviour of the kind she described does not serve the reputation of the industry nor the interests of the country. We must do all we can to prevent this type of behaviour. As the noble Baroness said, I realise that time is short but this issue is not going away. I ask whether she would be amenable to withdrawing her amendment, fully aware that I will hear more about the subject after the general election, should the outcome return a Conservative Government.
Baroness Kramer
I am delighted that the noble Baroness seems to take a personal interest in this issue. While 1,000 sounds a big number, the substantive cases have dropped to below 100. Given the size of the industry in the UK, that is a worryingly low number; I suspect that even the FCA is significantly worried about it. I am very glad that the noble Baroness said that the Government would look at this issue again. I hope to pursue that but it is good news that we did not have before, frankly. On that basis, and with thanks to the noble Lord, Lord Rosser, for his comments on this issue, I will obviously withdraw.
“( ) Regulations under subsection (2) or (3) may not include provision of the kind mentioned in subsection (5) unless the provision is within legislative competence.( ) For this purpose, a provision of regulations is within legislative competence if—(a) in the case of regulations made by the Scottish Ministers, it would fall within the legislative competence of the Scottish Parliament if included in an Act of that Parliament;(b) in the case of regulations made by the Department of Justice in Northern Ireland, it deals with a transferred matter.”
“( ) section (Sharing of beneficial ownership information);”
“(d) any property which is the forfeitable property in relation to an order under section 303Q(1).””
“(c) it is the forfeitable property in relation to an order under section 303Q(1).””
“(d) any property which is the forfeitable property in relation to an order under section 303Q(1).””
“(c) it is the forfeitable property in relation to an order under section 303Q(1).””
“(d) any property which is the forfeitable property in relation to an order under section 303Q(1).””
“(c) it is the forfeitable property in relation to an order under section 303Q(1).””
“76A(1) Section 435 (use of information by certain Directors) is amended as follows.(2) In the heading for “Directors” substitute “authorities”.(3) In subsection (1)—(a) for “the Director” substitute “a relevant authority”;(b) for “his”, in each place, substitute “the authority’s”;(c) for “him” substitute “the authority”.(4) In subsection (2)—(a) for “the Director” substitute “a relevant authority”;(b) for “his”, in each place, substitute “the authority’s”;(c) for “him” substitute “the authority”.(5) In subsection (4)—(a) in the words before paragraph (a), for ““the Director”” substitute ““relevant authority””;(b) omit “or” at the end of paragraph (b);(c) after paragraph (c) insert—“(d) Her Majesty’s Revenue and Customs; or(e) the Financial Conduct Authority.”(6) The amendments made by this paragraph apply to information obtained before, as well as to information obtained after, the coming into force of this paragraph.76B(1) Section 436 (disclosure of information to certain Directors) is amended as follows.(2) In the heading for “Directors” substitute “authorities”.(3) In subsection (1)—(a) for “the Director”, in the first place it occurs, substitute “a relevant authority”; (b) for “the Director”, in the second place it occurs, substitute “the authority”;(c) for “his” substitute “the authority’s”.(4) In subsection (5), after paragraph (h) insert—“(i) the Financial Conduct Authority.”(5) In subsection (10) for ““the Director”” substitute ““relevant authority””.(6) The amendments made by this paragraph apply to information obtained before, as well as to information obtained after, the coming into force of this paragraph.76C(1) Section 437 (further disclosure) is amended as follows.(2) In subsection (2), in paragraph (a) for “the Director’s” substitute “a relevant authority’s”.(3) In subsection (6)—(a) for “the Director”, in the first place it occurs, substitute “a relevant authority”;(b) for “the Director”, in the second place it occurs, substitute “the authority”.(4) In subsection (7) for ““the Director”” substitute ““relevant authority””.76D(1) Section 438 (disclosure of information by certain Directors) is amended as follows.(2) In the heading for “Directors” substitute “authorities”.(3) In subsection (1)—(a) in the words before paragraph (a)—(i) for “the Director” substitute “a relevant authority”;(ii) for “his” substitute “the authority’s”;(iii) for “him” substitute “the authority”;(b) in paragraph (c) for “Director’s” substitute “authority’s”;(c) in paragraph (e) after “Part 5” insert “or 8”;(d) in paragraph (f)—(i) for “or a constable” substitute “, a constable or an SFO officer”;(ii) after “Chapter 3” insert “, 3A or 3B”;(e) in paragraph (fa) for “Director” substitute “relevant authority”.(4) In subsection (5)—(a) for “the Director” substitute “a relevant authority”;(b) for “he”, in each place, substitute “the authority”.(5) In subsection (10) for ““the Director”” substitute ““relevant authority””.(6) The amendments made by this paragraph apply to information obtained before, as well as to information obtained after, the coming into force of this paragraph.76E(1) Section 439 (disclosure of information to Lord Advocate and to Scottish Ministers) is amended as follows.(2) In subsection (1), after “Part 5” insert “or 8”.(3) In subsection (5), after paragraph (h) insert—“(i) the Financial Conduct Authority.”(4) The amendments made by this paragraph apply to information obtained before, as well as to information obtained after, the coming into force of this paragraph.
