Economic Crime and Corporate Transparency Bill

Lord Fox Excerpts

Committee stage
Tuesday 9th May 2023 Grand Committee

[Lord Alton of Liverpool (CB)]

My Lords, there has been a change of Minister since we discussed this matter last week when we had a curtain-raiser on Amendment 85, which I moved in Grand Committee. It is always good to see the noble Lord, Lord Goldsmith, in his place; indeed, he had to answer the debate initiated in this Room last week by the right reverend Prelate the Bishop of St Albans. He also had to answer the question about how sanctions can be used to deter autocrats and flag British values against the values of authoritarian regimes; we discussed that issue at some length. As one would expect, the noble Lord gave a competent and welcome reply.

I notice, however, that the Minister’s noble friend Lord Johnson is sitting alongside him—

[Lord Fox (LD)]

No, he is not.

[Lord Alton of Liverpool (CB)]

Oh, is he not? I am sorry; I had better put my spectacles back on.

[Lord Alton of Liverpool (CB)]

I apologise to the noble Lord, Lord Evans. It seems that the noble Lord, Lord Johnson, is still travelling back from Hong Kong, but I can see that the noble Lord, Lord Sharpe of Epsom, is sitting in his place. He dealt with our debate last week; no one in this Committee knows more about Hong Kong than he does, having worked there. He will recall the discussions that we had not just on that occasion but on other occasions as well.

The matter was very much on my mind when reading the reports about the visit of the noble Lord, Lord Johnson. I wondered how the imprisonment of more than 1,000 legislators and lawmakers in Hong Kong has been dealt with during that visit, not least the position of Jimmy Lai, who is a British citizen. Indeed, in this very Room, sitting at the back of our proceedings just a couple of weeks ago was Sebastian Lai, his son. I know from our subsequent discussion that he felt deeply that not enough had been done by the United Kingdom in raising the case of his imprisoned father, who might well die in prison. I hope again as I press the Minister, as I did last week, that he will be able to tell us what the response has been from James Cleverly, the Foreign Secretary, and the Prime Minister, to the requests that have been made. Mr Sebastian Lai, who is also a British citizen, and his international legal team should have the opportunity to discuss his case, the role of assets and why no one in Hong Kong has been sanctioned, whereas British parliamentarians have been sanctioned. Despite the sanctioning of the former leader of the Conservative Party Sir Iain Duncan Smith and colleagues such as the noble Baroness, Lady Kennedy of The Shaws, we nevertheless continue business as usual by promoting closer and deeper business links, as the noble Lord, Lord Johnson, has been doing in Hong Kong. How does that link to the need for us to assess the assets that are held in this country by people who have been responsible for the incarceration of pro-democracy legislators and activists, more than 1,000 of whom are currently in jails in Hong Kong?

The main purpose of the amendment that I moved last week and of Amendment 91A before us today is to concentrate on the sanctions regime that has been imposed as a result of the war in Ukraine. I pay tribute to the Government for what they have tried to do, often in exacting circumstances, after the war erupted, but when I went to see the noble Lord, Lord Sharpe, and a member of his Bill team to discuss this last week, he was very straightforward in saying that there is nothing new in Amendment 91A and that it entrenches the current situation. It could be said to be sending a signal, but legislation is about more than semaphore and sending signals. Will the Minister say what is new in this amendment that is not already on the statute book?

Britain’s sanctions regime is broken, which is why some of the players who have been involved in the appalling events in Ukraine have been getting away with murder. Brave people have been laying down their lives defending not just their own country but our shared values of democracy and freedom. From the outset, we must recognise that our sanctions have always been held back by murky layers of financial secrecy in this country, which is why we need more than what is in Amendment 91A and why I hope that the noble Lord, Lord Sharp of Epsom, in particular, will continue to engage with those who spoke in favour of the amendment that I moved last week—they included the noble Lords, Lord Coaker and Lord Leigh, my noble friend Lord Fox and the noble Baroness, Lady Altmann. I therefore hope that Amendment 85 in its fullness, or something like it, will be put in place of Amendment 91A when the Bill comes back on Report.

