National Security Bill

Baroness Kramer Excerpts

Committee stage
Wednesday 18th January 2023 Lords Chamber

[Lord Hacking (Lab)]

My Lords, I again find myself the only Back-Bencher of my party in the Chamber. This time I cannot claim to be speaking on their behalf, although last time I intervened I felt that I had sufficient support from Labour Members who were not here to be able to speak at large on behalf of the Back-Benchers.

I have an entirely technical point. My noble friend Lord Coaker has tabled an amendment which he described to the House and in the Marshalled List as being intended to probe

“to what extent the Bill furthers the government’s objective to update the Official Secrets Act 1989.”

Of course, in Schedule 16, at the end of the Bill, we see what the Government are doing about repealing—or otherwise—previous Acts, going right back to the Official Secrets Act 1911, as my noble friend Lord Coaker mentioned.

As I say, this is a technical matter. I do not ask for it to be dealt with this evening, but perhaps the Minister’s officials and advisers could look at this. When the Bill was before the House of Commons, the Law Commission gave oral evidence and then submitted written evidence. In that written evidence, it took up the issue of the Official Secrets Acts 1911 and 1920 and commented on their provisions. The Law Commission said, in its recommendation 9:

“The offence of doing an act preparatory to espionage should be retained. Save for that, section 7 of the Official Secrets Act 1920 should be repealed.”


If we turn to Schedule 16, we learn that the Bill proposes to repeal those Acts in their entirety. The question is, therefore, why the written report of the Law Commission is not being followed. There are great complications when you start having to sew old legislation into modern legislation, and as I have complained before, the legislative process has become too complicated. This is not something to be answered now. The Minister can be relieved of having to give any explanation at the moment, but I wondered if it could be carefully looked at.

[Baroness Kramer (LD)]

My Lords, I thank the noble Lord, Lord Coaker, for his supportive words on the key aspects of my Amendment 120. Obviously, I have not participated in the broader issues of the Bill, but I think I can say on behalf of my colleagues that we are very impressed by his amendment. The probing character of an amendment, certainly in Committee, is a very important tool to try to get responses from the Government.

Given the late hour, I want to focus specifically on my Amendment 120. We heard at Second Reading—in a sense, it has been repeated at various points in Committee; I have been following this a bit in Hansard—how concerned former leading members of the intelligence community are about the consequences of public disclosure. I think the Government have echoed that. There is one very good way to avoid public disclosure, and that is to have an excellent whistleblowing regime and process. That is exactly what my Amendment 120 seeks to do. I understand that my amendment is not ideally drafted, but my goal is to generate a proper and, I hope, fruitful discussion. That is one of the reasons I am rather sad that those former leading members of the intelligence community are not in their places today, but perhaps they will pick up this issue afterwards.

[Lord Hacking (Lab)]

They are not here this evening; they were here earlier.

[Baroness Kramer (LD)]

Yes, they were here earlier.

My preference would be to create an overarching office of the whistleblower covering all public and private activity, as I have proposed in my Private Member’s Bill. However, failing that, I suggest that much more immediate action could take place within the security and intelligence services.

Whistleblowers are essential in any and every field of activity. People err and power is abused, and whistle- blowing is both the best deterrent and often a necessary step to cure. But organisations so often welcome whistleblowers in their speeches, and perhaps in very general policy terms, but not in the practical reality.

I have to keep a good distance from sources because here in the House of Lords we do not have the power to protect their confidentiality. But over and again, the message comes that, in the security and intelligence services, various schemes—not all, but various and significant ones—are actually dysfunctional. Retaliation happens and is not exceptional, in the form of career destruction and the threat of the use of the Official Secrets Act—it may be entirely inappropriate, but it is a very frightening threat. Follow-up and proper investigation rarely happen. Instead, wagons are circled and retaliation begins.

In this, I have to say that the intelligence agencies are really no different from so many other parts of the public sector. We have to look only at the experience that the Metropolitan Police is currently going through to realise that there is a certain inbred complacency in many organisations. They are certain if you ask them that they have excellent processes in place, but then some event triggers and exposes problems that have lain underneath for a long time.

