Sanctions and Anti-Money Laundering Bill [HL]

Baroness Kramer Excerpts

Committee: 3rd sitting (Hansard - continued): House of Lords
Wednesday 6th December 2017 Lords Chamber

Moved by

[Baroness Kramer]

69H: After Clause 41, insert the following new Clause—
“Trust or company service providers
(1) A trust or company service provider that does not carry on business in the UK may not incorporate UK companies without oversight from an anti-money laundering supervisor.(2) In this section—“anti-money laundering supervisor” has the same meaning as “supervisory authority” in Schedule 2;“trust or company service provider” has the same meaning as in regulation 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017);“carry on business in the UK” has the same meaning as in regulation 9 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017).”

[Baroness Kramer (LD)]

My Lords, Amendments 69H, 69J and 69L in this group are in my name and that of my noble friend Lady Bowles, but the group also encompasses Amendment 69K in the name of the noble Lord, Lord Naseby. This cluster of four amendments work extremely well together, and we are very grateful to the noble Lord for bringing in a piece which strengthens this cluster.

Even the unobservant will have noticed that, in a sense, this is about starting to close loopholes. We had a very interesting comment, I think from the noble Lord, Lord Naseby, earlier—he can tell me if I am wrong—talking about the reputation and the failures of the UK to manage money laundering that involves the overseas ownership of property in London. The noble Lord, Lord Naseby, may not have had the opportunity to be here earlier, but we did have Amendment 69 in the name of the noble Lords, Lord Faulks, Lord Rooker and Lord Collins, and the noble Baroness, Lady Bowles, which directly addressed the public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK, in an attempt to speed up the whole process of getting a public register of beneficial ownership.

[Lord Naseby (Con)]

I sat through the whole debate on Amendment 69, which took a fair amount of time.

[Baroness Kramer]

I do apologise, but the noble Lord will know then that that issue was addressed at that point in time. The Government gave us an update on the progress they are making towards what we hope will be such a public register. Indeed, I believe the Minister said it was not a question of whether but how there would be a public register. In a sense, that is one of the criticisms of London that hopefully will be closed within a reasonable period of time. We are still waiting on the timetable, but that is indeed what we hope.

However, the noble Lord is absolutely right that whenever issues are raised, particularly when the UK talks of issues around tax havens in other countries, or we on these various Benches talk about trying to get public registers in the overseas territories and Crown dependencies, the answer nearly always comes back, “Clean up your own house first”. Indeed, that is one of the reasons why I and so many in this House support that public register of beneficial ownership of property.

These amendments that I now address follow on that same theme. I remember the noble Lord, Lord Eatwell, in particular in the debates on the Criminal Finances Bill, being highly critical, comparing London very badly with Jersey. Although we have a public register for companies, it is not one that has any verification system, and he saw that as a very fundamental flaw in the UK system. That accusation comes again and again, whenever we look at trying to do anything with the overseas territories. Whenever we look at any kind of more global activity, the answer that always comes back is: “You say that you’re well in advance of other countries, but look at your own house—you’ve plenty there to get in order”. I would agree that we have plenty to get in order, so let us do it.

The three amendments that I have tabled with the noble Baroness, Lady Bowles, deal with various aspects of this. Amendment 69H deals with an issue that has generally been overlooked. I am very grateful to the noble Baroness, Lady Bowles, for identifying it—as noble Lords can probably tell, she is the expert hand in these amendments and has drafted all three. Amendment 69H proposes that trust or company service providers that do not carry on business in the UK and ensures that they may not incorporate UK companies without oversight from an anti-money laundering supervisor. I will not go through the details of each of its provisions, but essentially it makes sure that anti-money laundering authorities can get a grip on a series of organisations—trust or company service providers—that may have escaped notice up to this point in time. It is one loophole closed.

Amendment 69J takes another tack to close loopholes. It recognises that a company can be tracked if it has a UK bank account, but if the company does not, it is much harder to identify that particular company and make sure that the money laundering authorities can give it due and appropriate attention. In the proposed new clause, if an entity falling under the Companies Act 2006 does not have a UK bank account, it will have to provide a fee. The reason it should provide a fee is that it means that the cost of doing due diligence falls not on the UK taxpayer but on the company. That provides every incentive and every opportunity for the various authorities to pay due attention to that company. That is another loophole closed.