It feels like every week we get a new story about this oligarch putting his wealth “in the hands of his young children” or that oligarch shrouding his UK assets behind so many shell companies and opaque trusts that we simply cannot track them down. I mentioned Roman Abramovich as a particularly high-profile example. The so-called oligarch files which were leaked earlier this year revealed how he was allegedly able rapidly to move at least $4 billion of his wealth away from law enforcement by transferring the beneficial ownership of several secretive trusts to his children just before he was slapped with sanctions by the Government.

We do not need to take a much closer look at the network of professional enablers who make this type of wrongdoing possible to see what is involved. There are accountants, lawyers and bankers who wilfully subvert our sanctions regime in exchange for tainted roubles. This is all absolutely legal. We have built a financial services sector in which people have been able to play an interminable game of cat and mouse with law enforcement, where the official owner of a given asset—if we can identify who that is in the first place—can change with little more than a stroke of the pen and no questions asked. Now we are finding that those same people—oligarchs, kleptocrats, call them what you will —know the rules of this game and its loopholes better than we do.

Accepting that our existing sanctions policy is not fit for purpose is important, but right now we can and should find a way to make sure that what sanctioned Russian assets we have managed to identify and freeze are taken away from these oligarchs and put towards Ukrainian reconstruction efforts. As it stands, if the war in Ukraine were to end tomorrow, we would have little choice but to hand back £18 billion of frozen assets to their dubious owners, with no questions asked. This is the distinction between freezing and seizing. We simply cannot allow that to happen. Ukrainian schools, hospitals and homes need to be rebuilt in their thousands and scores of unexploded bombs and mines need to be cleared to do so.

The question for us is whether this amendment goes anywhere at all towards achieving that. The cost of rebuilding the country could top £1 trillion, according to recent estimates. Ukraine’s death toll is 60,000 and rising, with millions more people displaced. Under international law, Russia has to pay for the damage that it has caused, yet so far it is the British taxpayer who has forked out £2.3 billion in military support and another £220 million in humanitarian aid. Secrecy and inertia are enabling this—two main reasons why our sanctions regime is not working and why we need to do more than what is contained in this amendment.

I have sympathy with the Government. The sanctions regime relating to Russia was hastily constructed, as I suggested at the outset of my remarks, in the wake of a conflict that has shocked the world. The seizure of assets that belong to individuals is certainly a complex issue. The rule of law, due process and property rights should all be considered, as I discussed with the noble Lord, Lord Sharpe. This is exactly why the Government must not miss the opportunity in this Bill to make a difference, without violating any of these principles.

Our allies have already put wheels in motion. The European Union is looking to seize €300 billion of frozen Russian central bank reserves and €19 billion in oligarch assets that it holds, while Canada has made good progress on a law to allow the seizure of frozen assets. What study have we made of what is happening elsewhere in the world? Should we not emulate those pieces of legislation and ensure that we act in concert? If the Minister thinks that I am asking the UK Government to go it alone on these things, I can assure him that he is mistaken. I recognise that we have to do this with others, but others seem to be ahead of the game. As it currently stands, I do not feel that this amendment is the way we should proceed. I look forward to hearing what the Minister has to say in response.

[Lord Fox (LD)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Alton. Briefly, I am trying to get a sense of the proportion of this amendment. The noble Lord set a high expectation bar, whereas the Minister seemed to set a low one. I think that I heard the Minister say that it clarifies something that already exists, which sounds a little like fiddling around the margins, so it would be helpful if he could explain what this does that we cannot do already and how many cases will be brought as a result of having this power that are currently impossible to prosecute. In other words, what is this actually for, how many people do we expect it to be applied to and what sort of scale of penalty does he envision would be applied? Without that context, we will all leave the Room feeling that it really is fiddling around the margins. If he could give us a sense of scope and scale, he may be able to send us away with a slightly stronger feeling about this otherwise modest amendment.

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[Lord Goldsmith of Richmond Park (Con)]

I have said that there are “proposals”. It is something that has been proposed, but I am not sure that I can use the word “intention”. If there is a way in which those frozen assets can be used to rebuild Ukraine, it is something that the UK Government will look very seriously at—but it is not something that the UK alone will be doing.