At Second Reading, I gave an example of a whistle- blower who spoke out using the existing systems to expose evidence that key equipment was being sourced from a hostile foreign power. That person is still suffering the price of a destroyed career.

Also at Second Reading, in explaining that he had worked with the intelligence community for more than 40 years, the noble Lord, Lord Ricketts—I think quite unwittingly—gave another, even more serious illustration of the dysfunctional nature of the system. Referring to the earlier speech that day of the noble Lord, Lord Tyrie, and his reminder that in regard to extraordinary rendition

“Britain appears to have been involved in at least 70 cases, according to the 2018 ISC report”,

the noble Lord, Lord Ricketts said,

“in my experience, the men and women of the intelligence community were profoundly shocked by the revelations of what had happened in those fraught months and years after 9/11.”—[Official Report, 6/12/22; cols. 137-39.]

I am sure that some people, including the noble Lord, Lord Ricketts, were profoundly shocked, but with at least 70 cases, a significant number of people, including those at senior level, must have known, knew it was wrong and either decided or were persuaded to do nothing, because of misguided loyalty, a culture of cover-up and fear that retaliation would destroy their careers.

Speaking out is frightening, disloyalty being the least of the accusations that typically follow. Each person to pluck up the courage to speak out needs to know exactly who they can go to to speak safely and how they can initially do it—most of them wish to do so anonymously initially. They cannot turn for information or advice to a colleague, as that exposes who they are. They cannot go to a senior person, as that exposes who they are. They should never look on the intranet or internet because that is traceable. Even in the health services, nurses use burner phones to report wrong behaviour. A whistleblower has to be absolutely confident that the person they speak to has both the will and, even more importantly, the authority to follow up and investigate an act. That is what whistleblowers look for.

However, it is much more than that. Confidentiality, which is often seen as the greatest protection for a whistleblower, is almost impossible to sustain once an investigation process starts, because the issue and the information themselves direct anyone who is interested to the identity of the whistleblower. So it is absolutely crucial that any person or body that a whistleblower goes to can provide them with protection or, where things go wrong and there is retaliation, with redress.

--- Later in debate ---

[Lord Evans of Weardale (CB)]

My Lords, I must confess to being rather puzzled by some of the detail in Amendment 120 in the name of the noble Baroness, Lady Kramer. When I got to proposed new subsection (4), I assumed that the office was intended to be a regulatory body ensuring that the whistleblowing arrangements with regard to national security were appropriate; however, it subsequently became clear in proposed new paragraph (b) that it was intended to be the whistle- blowing channel. Those seems like slightly different roles to me.

I am also puzzled as to why there is a proposal here for a whistleblowing channel that is in fact very narrow. It relates only

“to the commission of an offence under this Act”.

I would have thought that, if there was a need for a whistleblowing channel—

[Baroness Kramer (LD)]

Perhaps I can help the noble Lord. Amendments must be written to be in scope; it is sometimes quite limiting.

[Lord Evans of Weardale (CB)]

I thank the noble Baroness very much for that clarification; in that case, the amendment certainly needs some amendment itself.

I am also puzzled as to the route proposed that any disclosure, particularly from one of the intelligence agencies, can go to any public authority. Again, that seems a surprising route for a whistleblowing channel for somebody in the intelligence and security agencies.

More particularly, and more importantly, I absolutely fail to recognise the culture of cover-up that the noble Baroness, Lady Kramer, cites. Having worked in the Security Service for 33 years, I am confident in saying that, far from there being a culture of cover-up, there was in fact a strong willingness to speak up, as far as I could see. There was strong and, at times, fairly heated internal debate on some of the ethical matters that have been cited in this debate. So I do not believe that the characterisation of the intelligence agencies we have just heard in any sense accurate. Although the noble Baroness, Lady Manningham-Buller, gave the complete list of everybody to whom a member of the agencies could go, I think that almost anybody in the agencies would recognise their ability to go to the internal ethics counsellor—a role that plays an important part in actively encouraging debate of these issues—who has a direct right of access to the director-general of the day; I am sure that that would still be the case. That role has now extended from the Security Service to the other intelligence agencies. Also, it was clear and straightforward how you obtained the contact details for the external counsellor who acted as a whistleblowing channel directly outside the service. Of course, that was put in place specifically because of previous concerns that there was no such provision, and it was reflected in the legislation of the day.