That fits brilliantly with the new clause proposed by the noble Lord, Lord Naseby. I will let him explain that because he will understand it far better than me, but again it highlights the importance of due diligence which flows through the first two amendments that I have described. Due diligence is vital to make sure that those entities that are active in the UK have very limited opportunity—or, preferably, no opportunity—to engage in nefarious activity.

Finally, Amendment 69L directly addresses that issue that was raised by the noble Lord, Lord Eatwell, and others. As noble Lords know, we have a public register of companies here in the UK, but the Government have never used a verification procedure. I understand why they have not. When a register is public, it is transparent. Journalists, NGOs, and members of the public have the opportunity to trawl that database, and that provides for many additional eyes to look through the material. That is exceedingly important, but perhaps it is not sufficient. At this point in time, issues of tax avoidance, tax evasion and money laundering have become far more significant—and on a far more significant scale. This is the time to turn to the supervisory authorities and give them the power and the wherewithal —the wherewithal probably being the critical element—to do verification and proper due diligence on that register.

That is the purpose of the three new clauses proposed in my name and that of the noble Baroness, Lady Bowles. They are to close the kinds of loopholes which leave the UK open to regular criticism that we talk about cleaning other people’s houses but we have not done what is necessary to clean our own. Read those together with Amendment 69 and you have a package that makes a very fundamental difference—one I am sure ought to be acceptable to the Government. I beg to move.

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[Lord Bates]

I do not accept that all we are doing is describing a problem. We are of course doing that, but we are also highlighting that we are about to formally establish the office for professional body anti-money laundering supervision, which will be responsible for supervising the very professional body of trust companies to which my noble friend was referring. We will have to keep an eye on and watch out for this issue, but we are certainly not complacent about it; we are aware of it and watching it carefully.

[Baroness Kramer]

My Lords, perhaps I heard the same speech that the noble Lord, Lord Naseby, heard, because it seemed to me a speech in which basically all the loopholes were recognised. The argument was that we cannot do anything much about it. We have to co-operate with international regulators regarding companies based overseas with no UK presence that take advantage of Companies House; and regarding companies that go directly to Companies House, never get noticed again but, under the radar, can behave inappropriately. Some of them are entirely legitimate, I am sure, but within that pool there are bound to be some that are behaving very inappropriately.

Having recognised that there is a loophole, I am not vested in one set of answers to how we close it, but it needs to be closed. If the Minister has problems with the drafting or the way various phrases have been laid out, or if there are various other issues, surely all of those can be overcome once there is a decision in principle that this is a loophole and we ought to close it. I hope there is an opportunity for a conversation before Report, because I suspect that this House would be rather uncomfortable with walking away from a Bill like this and leaving a large and acknowledged loophole on the books and in the system. I beg leave to withdraw the amendment.

Amendment 69H withdrawn.

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[The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)]

My Lords, we are coming to the end—this is the last group. The noble Baroness has given a detailed exposition of the reasons behind the proposed amendments. I can say quite clearly that the Government do not agree with her position. She used phrases such as “the Government going it alone”. Throughout the Committee stage—and today with my noble friend—I have articulated the fact that with the FATF we have led the way. These are areas where Britain is ahead of the curve, not behind it. Perhaps I can answer some of her questions directly, and I will also look carefully at her contribution in Hansard.

Schedule 2 provides further detail on the scope of the anti-money laundering and counterterrorist financing regulations that can be made under Clause 41. Paragraphs 1 to 17 of this schedule confirm that regulations made under Clause 41 can cover the topics already addressed in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

The noble Baroness quoted a few paragraphs. I will quote a few in return. For example, paragraph 4 confirms that regulations made under Clause 41, which she referred to, can require prescribed persons to take specified actions in relation to customers in prescribed circumstances.

The money laundering regulations 2017 currently give effect to the international standards set by the Financial Action Task Force and EU law, by including provisions of this type which require regulated firms to conduct varying levels of due diligence on their customers on a risk-sensitive basis. Further, and for example, paragraph 7, which I think the noble Baroness also mentioned, confirms that regulations under Clause 41 can confer supervisory functions—and corresponding powers—on supervisory authorities, such as the FCA. Other paragraphs within the schedule similarly clarify or supplement other aspects of regulations under Clause 41. For example, paragraph 18 provides that regulations made under Clause 41 cannot provide for criminal sentences that exceed the statutory maximums already established through the money laundering regulations 2017. Section 7 of the Proceeds of Crime Act 2002 provides for longer prison sentences of up to 14 years; these provisions should be seen in that wider context.

