Sanctions and Anti-Money Laundering Bill [Lords] (Fourth sitting) Debate
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Helen Goodman
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Sanctions and Anti-Money Laundering Bill [Lords] (Fourth sitting)
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The Chair
Welcome to the cold blast. I understand that this morning Dame Cheryl said that hon. Members should wear their coats and hats as they saw fit, and there is no reason for me to dispense with that advice.
Clause 27
Review by appropriate Minister of regulations under section 1
Helen Goodman (Bishop Auckland) (Lab)
I beg to move amendment 24, in clause 27, page 20, line 39, leave out
“the purpose stated in them under section 1(3)”
and insert—
“(a) the purpose stated in them under section 1(3);
(b) the humanitarian impact;
(c) any British citizen, a British Overseas Territories citizen or British overseas citizen who is not the intended target of sanctions issued under this Act but who is directly or indirectly impacted by the imposition of such sanctions”.
This amendment would require the Government to review whether the sanctions regulations are still appropriate for their specified purposes, including their humanitarian impact and impact on British citizens who are indirectly affected by the imposition of sanctions.
The Chair
With this it will be convenient to discuss amendment 25, in clause 27, page 20, line 40, at end insert—
‘(2A) The review of the humanitarian impact under subsection (2)(b) must be conducted according to the methodology set out in Chapter 5 of the UN Inter-Agency Standing Committee’s Sanctions Assessment Handbook: Assessing the Humanitarian Implications of Sanctions, published in 2004.”
This amendment, which is consequential on Amendment 24, would require the Government to carry out a humanitarian impact assessment when reviewing the regulations issued under section 1.
Helen Goodman
Welcome to cold Committee Room 12, Mr McCabe. As we discussed this morning, clause 27 was inserted by those in another place because it was agreed that we need reviews of what is going on. Amendment 24 would extend the coverage of the reviews. At the moment, the clause proposes one question for review: “whether the regulations” relating to the sanctions
“are still appropriate for the purpose stated in them under section 1(3)”,
which is whatever purpose the sanctions have. That is absolutely fine; we agree with it and think it completely sensible, but we want to add two other things that we think should be covered by the reviews. One is the humanitarian impact, and the other is the impact of the sanctions on British citizens who are not their intended target.
Let me tell the Committee about two episodes in which the humanitarian impact of sanctions was very significant and may have made them counterproductive, because they were simply punishing poor people in the countries involved, who were not responsible for the bad behaviour of their leaders. The sanctions had horrendous negative consequences, which led to a lot of anti-western feeling.
The first example is the comprehensive, multilateral, international sanctions imposed on Iraq in August 1990 under UN Security Council resolution 661. As some of us can remember, it was after the first invasion of Kuwait. Before the sanctions, Iraq had imported roughly 70% of its food, medicine and chemicals for agriculture. Obviously, Iraq was a very wealthy country because of its oil reserves, but with trade sanctions imposed, it could not use that wealth to buy food. Some time later, in 1998, Denis Halliday, the United Nations humanitarian co-ordinator in Iraq, said:
“We are in the process of destroying an entire society. It is as simple and terrifying as that.”
UNICEF came to the view that the sanctions caused the deaths of half a million Iraqi children. That is a terrible death toll and not one that any of us can be comfortable with. Although the idea was to have sanctions instead of hot war, the toll of death and suffering for the Iraqi people was probably as bad from the sanctions as it would have been from hot war. We think that should be taken more into account.
Of course, the situation in Iraq was and is highly contested, but that is why we have tabled amendment 25, saying that the assessment must be done in accordance with the UN Inter-Agency Standing Committee’s “Sanctions Assessment Handbook”. We are saying we should have an agreed methodology for making this assessment, because that way we are more likely to reach an agreed assessment of what the impact of sanctions is; then people can stop arguing about the facts and start considering whether sanctions are justifiable or not. We are not saying that this is the only question to be considered. We are saying the questions should be, “Does it achieve the objectives?” and “What is the humanitarian impact?”
There was another serious case a few years later—all of this happened some time ago, but it is significant none the less. In Haiti, following the military coup of 1991 and the fraudulent elections of 2000, the international community reacted by imposing sanctions. Here again the impact on ordinary citizens was devastating. By 1994, the rate of malnutrition among children under five in many health institutions had increased from 27% to more than 50%. The UNICEF view was that thousands of children died as a consequence.
