Economic Crime and Corporate Transparency
Lord Fox ExcerptsThursday 27th April 2023
(2 years, 11 months ago)
Grand CommitteeRead Full debate Economic Crime and Corporate Transparency Act 2023 View all Economic Crime and Corporate Transparency Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-V Fifth marshalled list for Grand Committee - (25 Apr 2023)
Member’s explanatory statement
This amendment, along with consequential amendments to Amendment 84C, would extend the Government’s failure to prevent offence to all relevant organisations regardless of size. Instead of allowing the Government to amend or remove the applicability to large organisations, these amendments would apply the offence to all organisations by default, with the Government able to restrict it to large organisations by affirmative resolution.
Lord Fox (LD)
My Lords, I rise to speak to the amendments in my name. As the Minister has set out, amendments were brought forward in the other place on Report by Sir Robert Buckland and Sir Bob Neill. The Government undertook to produce their own amendments, which they have indeed done. We should recognise that these amendments, on failure to prevent fraud, are a positive move forward, but they are overdue. Without sounding too churlish, had this offence been in place at the time of the financial crisis, the authorities could have had effective prosecutions during, for example, the Libor and Euribor scandals. So, good news, but there are some qualifications, as set out in my amendments.
The government amendments have a considerably reduced scope in limiting it to large businesses, which was certainly not the intention of the Buckland/Neill process in the other place. As we have heard, there is an exemption for small and medium-sized businesses, but it does not address the fact that SMEs are just as much, if not more, at risk of fraud as big companies. It is just as important to encourage them to have the right procedures in place as it is large companies.
Hence my Amendments 84CA, 84CB and 84CC. Together, they seek to amend the Government’s amendments, extending their failure to prevent offence to all relevant organisations regardless of size. Instead of allowing the Government to amend or remove the applicability to large organisations, these amendments would apply the offence to all organisations by default. However, the Government would be able to restrict it to large organisations by a subsequent affirmative resolution, if experience required them to do so.
The Minister said that small and medium-sized enterprises had been excluded to avoid a disproportionate burden on them. It would be useful for him to explain on what basis that assessment has been made and what evidence there is to support that. We have not seen it, so it would be very useful to know. In my view and that of others, the carve-out for SMEs is short-sighted and unnecessary. The Law Commission did not accept arguments for thresholds to apply to failure to prevent offences in its June 2022 options paper and the House of Lords rejected exemptions for SMEs when scrutinising the Bribery Act 2010. SMEs are not excluded from AML or the National Security and Investment Act, so why have the Government taken this view in this case?
There is also concern that this amendment is limited to offences that take place in the UK or have UK victims. If the offence takes place abroad, in cases where a UK company has failed to prevent fraud and there are no UK victims, UK enforcement agencies would have no grounds to pursue the corporate body. This lack of extraterritoriality is not present in already existing FTP, bribery and tax evasion offences. It is unclear why the Government are creating such inconsistencies in the corporate criminal liability framework. Why have they made this carve-out? There is a lot of expertise waiting to speak on this group, so I will stand aside, except to say that I strongly support Amendments 96, 97, 98, 99, 100 and 101.
Lord Garnier (Con)
My Lords, I thank my noble friend Lord Sharpe for the courtesy he has shown to me and other noble Lords in holding meetings, along with his officials, to explain the Government’s case on failure to prevent and the adjustment of the law of corporate liability. It has been very helpful to have some understanding of where they are coming from and where they intend to go. It is fair to say that he was more forthcoming in those meetings than he was in providing an explanation for the SME carve-out this afternoon. I thank not only him but the noble Lord, Lord Fox, for tabling his amendments, which I support, and for his mention of the amendments I have tabled.
The amendments that I have tabled are exactly the same, almost to the semicolon, as amendments that I have tabled not only in this Parliament, since the 2019 general election, to Bills dealing with economic and financial crime, but also to Bills that I spoke to when a Member of the other place. I have taken an interest in how we deal with economic crime since I became the Solicitor-General in 2010. I appreciate that that was a long time ago and that my noble friend the Minister probably did not have a particular interest in the subject all that time ago. None the less, I appreciate that many will find what I have to say unoriginal, not least because I have said it so many times before but also because it aligns with what others on all sides of the House and in both Houses have been advocating for some little while.