Finally, the noble Baroness mentioned paragraph 20 on a few occasions. This paragraph confirms that regulations made under Clause 41 may make provision corresponding or similar to the money laundering regulations. Sub-paragraph (2) also confirms that regulations made under Clause 41 can be used to amend or revoke the money laundering regulations. Indeed, this is exactly what was done when the money laundering regulations came in to replace the 2007 regulations. This is not something new that has been created.

[Baroness Kramer]

When the money laundering directive came in, there was, through the cascade mechanism, a framework within which the regulations sat. Will the Minister at least acknowledge that that framework is the missing piece here? Does he acknowledge that the cascade structure, which was a backbone to make sure that the framework and the principles were translated down through the system, is also missing here? Amendment and revocation had to be within that context, with those constraints and principles. The new amendment that he quoted has no such constraint or principle sitting around it. That is the whole point that everyone is attempting to make in this discussion. He needs to tell us why the Government have chosen that route, where those frameworks, principles and backbones are eliminated.

Sanctions and Anti-Money Laundering Bill [HL]

Baroness Kramer Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 21st November 2017 Lords Chamber

The Bill provides a number of other in-built protections. In particular, it provides for an annual review of each sanctions regime against the purpose it was put in place to achieve, which will involve looking at the current global picture. It also provides for a broader triennial substantive review of all the designations under the regime. Further, the Bill provides safeguards to ensure that the Government do not act unreasonably when imposing sanctions on individuals, including evidentiary thresholds and opportunities for reassessments and challenges.

[Baroness Kramer (LD)]

Perhaps I may ask the Minister a question to address a lack of clarity. A moment ago, he basically said that one of the checks would be that either or both Houses of Parliament could vote against the SI brought forward by the affirmative procedure. The last time I was in this House and we on these Benches sought to do so with an SI, the consequence was a review on removing the powers of the House of Lords to act under such circumstances. Indeed, I have frequently heard language suggesting that to vote against an SI is a complete overreach of powers. Is this a change in the Government’s position? Is there any way in which this could be enshrined? It is rather fundamental to the discussions we will have not just today but on future occasions.

[Lord Ahmad of Wimbledon]

As the noble Baroness will know, I have stated the position as it is. Of course it is within the powers of both Houses to vote against—that is the whole point of having statutory instruments that are presented to both Houses. This is not just about the House of Lords; I mentioned the House of Commons as well.

[Baroness Kramer]

Can I just confirm that the Government’s response to any such move would be exactly as we saw before? That is an important piece of information for this House to know. I believe that that is what the Minister has just confirmed.

[Lord Ahmad of Wimbledon]

I have stated that the position is as it is now. I know the noble Baroness is seeking to develop arguments that we have had on a previous occasion, but what I have stated is the position as it exists. The noble Baroness talked about it being enshrined in law. Currently, that is how affirmative instruments and statutory instruments work. I am sure she is fully cognisant of that fact.

The noble Lord, Lord Lennie, said that the amendment would not inhibit the Government in any way. But as I was saying—to give further explanation and clarity, if I may—changing “appropriate” to “necessary” would effectively force the Government to use sanctions only as a last resort. Let me assure noble Lords that by saying that I do not mean that sanctions are never our first option. It is important that the Government of the day have some flexibility in deciding when and how sanctions should be deployed. We would not want to find ourselves in a situation where we could not use sanctions in the early stages of a crisis and instead had to allow it to escalate until the necessity of sanctions could be demonstrated.

Moreover, sanctions work best when agreed multilaterally. To be required to demonstrate that other options have been exhausted and sanctions are therefore necessary would leave the UK more constrained than our allies and international partners in our ability to agree and deploy sanctions. It would be a high bar to meet, especially in cases where we may wish to impose sanctions as part of a multilateral agreement with allies in areas where there is no direct risk to UK citizens or direct impact on UK interests. Too high a bar could prevent the UK acting in these areas. This could not only reduce the ability of the UK to continue to play a central role in international affairs but reduce the effectiveness of the sanctions measures themselves. For example, financial sanctions against Russia—

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[Lord Ahmad of Wimbledon]

I thank the noble Lord for his late but important contribution. As I said to the noble Baroness, Lady Kramer, I was stating the position as is, regarding the context in which both Houses of Parliament can vote on statutory instruments. In the case of your Lordships’ House, it is clearly laid out in the Companion as well. Let us also put this into context: if a sanctions regime were being proposed and it were voted down in both Houses, the sanction itself would fall and would not apply. The context is not something that can be ignored. In the context of the second question, the noble Lord—

[Baroness Kramer]

May I ask for a clarification? The Minister just said the context could not be ignored. Is his conclusion that it is inappropriate for a statutory instrument related to sanctions ever to be voted down by either House? Is that the conclusion that we are to draw from his comment?