[Lord Fox (LD)]

To make the necessary legislation, the Government would need a Bill in which to do it, and this would seem to be the Bill that is tailor made to have those discussions. Could the Minister encourage colleagues to use this Bill as the medium by which the seizure process may be made legal?

[Lord Goldsmith of Richmond Park (Con)]

I thank the noble Lord, but I do not know what the legislative mechanism would look like to make that possible. I am afraid that it is something that I am going to have to—

[Baroness Altmann (Con)]

I thank my noble friend for giving way. I realise that he is in a somewhat difficult position, but I add my encouragement to him to discuss with colleagues the possible amendments that we have laid—

[Lord Fox (LD)]

Amendment 85.

[Baroness Altmann (Con)]

Yes, Amendment 85 would allow seizure of assets with a view, one hopes, eventually to being able to use them to reconstruct Ukraine in this case, but for other purposes as well. It would be an ideal way to pave the way for this to happen.

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[Lord Trevethin and Oaksey (CB)]

My Lords, having spoken briefly to the noble and learned Lord, Lord Garnier, who regrets that he is not able to speak to his amendment, I think I know broadly what he would have said, and I agree with him. I shall try to articulate it briefly.

The point made by the noble Lord, Lord Cookham, about inequality of arms in this area, is critical. It is very strange and troubling that there have been so few applications of this nature since the jurisdiction came into existence, and the reason, unquestionably, is that the SFO, which is responsible for deciding whether to make these applications, is understandably very wary of the cost consequences of losing.

As the noble Lord, Lord Young, said, by definition, the respondents to these applications will be well resourced. They will retain City firms whose partners charge £600, £700 or £800 an hour or more—and, in responding to the applications, which will tend to raise quite tricky points of fact and complex issues of foreign law, they will swiftly run up legal bills that extend to hundreds of thousands, even millions, of pounds. If the principle that the loser pays applies to these applications without qualification, the cost consequences of losing, from the point of view of the regulator or prosecutor, will be a considerable deterrent to making applications, even when there is obviously a good reason to do so.

The points that I am considering in these short remarks may come into focus later on this afternoon when we discuss another amendment. The reason for me making them now is that it seems to me that the information that would be yielded by the amendment in the names of the noble Lord, Lord Faulks, and the noble and learned Lord, Lord Garnier, would be of great value both to Parliament and to those who make decisions in this area in deciding how the regime needs to be restructured so that applications are made when they should be made.

[Lord Fox (LD)]

My Lords, I will speak briefly because we have heard some excellent speeches from the noble Lords opposite.

I just want to say, observationally, that we have debated a number of different groups where inequality of arms has been at the centre. When we talked about SLAPPs, we talked about inequality of resources. We have just talked about whistleblowing, where it is the same issue, and here we are again. In a sense, the Government are in different places with different elements of this. We need to have some sort of integrated response on how all people can be equal before the law because they can afford to do it—in other words, they can afford not to win, which is the issue here. We have our law enforcement agencies, we have perfectly innocent people going about their businesses trying to blow a whistle, and we have people who are trying to report issues publicly but are being SLAPPed. All of these important elements are being blocked through the inequality in access to the courts.

To refer back to this group of amendments, it seems to me that, if this amendment is not the answer, there must be some other answer. I look forward to the response from the noble Lord, Lord Sharpe, because it is quite clear that unexplained wealth orders have failed to deliver on whatever promise they may have had. Perhaps the Minister can explain how many of them there have been and what exactly the barrier has been, as well as what the cost per prosecution would be; that is an interesting point of view.

In the end, this is about inequality of arms. The first point here is that the Government must recognise that this is an issue; they then have to settle down and find ways of working with people who understand the law in order to eliminate that inequality. Otherwise, most of what we are talking about here will not happen.

[Lord Leigh of Hurley (Con)]

My Lords, I am prompted to rise by the words of the noble Lord, Lord Trevethin and Oaksey. I think he was referring to Amendment 106C, which we will come on to later this afternoon and which would extend the costs cap beyond UWOs. In the certainty that my noble friend the Minister will seek to ensure that Amendment 106C is agreed to, let me simply say that the amendment we are debating now, in the names of the noble Lord, Lord Faulks, and my noble and learned friend Lord Garnier, would be complementary and extremely helpful to Amendment 106C.