I will first deal with the SME carve-out, which is provided for in one of the government amendments. I suppose it is fair to say that half a loaf is better than no loaf and that a bird in the hand is better than two in the bush. However, after nearly 15 years, following the banking crash of 2008-09, the subject of economic crime and corporate misfeasance has been if not on the top of everyone’s agenda every day then certainly close to it. For the Government to come up with a carve-out in the way that they have—bear in mind that we are only talking about failure to prevent fraud at the moment—is disappointing.
What we are here required to understand by Amendment 84C, proposed by the Government, is that if a company or business has a turnover of less than £36 million, has a balance sheet total of less than £18 million and has fewer than 250 employees, it should not be caught by the failure to prevent fraud.
Lord Sharpe of Epsom (Con)
I thank the noble Lord for that information; I will come back on that.
Lord Sharpe of Epsom (Con)
Absolutely; I shall get my abacus out. I turn to Amendment 101 on senior managers’ liability for failing to prevent economic crime, also tabled by my noble and learned friend Lord Garnier.
I agree that it is important that individuals, particularly the most senior ones, do not go unpunished for their involvement in committing economic crimes. Prosecutors already have a range of powers at their disposal to pursue decision-makers who enable or commit criminal offences in a corporate setting. This includes the power to prosecute individuals for substantive offending. For example, last year an individual was jailed for 12 years following a Serious Fraud Office investigation into a £226 million fraud.
Additional powers also exist which enable senior managers and directors to be prosecuted where they consent or connive in fraud, theft, money laundering or bribery. A director or manager who is convicted on the basis of their consent, connivance or neglect can be dealt with accordingly by the courts, including being sentenced to imprisonment. Also, under the Serious Crime Act 2007, a person, including a senior manager, is liable for encouraging or assisting the commission of a criminal offence. That includes fraud, false accounting or money laundering—the offences captured by the amendment tabled by my noble and learned friend Lord Garnier. The individual found to be encouraging or assisting the commission of the offence can be prosecuted in the same way as if they commit the offence itself.
This amendment seeks to extend liability for senior managers on a lower basis for culpability than is normally provided for. It would allow a senior manager who takes a decision to be imprisoned for taking that decision, even if the offence is the action of a rogue employee. That would place a disproportionate burden on corporations and their senior management, which is likely to deter legitimate business from seeing the UK as a fair and safe place to conduct business. This amendment is therefore not appropriate.
The noble Lord, Lord Coaker, asked about extraterritoriality. Our approach is focused on cutting crime in the UK and protecting UK victims. As he noted, the powers have sufficient extraterritorial extent to do this, even if the perpetrators or the organisation is based outside the UK. Other countries can take steps to prosecute fraud under their own law. As for the precise mechanics of how it would work, it would be on a case-by-case basis, so it is pointless to speculate.
The noble Lord also asked for more detail about guidance. As he knows, we intend to publish guidance setting out reasonable prevention procedures before the offence of failure to prevent fraud comes into force. It will give organisations clarity about what they need to do. It is important that we engage and consult the right stakeholders in this process and that we engage further with the organisations this will impact. Once the Bill has received Royal Assent, we will start engaging with law enforcement, prosecutors, relevant government departments, public sector organisations, trade associations for businesses, other organisations in scope and other experts to draft the guidance.
We anticipate that the guidance will follow similar themes to those seen in many regulatory regimes—albeit that in this case they are not requirements—and to guidance for existing failure to prevent offences. This includes regular risk assessments to establish the level and type of fraud risks to be addressed; establishing fraud controls and due diligence processes designed to prevent fraud or spot it in the early stages before the offence is carried out; leadership and training to ensure that employees implement controls and create a culture within the organisation that does not accept fraudulent practices as a route to boosting performance and profits; and monitoring and review to ensure that procedures remain effective. I am happy to hold further discussions on this subject at the noble Lord’s convenience.
Lord Fox (LD)
My Lords, I think I was right at the very beginning not to speak for long on this set of amendments. Your Lordships filled in for me very adequately and expertly.
The Minister came back with a couple of points that I want to refer to. He explained that aspects of the amendments from the noble and learned Lord, Lord Garnier, were not necessary because there would be duplication. It would be helpful for us to understand that duplication. Perhaps between now and Report he could provide a list of all the prosecutions that have happened with the existing legislation, proving that the new legislation would not be necessary, so that we can understand that his point is correct.