I feel that the detail of this amendment is not clear —certainly not to me. The need for this amendment has not been made clear, in my view, because it is based on a rather misleading characterisation of the internal culture of the intelligence services. In my experience, there has been considerable focus on ethical matters and the ability internally to debate those.

Banks: Forged Customer Signatures

Baroness Kramer Excerpts

Monday 16th January 2023 Lords Chamber

[Lord Sharpe of Epsom (Con)]

The noble Lord makes a number of fairly grave and unfounded allegations. The relevant experts in the NECC have been assessing the extensive material provided; he knows how extensive it was. The NECC has extended its review as new material has been supplied, but, recognising the complexity of fraud cases, I hope that all noble Lords will understand the length of time that this has taken. As I say, the NECC is in the process of notifying the complainants at the moment.

[Baroness Kramer (LD)]

My Lords, does the Minister recognise that both the regulators and the enforcement agencies are seriously underresourced in tackling wrongdoing in the financial services sector? Will he support our proposals to distribute the fines from financial services-related prosecutions to the regulators and agencies in order to beef up their capacity?

National Security Bill

Baroness Kramer Excerpts

2nd reading
Tuesday 6th December 2022 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I do not normally speak in national security debates, and I bow to the far greater expertise of everybody else involved today, but I could not let this Bill pass without intervening to call for the insertion of a clause to provide proper protection for whistleblowers speaking out in the public interest. Some in the House may know that I focus on the issue of whistleblowers across a wide range of activities.

I recognise that this is a subset of the much broader issue of public interest disclosures, but I would argue, and would say this directly to the noble Lord, Lord Ricketts, that where there are human beings there will be wrongdoing, and where there is power there will be abuse. It is rarely exposed unless a whistleblower brings it to the surface and takes the risks associated with that.

The noble Baroness, Lady Manningham-Buller, said that whistleblowers could go to various individuals to make a protected disclosure. Let me say to her that of the three she named I could not identify one who could do what the whistleblower wants most: to guarantee an investigation of the issue raised. She mentioned the ISC, and we have heard now from both former and present members of the ISC that it is extraordinarily difficult for that body to access the information needed to carry out an investigation.

Therefore, without the mechanisms in place that link the whistleblower through to a process of investigation, most whistleblowers are going to hold back and decide not to speak out, and I would argue that that is very much to the detriment of the national interest.

However, it is also vital to protect whistleblowers, and none of the three powers that the noble Baroness mentioned can provide that protection. They can provide confidentiality but, frankly, keeping a whistleblower’s identity confidential is near impossible. The character of the information alone usually identifies who has spoken out. In addition, people who see something going wrong mention it to colleagues, managers and others whom they work with, and it becomes very evident very quickly, in almost every case, who is the relevant whistleblower. Existing legislation that requires going through an employment tribunal fails whistleblowers extensively. I will not go through that argument in detail today—I have in other places. Of course, even at its best, it only actually covers workers, whereas whistleblowing comes from a wide variety of people: suppliers, contractors and temporary staff—all kinds of people who are engaged around a process and see behaviour that they know needs to be called out. My fundamental argument is that every day that there is not adequate protection for whistleblowers is a day when somebody sees something that they should call out and decides that the price of doing so is too high.