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In addition to the UWO report that I have mentioned, the next iteration of the Asset Recovery Statistical Bulletin will be published on 1 September. This will provide transparency on the use of the full suite of powers at agencies’ disposal. I hope that provides reassurance to the noble Lords, Lord Coaker and Lord Faulks, and my noble friend Lord Young, and I therefore kindly ask them not to press their amendment.

[Lord Fox (LD)]

The Minister set out some interesting statistics. It is clear that UWOs have been accountable for a very small proportion of the total amount of money recovered. The Minister referred to them as a powerful tool. Is he satisfied that UWOs are reaching their potential, in which case we would conclude that they are relatively insignificant compared to the other tools in the hands of enforcement, or are UWOs failing to meet their potential and not as powerful as they could be? Clearly, they are not generating very much money compared to all the other tools available to the enforcement agencies.

[Lord Sharpe of Epsom (Con)]

I am not sure that the question is entirely valid with regard to generating money. The fact is that, since their introduction in 2017, four of these have been issued in relation to assets with a combined value of £143 million. In October 2020, property worth an estimated £10 million was recovered, following the use of a UWO, as I have already said. As for whether the scheme is succeeding or failing, it is not for me to say. I am unable to do so, because I do not have access to the operational decision-making that goes into issuing them, and so on. These are operational matters.

[Lord Fox (LD)]

I accept that it is not for the Minister to say; who does say whether they are succeeding or failing?

[Lord Sharpe of Epsom (Con)]

I have already said that we will publish a number of reports on this on 1 September, so I would hope for some more clarity then, but I shall endeavour to find out more information and report back to the noble Lord.

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Moved by

[Lord Fox]

102: After Clause 187, insert the following new Clause—
“Home Office review of the Tier 1 (Investor) visa scheme: publication
Within a day of the day on which this Act is passed, the Secretary of State must publish in full the findings of the Home Office review of the Tier 1 (Investor) visa scheme which relate to economic crime.”Member’s explanatory statement
This amendment would require the Home Office to publish findings of their review of the Tier 1 (Investor) visa scheme.

[Lord Fox (LD)]

My Lords, this is a mixed set of amendments. I do not think that we will debate the philosophy of what a fact is, although we may come back to that in a few minutes. I rise to move Amendment 102 on behalf of my noble friend Lord Wallace and to speak to both an amendment in my name and a series of amendments in the name of the noble Lord, Lord Coaker.

Amendment 102 refers to tier 1 investor visas, otherwise known as golden visas. As I am sure the Minister will jump up and tell me, the scheme was closed relatively recently, but that is not the point of this amendment. We know that the scheme allowed individuals with a high net worth into the UK through the investment of large sums. We also know that, during its operation, it became increasingly clear that there was abuse, or the possibility of abuse. Visa beneficiaries under the scheme largely came from Russia, former USSR states and China, more so than from any other third country. It must have been clear to the Home Office and others that the sources of the wealth of many of these applicants were dubious at best.

The scheme was closed in February 2022. When it closed, the Government promised a review into so-called golden visas, because they were clearly an issue and something that needed to be reviewed so that we could find out what went wrong and ensure that future decisions did not make similar mistakes. It was, therefore, an object of some despair when, instead of publishing the findings of the review in full, the Home Secretary published a Written Statement in January this year with a summary of the review’s findings. The Statement told us what we already knew, in fact, but not much more. The scheme had been used by individuals who were, to quote the Statement,

“at high risk of having obtained wealth through corruption or other illicit financial activity, and/or being engaged in serious and organised crime”.

It also told us that this concerned a

“small minority of individuals”

who had obtained visas under the tier 1 investor route but gave no indication of the actual figures on where a risk had been identified. More than 6,000 visa holders were reviewed. What is a “small minority” of 6,000? How many were at risk?

We also know that 10 oligarchs who had been sanctioned as part of the response to Russian aggression in Ukraine used this scheme. How many more applicants with ties to Putin have been given visas that allowed them to embed themselves in the UK economy and UK society? Are any still in the UK? If so, have they gone through the process of acquiring citizenship? The Statement answered none of these questions.