He also talked about the chilling effect on small companies. This legislation is designed to chill fraud. Taking up the challenge set by the noble Lord, Lord Leigh, about his perfectly innocent sweet shop, legislation that excludes that sweet shop will also exclude all the other small companies that are perpetrating fraud. The skill is in the proportionate application of this legislation. To pick up the point made by the noble Lord, Lord Coaker, it is also about the proportionate advice that is being given. Not all companies are getting the same level of advice on how they should approach this legislation. There is no one-size-fits-all approach, as my noble friend Lady Bowles said.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a great pleasure to follow that powerful, comprehensive and, I think, highly persuasive speech from the noble Lord, Lord Alton. I will be extremely brief but, given there was not space to attach my name to this amendment, I wanted to briefly offer Green support. I hardly need to declare my position as co-chair of the All-Party Parliamentary Group on Hong Kong, as the noble Lord, Lord Alton, has already done that, but I will do so for the record.
I just want to make two points. I am perhaps slightly less optimistic than the noble Lord, Lord Alton, who said that if we create this law, the sanctioned individuals will declare. However, this amendment would create a weapon to use against them when they do not. So I would perhaps frame that slightly differently. This really relates to the debate on the previous day in Committee when we talked about SLAPPs. We know the limitations—we have just been discussing the limitations of the resourcing and capacity of our enforcement vehicles. It will likely very often be NGOs and journalists who expose this, but if we bring in the anti-SLAPP rules and this rule, we will see the seizures actually happening and the Bill being effective.
Secondly, through this Bill we are aiming—as we aimed with the previous economic crime Bill—to close lots of loopholes. I assume, however, that not even the Minister will say that, once we have done all this, everything will be fixed and we will not have any future problems. As evidence for that, in August last year the register of overseas entities came in and yet the figures show that little more than half the relevant properties owned by overseas companies have been declared.
We in this Committee are looking at making a difference not just in theory but in practice, and that is what this amendment would do.
Lord Fox (LD)
My Lords, it is a great pleasure to support the noble Lord, Lord Alton, on this amendment. I have supported him on a number of amendments in other areas, and I have learned not to do too much research because however much you have done, he will have said it by the time you get the chance to say it.
The Government have recognised the importance of asset seizure. Back in the heady days of March 2022, the then Exchequer Secretary to the Treasury, James Cartlidge—he has of course moved on since then—said that the Government were looking at
“how we can go further to crack down on illicit money in British property, including considering temporary asset seizures beyond the freezing regime that we already have in place”.—[Official Report, Commons, 22/3/22; col. 147.]
However, that is not an easy task, and this is a bit more than closing a few loopholes. Many experts have flagged risks relating to seizing assets—I am sure that the Minister will remind us of that when we come to it—particularly without the necessary proof of criminality. For assets belonging to individual oligarchs, concerns have been raised over the rule of law, due process and property rights. In the case of state assets, objections include sovereign immunity—something that I think I mentioned in a previous debate—and the fear that other states may withdraw their reserves. This is a big issue, as the noble Lord, Lord Alton, mentioned. When we focus on the Russian sanctions, for example, we see that the UK has frozen billions of pounds of Russian assets under the sanctions following the invasion of Ukraine. The Office of Financial Sanctions Implementation—OFSI—has reported that £18 billion owned by individuals and entities associated with Russia’s regime has been frozen since the beginning of that war. Some estimates suggest that more than £40 billion could be frozen or immobilised if further sanctions were put in place.
However, assets frozen under sanctions are passive. Funds frozen under the UK sanctions regime cannot be retrieved or repurposed. In fact, these should be returned at the end of the war if sanctions are lifted. Meanwhile, as the noble Lord, Lord Alton, pointed out, the UK is asking the taxpayer to fund the war effort and, no doubt, the repair of Ukraine if and when we get to that point. So, there is quite a lot at stake.
Amendment 85 is a way of trying to do this and cut through the complication relatively simply and ingeniously —for which I claim no credit. It seeks to strengthen the UK sanctions regime and find a route that allows us to recover these frozen assets, which have been concealed in the past. As we have heard, the mechanism we propose would impose a duty on sanctioned persons proactively to disclose all their assets held in the UK and criminalise the failure to disclose such assets as a form of sanctions evasion.