If you are in some sector such as finance, the National Health Service or even the Metropolitan Police, and you speak out and there is retaliation against you, at least that is only losing your job or perhaps being blacklisted for your entire career. However, once this happens in the context of national security, the whistleblowers I hear from—I am careful not to get their names, because I am not a prescribed person, but I am aware of their experiences at second and third hand—are usually told that they will face retaliation through the mechanism of the Official Secrets Act, which, as everyone in the House will know, carries criminal penalties.

I decided to cite one case, and I was careful in choosing it so I do not expose any whistleblower to retaliation, which currently is a real fear. This is far from an isolated case. I am aware in general terms of the case of a whistleblower working for a subcontractor to a global brand, cleared to the highest level, who tried to disclose that work was being subcontracted to a hostile power, with serious national security consequences. The whistleblower was of course fired, threatened with lifelong career destruction and with the Official Secrets Act. After a long delay, a period of complete unemployment for the whistleblower and a bogus investigation by the contractor, the message eventually, through the whistleblower’s constant persistence, reached the right people inside the Ministry of Defence, and I understand that a proper investigation is now under way. However, obviously the whistleblower has suffered huge detriment and there seems no possibility that that will ever be reversed. I suspect the public will never know the harm done in just that one particular case. What I think has shocked many of us is that this process seems to be regarded as “just to be expected”, and in this wider sector of national security, the various mechanisms in place available to whistleblowers such as helplines are, frankly, regarded as anything but helplines. To me, it is totally unacceptable not to provide that protection for those who make disclosures which are fundamentally in the national and the public interest.

In the Commons, Kevan Jones MP and eight others attempted to introduce a public interest defence, but it was not even debated. However, I hope in this House, with its very different set of rules, we will be able to try to craft a series of amendments that will allow at least a detailed debate.

I have in Committee a Private Members’ Bill, the Protection for Whistleblowing Bill, that will deal with many of these issues. I will not go through that Bill today but, frankly, I have relatively limited hope of the Government taking up this Bill, even though every time that I raise this with Ministers, in area after area, they acknowledge that protection for whistleblowers is exceedingly limited, that something needs to be done and that there will be a review, but that it will be in due course.

I recently joined the All-Party Group on Extraordinary Rendition, which made me aware of the case of Jagtar Singh Johal. Again, with that whistleblower experience, I looked with real concern at Clauses 82 to 86. When you spend as much time as I do in dealing with attempts to gag disclosure of wrongful behaviour, you spot the tricks. Here they are, in clause after clause, limiting access to civil justice for redress, deliberately using sweeping language to deny legal aid, and none of that adding to the safety of the UK but rather adding to the safety of those who have abused their position.

I thank the same organisations that perhaps spoke with the noble Baroness, Lady D’Souza—Retrieve, Redress, Freedom from Torture, Survivors Speak OUT, Rights and Security International, and OMEGA—for the high-quality briefings that they have provided. I am a novice in this area, but I will push the issue of protection for whistleblowers. It is fundamental in a democratic society.

Corruption in the United Kingdom

Baroness Kramer Excerpts

Thursday 13th October 2022 Grand Committee

[Baroness Kramer (LD)]

My Lords, I join those congratulating the noble Baroness, Lady Jones, on obtaining this debate. I wish it had a much wider audience. It really ought to be taking place on the Floor of the House because corruption, particularly in political life, impacts everything we do. I listened to the noble Baroness, Lady Jones, talk about the VIP lane that we were all aware of as a fast lane for friends and family to get PPE contracts during Covid. For many of us, that was almost the nadir of a collapse in standards. As we look far more broadly, every speaker so far has raised issues of that kind of corruption, all the way through even to our procedures, which now allow this structure of skeleton Bills and policy disguised in the form of statutory instruments so that it is not subject to refusal or amendment. So many areas need to be tackled.

In this country we are particularly vulnerable because we tend to be quite complacent. We believe that we, the British, may have our problems but we are so much better than everybody else. Having some real debate in the House, with major attendance, might persuade people that instead of resting on what we perceive as our historical and iconic laurels, we need to examine what we do in almost every aspect. I will pick up the focus that the noble Lords, Lord Sikka and Lord Evans, pursued and the other speakers touched on: the financial services sector. It is the one I know best.