[Lord Ahmad of Wimbledon]

Perhaps I can read into what the noble Baroness seeks on this occasion. This is not an issue about both Houses or affirmative instruments. The position I have given is not the Government’s position; it is the position as it stands now. If she needs further elaboration, I respectfully refer her to the House of Lords Companion.

To return to the noble Lord’s final question, if I may, I will write on the specific issue that he raised for the purpose of clarity for all Members of your Lordships’ House.

Trade and Investment

Baroness Kramer Excerpts

Monday 15th June 2015 Lords Chamber

[Baroness Kramer (LD)]

My Lords, on the night of the general election, the noble Lord, Lord Maude of Horsham, and I sat for a time on the same panel for the BBC—of course, he did not yet have his title. I cried; he smiled. However, it gave me the opportunity to welcome him to this House, even though, very discreetly, he said absolutely nothing. It is a delight now properly and formally to welcome him to this House. I listened with enthusiasm to his opening speech in which he talked abut cross-party working. Many aspects of export and investment are commonly supported around this House and are areas on which we can work constructively together.

Many noble Lords talked about the importance of the WTO and bilateral free trade agreements, as did the noble Lord, Lord Maude. There has been much discussion of the EU. The noble Lord, Lord Maude, will have heard my noble friends Lord Stoneham and Lord Clement-Jones, the noble Lord, Lord Davies of Stamford, and other noble Lords talk about the importance of having an early resolution of the uncertainty that hangs over our role in the EU, given the inhibiting effect of that uncertainty on investment. However, I suspect that the noble Lord, Lord Pearson of Rannoch, does not agree with their views.

The noble Earl, Lord Caithness, spoke in support of the potential that the EU offers the UK. In my role as a Transport Minister, which is sadly over, I had the opportunity to go to Asia and meet a number of companies that have made very substantial investments in the UK, and which promised future investment. However, they are hanging back on making that decision until they are certain what role we will play. It was very clear to me that they considered it crucial that we remain in the EU. Many of these major investors have plants and operations right across continental Europe and are constantly deciding where they will invest next. We cannot be certain that it will be the UK if we decide to exclude ourselves from one of the largest and wealthiest markets on the planet.

We have heard today of many success stories. The noble Lord, Lord Kakkar, talked about extraordinary success stories in healthcare and life sciences, and urged further support. No one can match the enthusiasm of the noble Lord, Lord Bilimoria, but he underscored an issue often raised in this House—namely, the importance of allowing immigration. Home Office policy is constantly to restrict and restrain immigration to the “tens of thousands”. However, we know that such a policy starves the key industries that we require to enable our economy to grow. We look to the noble Lord, Lord Maude, to fight the corner for UK business and the economy around the issue of immigration.

I wish to take a few minutes to pick up on the issues of SMEs and exports. Like the noble Lords, Lord Empey and Lord Popat, I had the privilege of serving on the Select Committee. Indeed, the noble Lord, Lord Popat, had the idea of setting up the committee, which was brilliantly chaired by the noble Lord, Lord Cope of Berkeley. Given the work we did on the committee, it was a shock to me to recognise how crucial to UK exports the SME sector continues to be. The report states:

“Our great companies are already highly successful worldwide, but many are wholly or partly foreign owned and for a step increase in exports we must look to our SMEs”.

However, in the transport field that I know well, which I think is not dissimilar to other fields, over the last couple of decades we have lost most of our British-owned tier 1 companies. Although our SMEs are still successful in the domestic supply chain, they find it very hard to participate in projects overseas because they are not part of the natural global supply chain for companies that now own what were once UK tier 1 companies. I am sorry not to be quite clear in saying that but it is an ongoing problem that our small SMEs manage to operate in the UK supply chain but find it very difficult to then follow a company as it exports overseas and to participate in the supply chain elsewhere. The noble Lord, Lord Green of Hurstpierpoint, gave excellent evidence to the committee. He pointed out that 5 million SMEs in the UK export something like £100 billion a year and that an increase of a mere one-third would eliminate our trade deficit. So the potential with SMEs is huge.