If a sanctioned person fails to declare all their assets and further assets are uncovered by the authorities, they are guilty of a criminal offence—sanctions evasion. Those undisclosed assets may then be seized under the Proceeds of Crime Act 2002. This seizure would be subject to the same safeguards that courts currently uphold in criminal and civil recovery processes, following due process and ensuring that any deprivation of private property is not disproportionate to the public interest in seizing the proceeds of crime.
Given that sanctions evasion is already a criminal offence in the UK, this amendment would be a straightforward way rapidly to scale up assets that may be susceptible to seizure. Adding a requirement to disclose all assets held within six months prior to designation would also capture assets such as those set out by the noble Lord, Lord Alton. It is for these reasons that we support this amendment.
Lord Coaker (Lab)
My Lords, I rise briefly to support Amendment 85 from the noble Lord, Lord Alton, to which I have added my name, and to support the comments of the noble Lord, Lord Fox, and the noble Baroness, Lady Bennett.
As my noble friend Lord Ponsonby said, the question for the Government concerns giving teeth to the sanctions regime in respect to designated individuals. If it is not dealt with like this, what do the Government propose to do? There is clearly a gap, sanctioned individuals are finding ways around the law and we are not able to confiscate or seize the assets we want to seize. Criminalising a failure to disclose as a form of sanctions evasion, so that those assets can be seized, as referred to by the noble Lord, Lord Alton, is a very important step forward. Although this is just one amendment, Amendment 85 is really important.
As I said, if the Government do not believe that this amendment is appropriate, what are we going to do about the situations and individuals the noble Lord, Lord Alton, spoke about, and the huge sums of money, which are beyond the scope of the British state to collect from individuals? We all think we should be able to do something about that.
Just so the noble Lord does not feel on his own in being sanctioned, I am sanctioned as well, so we are in good company, as is the noble Lord, Lord Faulks. We could have a sanctions party here.
Baroness Bowles of Berkhamsted (LD)
My Lords, the amendments in this group were inspired by the work of what we call in shorthand the Fraud Act review committee, chaired by the noble Baroness, Lady Morgan. Several members of the Committee were also on that Select Committee. At Second Reading, several of us spoke ahead of the noble Baroness and stole her thunder, so I am going to—
Baroness Bowles of Berkhamsted (LD)
In order not to do the same again, I will concentrate mainly on the mechanics of this first amendment, which is a regulatory failure to prevent amendment. Both amendments in the group are targeted at the same issue—that is, enablers or suppliers of services where the perpetrators, the fraudsters, as has already been explained in the earlier group by the noble Baroness, Lady Morgan, are not associated with the company. Largely, they will be customers, so they fall outside many of the provisions of the failure to prevent regime, as has already been discussed.
In the Select Committee, as well as recommending a failure to prevent criminal regime, we saw the benefit of regulators having powers to intervene, and we broadly favoured there being a comparable regulatory failure to prevent regime. We did not actually say that it was a recommendation because, at that stage, from the evidence that we had heard, we were led to believe—I think this is clear in the report—that the Online Safety Bill might provide a similar result. It is now clear that that is not the case, certainly not with regard to the telecoms operators, so I have tabled this amendment. My amendment has been put in what I call a “sunrise” form where the detail comes from the statutory instruments, which would enable the Government to do the right kind of consultation and specifically tailor the regimes. It could also be done in the light of deferring to whatever happens in all the relevant Bills presently going through, because there are aspects covered in the Financial Services and Markets Bill and the Online Safety Bill as well as this one.
The issue that we are aiming to cover is where the services provided by others are used for fraud, not in active participation by the service provider but in the passive sense, and they are not intervening even when they know that their services are being abused. Email, phone and text scams are the notable examples. While banks have been on the front line of defending against scams and are paying compensation where people have been tricked into transferring money—which is also now being legislated for—it is fair to say that we on the Select Committee were shocked by the complacency of the telecoms companies in particular. We were not convinced that enough, or indeed anything, was really being done. It seemed to be deliberate negligence; there is no other way to explain it.