The right reverend Prelate talked about the way in which we ignored the London laundromat. We tut-tutted about it but knew that oligarch kleptocrat money was flowing into the City and that it was a major facilitator, but until the invasion of Ukraine the Government were not particularly interested in taking any action. The legislation in the first round of the Economic Crime (Transparency and Enforcement) Bill had been sitting in an in-tray for at least a decade. It was ready to go and might, had it been introduced in time, have had a more significant impact in stemming that ongoing development of corruption.

When we passed the Economic Crime (Transparency and Enforcement) Bill, at the heart of which, noble Lords will remember, was the creation of a register at Companies House of overseas beneficial owners of property in the UK—one of the main mechanisms for washing dirty money—we put in place no meaningful verification system. I understand that there is some strengthening in the economic crime Bill version two, but I want to ask the Minister about that, because I am extremely worried that it seems to outsource to third parties the role of providing verification. I am not clear that there is command and control with the registrar of Companies House or whether the registrar has been given the resources to make sure that verification, which is critical, is effectively enforced.

I am focusing on the registration scheme as a narrow example. It relies heavily on enforcement. This issue was well described by the noble Lord, Lord Evans, in a broader context, because that enforcement has to come from the National Crime Agency. It has 118 staff in total to investigate financial crime despite the complexity of the issues. Frankly, the power of the enablers—the lawyers, accountants and property developers, all of whom are involved in money laundering—is often overlooked. They are capable of fighting back against any enforcement agency and making life extremely difficult. I do not understand why—perhaps the Minister can tell me—we do not say that at least some portion, if not all, of the money that comes from fines, forfeitures and confiscations of the wrongdoers should not flow back to the National Crime Agency, the Serious Fraud Office and even, when they are engaged with it, to local police forces because we might finally have a sufficiently funded resource to take action against corruption. We must also focus on those enablers. I do not understand why we do not have a failure to prevent anywhere that I can find in the economic crime Bill. They must be dealt with, and they must understand that they will pay if they engage in facilitating corrupt behaviour.

We also have a problem at the regulatory level, and again I will focus on the financial services area. Frankly, the Financial Conduct Authority and even to some extent the PRA are a busted flush when it comes to any kind of enforcement. I have two quick examples. One is HBOS. I sat on the Parliamentary Commission on Banking Standards and listened to weeks of evidence on the collapse of HBOS. It collapsed because senior management, including the last two CEOs, dropped credit standards to a ridiculous point so that they could grow their loan portfolio like mad, which of course resulted in very high bonuses in their take-home packets. They also funded the bank in the overnight markets, giving it no stability. The FCA and PRA came out this summer with a complete whitewash of the senior management. Obviously, a few junior people have been thrown to the wolves, but the senior management has walked away and has not being declared unfit. In the Libor scandal, which no one ever dares refer to these days, ordinary borrowers and businesses across the globe—because something like 60% or 70% of all lending was priced off Libor globally—will have last quadrillions of pounds, dollars, yen and other currencies in lending because false submissions were made to establish the Libor benchmark. Those submissions were deliberately falsified to enhance bank profits and the bonuses of senior bankers, and no one at senior level has ever been declared unfit as a consequence of all of that.

I am out of time but there is so much to be done. I would have liked to address whistleblowers, who are very badly treated under our current system, and I will say just one quick thing before I sit down. I ask the Minister to read my Private Member’s Bill on creating an office of the whistleblower to champion and protect whistleblowers. It is a mirror of a Bill produced by a member of his party down in the House of Commons. If we do not act on those people who are the citizen’s army that deters crime, we will never come to grips with the corruption that exists.

Intelligence: Russia

Baroness Kramer Excerpts

Monday 31st January 2022 Lords Chamber

[Baroness Williams of Trafford (Con)]

I think he kind of talked about both: visas and money coming into this country. He will know from legislation that I brought in previously that, through unexplained wealth orders and things like that, we are doing everything we can to stop the flow of illicit finance in this country. I cannot comment further on golden visas, except to say that we are very, very careful about the visas we issue and the people we let into this country.