This amendment would require the findings of the review, where they relate to economic crime, to be published in full. It is a review of a scheme that, according to the Home Office, attracted a disproportionate number of applicants from the countries identified as being particularly relevant to cross-border money-laundering risks faced and posed by the UK. As I said, the scheme benefited Russian and Chinese oligarchs above all. Key questions remain unanswered. Parliament needs to know what went wrong so that we can hold the Government to account in future. We are entitled to know more about what the Home Office conducted in this review and the impetus that it gave to various other elements of what we are seeing now. In other words, has anything learned from the review seen its way into the legislation that we are now talking about? If not, why not?

The refusal to publish either this report or the fuller details of Russian penetration into British politics, which the ISC recommended should be published, makes it difficult not to conclude that the Conservative Government have some significant and embarrassing issues to hide, most probably around donations to the party. If the Minister has nothing to hide, I am sure that he will be able to announce the publication of these reports.

As I said, I also want to speak to Amendment 104 in my name, which has, to some extent, a similar motive to the three amendments proposed by the noble Lord, Lord Coaker. Without putting words in the noble Lord’s mouth, I suspect that, like me, he is an enforcement sceptic. He is sceptical not about the need for enforcement but that sufficient enforcement will support the legislation we have spent all this time debating. My amendment is one way of trying to expose the resources and the effect that they are having. I am sure that the Minister will step forward and tell us that the NCA publishes an annual plan but Amendment 104, particularly subsection (3) of its proposed new clause, sets out a rather different set of things that we would need to know but which are not currently included in the annual plan published by the NCA.

I am quite happy to support other ways of doing this, which the noble Lord, Lord Coaker, is probing, but, at the heart of this, Parliament needs to know how effective enforcement is and that the primary agency running the enforcement process has the resources it needs in order to meet the challenges that it faces. Those challenges are getting bigger, harder and more sophisticated every day. This is one way of exposing whether the resources are sufficient and what Parliament needs to worry about in future in terms of delivering support to agencies so that they can actually enforce these things. I beg to move.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I have attached my name to Amendment 102 in the name of the noble Lord, Lord Wallace of Saltaire. I begin by quoting the noble Lord, Lord Evans of Weardale, who chairs of the Committee on Standards in Public Life. Speaking in this Room last year, he said that

“we have clearly, as a matter of policy, turned a blind eye to the perpetrators of corruption overseas using London for business or leisure purposes”.—[Official Report, 13/10/22; col. GC 156.]

The golden visa scheme was clearly a significant part of that issue, as highlighted by the noble Lord.

I begin by paying great tribute to the noble Lord, Lord Wallace of Saltaire, who has been an absolute terrier—no, that sounds too small. A bulldog is better.

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[Lord Sharpe of Epsom (Con)]

I would say that it is the same thing; perhaps we can debate that as well.

The Serious Fraud Office investigates and prosecutes the most complex cases of fraud, bribery and corruption. That is a very challenging remit. It has delivered some outstanding outcomes. For example, last year, it secured the conviction of Glencore for bribery and corruption in five countries, with the company ordered to pay £280 million—the highest ever ordered in a corporate criminal conviction in the UK—as well as eight convictions for five cases of fraud and bribery worth more than £500 million. It consistently recovers some of the largest amounts of proceeds of crime, despite being a fraction of the size of many other national agencies.

It is also important to note the SFO’s role in fighting economic crime globally. In the last financial year, the SFO took steps to assist overseas jurisdictions in their investigations by working on more than 60 incoming money-laundering requests. I think that the statistics answer the question—yes, we have faith, and yes, it is working. I hope that my explanations have provided some reassurance. I therefore ask the noble Lord not to press his amendment.