My amendments would enable the Government to confer on regulators a duty and a power relating to failure to prevent and failure to prevent facilitation of fraud. I am sure that the Minister will say that regulators generally have powers concerning fraud in their sectors already; the Law Commission’s report referenced the case of sewage discharges and Southern Water. However, fraud is not generally stated in regulators’ headline duties. For example, it does not appear in the objectives or principles of the Financial Conduct Authority, which claimed in the instances of fraud around the RBS Global Restructuring Group to be powerless to intervene, although fraud was pretty clear, because business lending was outside the scope of the regulatory envelope.
Forensic Science and the Criminal Justice System (S&T Committee Report)
Lord Fox Excerpts(4 years, 11 months ago)
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Lord Fox (LD)
My Lords, I often start speeches by saying that it is an honour to follow this or that noble Lord, but I have to say that it is absolutely a great honour to follow the expertise that we have heard already, led off by the outstanding speech by the noble Lord, Lord Patel—a counterpoint to his outstanding leadership of the committee in producing this report.
We are here today to celebrate the second birthday of this report. It was published in April 2019, when I was a member of the Science and Technology Committee. The Government responded in July 2019, and it is safe to say that some water has passed under the bridge since that summer. The first thing was the general election in 2019 and then, of course, Covid. The general election means that in fact the Government are a different Conservative Government from the one who made the initial response, although I note that the Minister has remained the same. I therefore assume that the Minister stands by the response that was made by that different Conservative Government and that we are not, as in other cases, dealing with a distancing.
When it comes to the pandemic, the criminal justice system has, like all aspects of public life, come under extreme pressure. The backdrop for discussing this could hardly be more difficult, and that is not only because of the virus. The Lords Constitution Committee set out the issues last month. The pandemic, it said, has left the court system in England and Wales in “crisis”, with a backlog of cases that could take years to clear. Importantly, it also said that a decade of cuts has meant that the court system was already in a “vulnerable” state when the disease outbreak occurred last year. It continued:
“Without adequate resources, technology or guidance, our much cherished justice system remains at risk.”
That report very much reinforces the situation that we are discussing today about the forensic science service. I hope that Covid is not used as an excuse for where we are now.
In their response to the report, the Government were clear:
“The Government agrees that the ‘delivery of justice depends on the integrity and accuracy of evidence’.”
They also said that
“our top priority is to prevent miscarriages of justice.”
Those are both very reassuring comments but, of course, without willing the means, they are quite flimsy. We should therefore ask the Minister whether she thinks the Government are doing everything possible to ensure that evidence is as accurate as possible and whether they are doing all they can to avoid miscarriages of justice. If the noble Baroness, Lady Williams, is frank, as she usually is, I am sure she will be able to indicate that there is work to be done, and it would be important to indicate what the timeline for that work is. Not to put too fine a point on it, as other noble Lords have mentioned, more often than not, justice hinges on forensic evidence. If the evidence is inaccurate or inadequate, justice is compromised, and, as many of your Lordships have said, once confidence in the evidence goes, confidence in the whole justice system is compromised, and that is central to our democracy.
I hasten to add that, thanks to the dedication and hard work of many practitioners, that terrible situation is largely avoided. But I ask the Minister: what about the environment these people work in? Does it have the finance it needs? Does it have leadership? Does it have a structured approach to standards? Is it doing the necessary work to embrace the future? Is there equal access to necessary services?
Many of these points have been covered by other noble Lords, so I apologise for some repetition, but I am going to take each of them in turn. There will be many questions; indeed, there already have been. I hope the Minister will undertake not just to answer as many as possible in her verbal response, but to answer them in writing, and to publish the answers in the Library. She is nodding, which is very helpful.
First, does the forensic science service have the finance it needs? We have heard what the Constitution Committee said about the whole justice system, and of course the forensic science service has not escaped. As the noble Lord, Lord Mair, said, in 2010 some £120 million was spent on forensic science, but in 2019 that had dropped to £50 million to £55 million. Can the Minister tell us what the budget for this year and next year is?
In the Government’s response on the issue of market stability, the role of a special team set up by the National Police Chiefs’ Council within the forensics capability network was highlighted. That team, they said, was going to co-operate across police forces and
“manage commercial strategy; manage contracts; co-ordinate capability building and provides long-range demand forecasts.”