[Baroness Kramer (LD)]

My Lords, speaking of legislation that has not appeared, will the Minister acknowledge, as other Ministers have, that the Bill providing for a public register of the beneficial owners of property in the UK has been ready to go for weeks but has not yet been introduced in this House? Will she also confirm that the intelligence services have no hope of dealing with what is known as the London laundromat until that Bill becomes law, when civic society across the globe and activists can assist the intelligence services in getting to the bottom of these chains of ownership that lead, in the end, to oligarchs and kleptocrats?

[Baroness Williams of Trafford (Con)]

The noble Baroness illustrates some of the complexities around state activity. She is absolutely right—I recall her being involved in the Bill—and the Government have made a start on this. We have things such as unexplained wealth orders in place, and we will be bringing forward legislation to deal with the various threats that are impeding the rule of law and our economy.

Financial Fraud: Vulnerable People

Baroness Kramer Excerpts

Thursday 2nd December 2021 Grand Committee

[Baroness Kramer (LD)]

My Lords, there is one great advantage of there being a limited number of speakers in a short debate, which is that it really does not make a whole lot of sense for someone in my winding position to go and repeat everything that has just been so well said. I particularly want to raise two issues that I think have not been covered here, and will then make a final comment.

The first is the regulatory perimeter, which determines which activities the FCA regulates and therefore when it will or will not tackle financial misbehaviour by financial firms. The perimeter sets a boundary on regulated activities and has been given as the reason why the FCA has failed to act in so many scandals: the asset-stripping scandal of the RBS Global Restructuring Group, which destroyed small businesses and their owners by undervaluing their assets in order to seize them; the mis-selling of interest rate caps to small businesses; the abuse of the Libor-setting system, which mispriced trillions of loans across the globe; and endless investment scandals, of which London Capital & Finance is just one of the more recent.

I join the noble Lords, Lord Davies and Lord Vaux, in saying that ordinary people, even savvy people, usually have absolutely no idea that the financial product promoted or sold to them is unregulated, particularly since other activities carried out by the same firm may indeed be regulated. Pretty much everybody other than a highly sophisticated multinational with a phalanx of lawyers is exposed to financial fraud in one way or another today. Of course, we need some special protection for people defined as vulnerable, as described by my noble friend Lord Sharkey. But, as others have said, today everyone needs financial products just to participate in normal life, so rules based on caveat emptor—buyer beware—which is the backbone of the current system, are simply not good enough.

I have long argued that regulating activities is a charter for mis-selling. If the FCA authorises any activity carried out by a financial company, it should regulate all its activities so that the line is clear. In other words, regulate the firm and all the activities it is involved with. Other countries do it without serious problems.

Following the LC&F debacle, the FCA’s relatively new CEO Nikhil Rathi said that the FCA would change its approach to tackle more effectively the issues of fraud risks that sit outside the perimeter of regulation, but he gave no detail. Will the Minister tell us whether there has been progress? Mr Rathi also insisted that he needed more investment and resources to take on the task. Will he get them? At one time the senior managers regime was touted as a possible tool for tackling such fraud and abuse of clients, but the FCA has used that with such deference that it no longer receives any respect. Will the FCA get new duties and powers?

My second issue is that of whistleblowers and the dreadful way we treat them in the UK. The United States is probably the exemplar of how to value financial whistleblowers. Regulators and enforcement agencies in the US have told me that whistleblowers are the citizens’ army that enables them to clean up and deter bad behaviour in an industry where money creates so many temptations. They are the canaries in the mine, to pick up the point made by the noble Lords, Lord Davies and Lord Vaux: early action is absolutely critical when fraud begins to arise.