I turn to the final amendment in this group, Amendment 106EA, again tabled by the noble Lord, Lord Coaker. I come to this amendment last as it seeks to bring into one amendment much of what the other amendments in this group also attempt. I will not repeat myself too much here, especially considering how long I have gone on so far. The amendment would require the Government to issue a report on the performance of agencies and departments in tackling economic crime. However, I can assure noble Lords that this is already being done. As I have mentioned, the Government, regulators and law enforcement already regularly give evidence to parliamentary committees. The National Crime Agency is required under the Crime and Courts Act to publish an annual report and lay it before Parliament, further adding to the available scrutiny of operational bodies. The Government already conduct a range of threat and risk assessments to develop our understanding of economic crime. The NCA’s national strategic assessment assesses the economic crime threats facing the UK on an annual basis. As required under the money-laundering regulations, the UK also conducts periodic national risk assessments of money laundering and terrorist financing, which provide an overview of the risks and likelihood of an activity occurring. We have already discussed in detail the establishment of a fund to tackle economic crime so I will not repeat that debate again.

Regarding the amendment’s calls for a strategy on tackling economic crime, this March, the Government published Economic Crime Plan 2. Through 43 actions, it sets out how the public and private sectors will work together to transform the UK’s response to economic crime. Obviously, the fraud strategy is a part of that overarching economic crime strategy.

As regards the quality of the data in the fraud strategy, which was referenced by the noble Lord, Lord Browne, I have just had a quick flick through and it is more recent than six years. I should also reassure the noble Lord that one of the commitments in the fraud strategy is to improve the quality and collection of data, so this can be regarded as a baseline.

There are numerous ways in which the Government report on their performance with regard to tackling economic crime. This amendment is duplicative of them and therefore unnecessary. I ask the noble Lord to withdraw his amendment.

[Lord Fox (LD)]

My Lords, we are indebted to the noble Lord, Lord Coaker, for his amendments because they have inspired an interesting debate. The Minister has made a spirited defence of the Government’s position on this issue, but the very fact that these questions are being asked—and by a lot of people, not just the people in this Room—indicates that there is a lot of work for the Government to do in order to placate, explain or perhaps improve what is going on out there. The key element, which was highlighted earlier, is the alphabet soup of different agencies all interlinking in what is going on. The Minister has made a big effort in trying to calm nerves but I do not think that those nerves are calmed. Although the amendments will undoubtedly be not be moved, there is work to do; hopefully, the Minister has got that message from the nature of this debate.

I refer back to Amendment 102. Clearly, it ruffled some feathers. I note that in 2022 it was the Conservative Government who saw fit to withdraw this scheme because they felt that there were serious issues. We know that of the 6,000 such issues, a minority were problematic, but we still do not know exactly how many. I want to address the point made by the noble Lord, Lord Leigh that there is some use to encourage inward investment. This scheme clearly went off the rails, but by publishing the report properly, we would know how to encourage it without causing the issues that the Government clearly felt were sufficient to close the scheme. I am comfortable that I was not overstating the problem. The problem was there and the Government identified it, but now we have an issue in that we do not know the full scope of the problem.

In his response on party finance, the Minister referred to national security. The fact that there are issues is well covered. The Minister should know—I am sure that he does—that amendments to the National Security Bill that sought to enhance the scrutiny of the source of political donations have been thrown out by the Commons, so some of the things that the Minister said are not strictly there. There is still an issue between this House and the Commons when it comes to the National Security Bill and party funding, and it remains ongoing. I think that was the issue that my noble friend was anxious to state.

On the subject of the report and the reference to party funding, I remind noble Lords that I said that it makes it difficult not to conclude that there are embarrassing issues to hide because the report was not published. If there is no problem, as I am sure noble Lords believe, there is no reason not to publish the report. It is the non-publishing of the report that causes suspicion. That is the point that I was trying to make.

With that, I beg leave to withdraw Amendment 102.

Amendment 102 withdrawn.

Economic Crime and Corporate Transparency

Lord Fox Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

Moved by

[Lord Fox]

84AA: After Clause 180, in subsection (1), leave out “which is a large organisation”
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.

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[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.

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[Lord Sharpe of Epsom (Con)]

I thank the noble Lord for that information; I will come back on that.

[Lord Fox (LD)]

Will the Minister go and count them again?

[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.

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[Lord Sharpe of Epsom (Con)]

Yes, I am happy to give that reassurance.

[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.

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[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.

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[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—

[Lord Fox (LD)]

Do the same again.

[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

Monday 26th April 2021 Grand Committee

[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.