“77(1) Section 441 (disclosure of information by Lord Advocate and by Scottish Ministers) is amended as follows.(2) In subsection (1), after “Chapter 3” insert “or 3A”. (3) In”
“( ) in paragraph (fa), for the words from “functions” to “Ireland” substitute “functions of a relevant authority, as defined by section 435(4),”;( ) in paragraph (g)—(i) omit “a customs officer or”;(ii) after “Chapter 3” insert “, 3A or 3B”.”
“79A_ In section 443 (enforcement in different parts of the United Kingdom), in subsection (1) after paragraph (c) insert—“(ca) for an order made by a court under Part 7 in one part of the United Kingdom to be enforced in another part;”.”
“Homelessness etc.(Scotland) Act 2003 (asp 10)
In section 11 of the Homelessness etc.(Scotland) Act 2003 (notice to local authority of proceedings for possession etc.), in subsection (5), after paragraph (f) insert—“(fa) section 245ZA(2) of the Proceeds of Crime Act 2002 (notice to local authority of application for decree of removing and warrant for ejection),”.Bankruptcy and Diligence etc.(Scotland) Act 2007 (asp 3)
The Bankruptcy and Diligence etc.(Scotland) Act 2007 is amended as follows._(1) Section 214 (expressions used in Part 15) is amended as follows.(2) In subsection (1)—(a) omit “and” after the definition of “a decree for removing from heritable property”, and(b) after the definition of “an action for removing from heritable property” insert—““defender”, in relation to a decree for removing from heritable property of the type mentioned in subsection (2)(l), means any person against whom the decree is enforceable.”(3) In subsection (2)—(a) omit “and” at the end of paragraph (j), and(b) after paragraph (k) insert “; and(l) a decree of removing and warrant for ejection granted under section 266(8ZA) of the Proceeds of Crime Act 2002.”In section 216 (service of charge before removing)—(a) in subsection (1), in paragraph (a), for “14 days” substitute “the appropriate period”, and(b) after that subsection insert—“(1A) In subsection (1)(a), “the appropriate period” means—(a) in the case of a decree for removing from heritable property of the type mentioned in paragraph (l) of section 214(2), 28 days,(b) in the case of a decree for removing from heritable property of the type mentioned in any other paragraph of that section, 14 days.”In section 218 (preservation of property left in premises), after subsection (2) insert—“(3) In the application of this section to the granting of a decree for removing from heritable property of the type mentioned in section 214(2)(l), “pursuer” means the trustee for civil recovery who is responsible by virtue of section 267(3)(ba) of the Proceeds of Crime Act 2002 for enforcing the decree.””
Lord Rosser
I am not sure whether I should come in now but I just take this opportunity to thank the Minister and her ministerial colleagues in the Bill team for their willingness to meet and engage in what have been constructive and helpful discussions on not only provisions that are in the Bill but also provisions that are not, since it is with the latter that most differences of view or approach have centred. I also thank my Front-Bench colleagues for their hard work, not least—although he is not in his place—my noble friend Lord Kennedy of Southwark, who has not been exactly short of commitments in respect of other Bills as well. Finally, I thank the staff in our own office, not least Grace Wright, for their help and advice in navigating our way through this Bill.
Baroness Hamwee
My Lords, I echo those thanks to the Minister and the Bill team. As several people have said—most frequently the noble Lord, Lord Rosser —it is what is not in the Bill that has exercised us most. I can see an enormous amount of material for Private Members’ Bill in the next Session if we do not have government Bills that we can tack our—“demands” would be the wrong word—concerns on to. But the Minister has done an absolutely sterling job and I hope she gets five minutes to have a bit of a rest before she sets out campaigning. We have the luxury of knowing that we will be back to pursue these interests.
Baroness Williams of Trafford
As always with Bills such as this, it is what is not in the Bill. Also, sometimes we should have gone further. But we have had a challenge in this Bill and in the main the challenge has been lack of time, not of consensus. I place on record my thanks to the Front Benches—the noble Lords, Lord Rosser and Lord Kennedy, and the noble Baronesses, Lady Kramer and Lady Hamwee—and my noble friends behind me, who have kept me on my toes. I thank noble Lords for being so accommodating about having so little time to get through the business of the past 24 hours.
Royal Assent
Thursday 27th April 2017
(7 years ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 3 February 2017 - (3 Feb 2017)