Financial whistleblowers in the US are protected from both retaliation and financial ruin. California has just enacted another step, a new law called “Silenced No More”, to prohibit the use of non-disclosure agreements that are so often embedded in any employee settlement as a gagging clause. Now the EU is moving in the US direction. The UK, once a leader in protecting whistleblowers, is now one of the most risky developed countries in which to speak out. I have complained before that whistleblowers to the FCA are assumed to be troubled people, not vital informers. They are triaged by call handlers trained in dealing with complaints and with minimal financial knowledge. In contrast, in the US a senior financial investigator does the triage to capture early and critical leads.

The protection that the UK regulator offers a whistleblower is simply anonymity: it will not disclose their name to their employer. But most employee whistleblowers are easily identified both by their specialist knowledge and because most will have raised concerns with line managers and others before turning to the regulator. The regulator then stands aside and offers no support if they are penalised, demoted or fired, and will not even give evidence to an employment tribunal—and woe betide the whistleblower who has to go public and reveal themselves to the press, or even to give evidence to Parliament, because the regulator will not act. The norm for whistleblowers in the UK is years of legal battle and financial and career ruin. Even when settlements are made, typically they rarely cover the extortionate costs of bringing the various cases and attempting to resist retaliation.

Whistleblowing protection, little though it is in the UK, is limited to employees. Advisers, clients and accountants—indeed, anyone else—have no protection at all. I heard just this morning from an IFA who has identified potential fraud at a major insurance company and has been unable to report it to the FCA whistle- blowing team, although they attempted to do so, because he/she—I will disguise their identity—is not an employee. If he/she speaks out, he/she will effectively be put out of business as an IFA.

I have a Private Member’s Bill before the House to create an office of the whistleblower to turn this issue around. But I am not precious. What I want to hear from the Minister today is that the Government will now take serious action and come up with legislation of their own if they dislike mine. If we are going to end financial fraud, we have to unleash all the power of that citizens’ army I talked about.

I will make one last comment, because the next piece of legislation that will be used to deal with at least a subset of these issues—online financial fraud—is the draft Online Safety Bill. I have read the various briefings and it is completely beyond me to understand why actions that facilitate fraud through adverts or cloned websites will not be prohibited by the Bill. I cannot understand why, in the draft, paid-for advertising is explicitly carved out of the scope of the Bill. I have no idea what pressures were brought, but frankly the Government ought to dismiss them, and I would say to the Minister that if she and her colleagues do not make changes to the Bill, I think I can guarantee that both Houses of Parliament will. We have had enough of fraud and we need strong, clear action and leadership. I hope the Minister in her answers today will indicate that that will happen.

Serious Fraud Office

Baroness Kramer Excerpts

Wednesday 13th December 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the ability of this new body to tackle broader economic crime would be greatly enhanced if we could extend the concept of corporate criminal liability, particularly to issues such as money laundering—and the mechanism for that is failure to prevent. Will the Minister include failure-to-prevent clauses in the Sanctions and Anti-Money Laundering Bill going through this House?

[Baroness Williams of Trafford]

My Lords, I am not involved in the Sanctions and Anti-Money Laundering Bill—unlike every other piece of legislation, which I do seem to be involved in. However, I take the noble Baroness’s point. I think the broader point here is that there will be a multiagency response to different types of fraud and that they can perhaps do more good as a partnership than they can as a series of isolated bodies.

Criminal Finances Bill

Baroness Kramer Excerpts

3rd reading (Hansard): House of Lords & Report stage (Hansard): House of Lords
Tuesday 25th April 2017 Lords Chamber

[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.

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Moved by

[Baroness Kramer]

23: After Clause 33, insert the following new Clause—
“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.

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[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.

Amendment 23 withdrawn.

Criminal Finances Bill

Baroness Kramer Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Monday 3rd April 2017 Lords Chamber

[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.

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[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.

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[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.

Criminal Finances Bill

Baroness Kramer Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 28th March 2017 Lords Chamber

[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.

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Moved by

[Baroness Kramer]

71: After Clause 11, insert the following new Clause—
“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.

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[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.

Amendment 71 withdrawn.