The noble Lord, Lord Griffiths, who is sitting opposite me, knows more about markets than most people, and I hope that the Minister will study carefully his critique of this situation. I had written down, “This is a good way of creating a more effective monopsony”—and that is exactly what is happening. It does not help the structure of the service providers one iota.
What has this body actually done? How many police forces have now bought into the network—and, by exclusion, how many have not bought in? What concrete initiatives have we seen over the past two years in terms of the market, and market structure? How do the Government assess the stability of the market—or who do they rely on to make that assessment for them? I think it was the noble Lord, Lord Winston, who said that some private sector companies had adapted their services to the Covid situation. We need to study this on pure forensic service terms.
The Government also committed to provide
“all budget holders with data and measures to assess the impact of forensics spend on outcomes in the criminal justice system.”
I find that a very intriguing sentence. What outcomes are being targeted? Is it pounds per conviction, or what? What data, what measures, are the Government providing to budget holders, and when will those measures and that data be published?
The second issue is leadership. We have heard categorically from many speakers how our proposal for the creation of a forensic science board was designed to create strategic focus. I am not surprised that Her Majesty’s Government damned the idea with faint praise—or rather, with no praise at all. What they offer instead is an alphabet soup. We have the MoJ, the Home Office, the National Police Chiefs’ Council, the Forensic Capability Network, the College of Policing, the criminal justice boards, UKAS, the Chartered Society of Forensic Sciences, UKRI, the Forensic Science Regulator and, of course, all the companies in the private sector providing the service. I am sure I have missed some out. I have one simple question for the Minister: in the regrettable instance of a miscarriage of justice due to a problem with the forensic evidence, where does accountability lie? With whom does the buck stop?
My third question is: does forensics have a structured approach to standards? In this area I am uncharacteristically optimistic, or I have been led to be optimistic by the noble Earl, Lord Lindsay, who set out the work the regulator is doing with UKAS. However, as other noble Lords have said, the regulator needs the powers and the resources. It would be helpful if the Minister could say where those resources are going to come from—because if they came from a levy, that would be levying an already impoverished sector.
Is the forensic service doing the necessary work to embrace the future? That is a debate unto itself, and we have heard phenomenal contributions from some of your Lordships. The Government’s response raises the prospect of a document that the Forensic Capability Network is creating, a five-year road map to prioritise rapid development in key areas such as DNA and digital innovation. I looked for this document and could not find it. Does it exist? If it does not, can the Minister confirm which five years it is supposed to cover? If it does, can he explain where we might find it?
Finally, is there equal access to the necessary services? This is the most vital single issue. Without equal access, we do not have equal access to justice and without justice we do not have democracy. The report set out the issue of access to forensics for defendants, particularly those on legal aid. As we have heard, the Government said that they were not aware of legally aided defendants being denied access to forensic testing and expert advice for funding reasons. That flies in the face of the evidence that we heard. The chairman of the committee, the noble Lord, Lord Patel, set out a clear case as to why the Government should be concerned about this.
The noble Lord, Lord Griffiths, talked about asymmetry in the market, and there is a very important asymmetry that we have not talked about yet in detail. It concerns the availability of service, and here I cite none other than the website of the Forensic Science Network itself. On the homepage of the network—and in a minute we will remind ourselves how important it is to the Government—it says:
“Welcome to the new network for forensic science in England and Wales, supporting more than 4,000 specialists with critical services, advice and technology.”
So far, so good. We then come to the strapline:
“FCN is the UK’s largest forensic science network—for policing, by policing.”
Watch those words. It reinforces this elsewhere, as is clear if you dive into the question of its purpose. It says that it
“provides much of the evidence that can identify and bring offenders to justice.”
It characterises forensics in that way, while I and the rest of the committee characterise forensics as bringing justice to a court proceeding. That is not the line the FCN takes.
Let us remind ourselves that this is the FCN that is tasked to set out strategies, as we have heard earlier, and that is managing the market for forensics. The noble and learned Lord, Lord Thomas, spoke about the need for independence. This is in no shape or form independence. An independent forensic service is one way of going about gaining that independence; this report goes another way and talks about having a structure that delivers independence. I conclude that this service has not delivered, and not just because of financial starvation; structurally, there is a big problem in the middle of the way this service is delivered, and the Government should very carefully look at this debate and this report.