I join others in recommending the report to the noble Lord, Lord Maude. It identifies a number of barriers and contains some important recommendations, some around skills—the noble Lord, Lord Empey, talked about the importance of skills and the lack thereof, particularly at SME level, when it comes to exports. The noble Lord, Lord Davies, talked about the importance of productivity, which, again, ties very much into the skills agenda. The noble Earl, Lord Caithness, too, addressed the lack of relevant skills to provide the basis for our SMEs to drive forward the export sector.

Some issues were not addressed at all in the debate. The lack of export finance on reasonable terms was raised over and over again by almost every SME. Our UK banks are extremely poor at providing finance to SMEs generally but when it comes to providing export finance—and dealing with foreign currency exchange rates, which small companies face; big companies rarely do—their weaknesses become even more evident. Much of the advice we heard was that a company looking for export finance should ignore British banks altogether and try to find a European bank with an outlet in the City of London because it might provide support in a way that no native bank would.

I raise this issue particularly at this point in time because we are about to divest ourselves of RBS. I have raised it before and it is one of my eternal frustrations that we have not restructured that bank in a way that meets the gaps within our own domestic banking sector, whether it is community banking, regional banking or a capacity to really deliver hard on export finance for the SME sector. I wish the Government would take the opportunity to look at that set of issues again before an opportunity is lost for ever.

The committee also looked at the UK Export Finance programme. In 2012 it was just starting to have some programmes potentially targeted at the SME sector. Perhaps the Minister can fill us in on how successful that programme has been because, quite frankly, the take-up when we looked in 2012 was virtually negligible. This area is critical if we are going to get the growth in exports that we seek.

Many people, including the noble Lords, Lord Bilimoria and Lord Risby, praised UKTI, and I join in that praise. After neglect for generations, frankly, the coalition turned it into a really effective body with some superb people, but it remained small and its reach remained exceedingly limited. The Select Committee report recommended a fund for LEPs to work with UKTI and introduce it to the relevant SMEs within their territories. I do not know if anyone has taken up that idea but it struck me as exceptionally important.

Of course, in places such as Germany, the Government can reach and talk to small companies, make them aware of opportunities, help them and support them, because they know about them because of their membership of the chambers of commerce. We have a purely voluntary system for membership of chambers of commerce, the result of which is that barely a single company joins. The example that the noble Lord, Lord Heseltine, often quotes is that a chamber of commerce of standard size in Germany will have 30,000 members; a similar one in the UK will have 400. Surely we can use the vast reach of government to try to identify SMEs so that we can at least communicate with them and make them aware of potential opportunities. Government seems to constantly operate in silos, and other government departments could assist us in trying to compile that list and making sure that we have access. Even a simple tick-box, frankly, on a tax form ought to let us know which companies are out there and give us the opportunity to get to them.

I also want to raise what I fear is the constant exhortation for small companies to focus on exporting to the rapidly growing emerging markets. I am delighted if we can help SMEs get to China. The noble Lord, Lord Sheikh, talked about the potential in Africa and the noble Baroness, Lady Mobarik, about the potential in Pakistan. It is crazy that so many companies fail to recognise that we have people with ethnic roots here who could help them to access those markets, because they have the cultural understanding, contacts and specialised knowledge to make that possible. However, it is extraordinarily hard for many SMEs to get into these more distant markets. There is everything from regulation to—let us be honest—corruption, which can be an issue. Frequently, you have to know certain families or be tied to key decision-makers. There is also the whole area of intellectual property. That is surely the reason why one in five SMEs exports to the EU but only one in 20 goes beyond it.

I have talked to a number of SME companies within the transport sector. A highly respected company engaged in accreditation told me with excitement of the sale of one of its products to China. I congratulated it on what would be a growing business but it said, “No, you don’t understand. With China, you make one sale; after that, they have the intellectual property and make the future sales. It is one product only”. I have heard that over and over. We have to tackle these issues and provide appropriate and proper support for SMEs, even when going into the US market. People at one of the companies that we spoke to during the work of the Select Committee sounded very positive about the American market but I happened, by chance, to have a follow-up meeting with them. They had decided that their only way to access their market was in a joint venture because only in that way could they afford to defend their patent. The consequence is that all future exports anywhere outside Europe will now go through that joint venture, not the UK company. We repeat those problems again and again.

Could the noble Lord, Lord Maude, talk to us about how he is reorienting the work that his department does to support SMEs? The large companies will tell him what they need, and they frequently need no help. But we depend for our growth and exports on small and medium-sized companies, which desperately need appropriate support and vigorous resource from the UK Government.