Of course, both those cases involved countries with a history of bad governance, so disentangling the results of bad governance and the results of the humanitarian sanctions is not absolutely straightforward, and I am not saying that it is absolutely straightforward. Nevertheless, these cases reinforce the argument for amendment 25.
We have also proposed adding that the impact on British citizens who are not the targets of the sanctions should be taken into consideration. It is quite easy to stand back in the Chamber and say, “Oh, we think we should impose sanctions on this person or that person.” The hon. Member for Witney is nodding fiercely; I hope he is nodding at what I am saying.
Helen Goodman
Of course, sanctions also have an impact on British commercial and economic interests, and on British commercial and economic actors. I will give the Committee a couple of examples of that.
In a more recent example, from 2014, we decided to impose sanctions against Russia after the intervention in Ukraine and the annexation of Crimea. One of the things that the sanctions covered was technology for oil and gas, which is obviously a very big sector in the Russian economy. SMD, a specialist engineering firm in Newcastle, makes sophisticated robots that operate on the seabed, doing the job of deep-sea divers. Those robots were banned and the chief executive of SMD—Andrew Hodgson, who I have met—highlighted the damage to his business. He said:
“Imagine we’re a 500 employee business and 20% of your business doesn’t exist, that’s 100 jobs and obviously we’ve been working hard on the technology”,
which is very modern technology. Normally, the company would have exported £20 million worth of equipment, but that business was lost, straight away. Another reason for considering the impact of sanctions on British citizens and the cost to the British economy is the possibility of counter-sanctions imposed by the person or country we are sanctioning. Russia retaliated by banning imports of agricultural and other produce from both the European Union and the United States, including mackerel from Scotland. That was not great for Scottish fishermen.
Nissan was also extremely badly affected, because the effect of the sanctions on Russia was that the rouble plummeted. Nissan had been paid for its car exports in roubles and was not hedged sufficiently to deal with a big drop in the rouble. It halted all the orders because it could not afford to take the loss, which was significant, although not as bad as if it had sold the cars at a loss.
We are pleased that the Government inserted clause 27 and that they are taking a consensual approach to the Bill—
Helen Goodman
I will therefore ask for an extension to what is covered in the review. We have given an explanation as to how we think that should be done.
Sir Alan Duncan
The Government are well aware of the concerns in the House about the humanitarian impact of sanctions. We are committed to finding constructive solutions through close engagement with non-governmental organisations and other humanitarian actors.
As part of the process of considering when to apply sanctions, the Government already consider the humanitarian impact on the individual or entity being sanctioned and on the general population, if the sanctions are countrywide. That is kept under close review, and we will continue to ensure that NGOs and other humanitarian actors can access the licences and exemptions needed to carry out their work in countries that are subject to sanctions.
In 2016, the UK secured amendments to the EU’s sanctions regime on Syria to provide a specific exemption for fuel purchases by humanitarian organisations, which assisted them in carrying out their operations in Syria while ensuring that they were still compliant with sanctions. As part of the consultation on the Bill, we hold regular roundtable meetings with NGOs and we take into account their concerns about the humanitarian impact of sanctions. A variety of tools and guidance are available for assessing that humanitarian impact, of which the UN handbook, which the hon. Member for Bishop Auckland referred to, is just one.
We take a case-by-case approach to the assessment of the humanitarian impact of each sanctions regime. We work closely with Department for International Development, as I recall happening when I was a DFID Minister, and with staff from the Foreign and Commonwealth Office, who may be in the relevant country —I am now familiar with what the FCO does on this as well. That ensures that the humanitarian impact is minimised and that licences and exemptions can be made available to NGOs carrying out humanitarian work.
The design and implementation of sanctions has moved on considerably since the handbook was drafted more than 10 years ago. Sanctions are now more targeted and focused directly on people whose behaviour we are trying to change. To restrict the way in which we assess the humanitarian impact to the methodology laid out in the UN handbook would limit our flexibility in making that assessment. In any case, of course, handbooks can change.
The hon. Lady also mentioned Iraq, where sanctions were imposed almost 30 years ago. Those were blanket sanctions. Modern sanctions practice is very different: sanctions are precise and targeted, and the humanitarian implications are much better taken into account. We have learned lessons from historical sanctions regimes. The example of Iraq is useful because it shows exactly the journey that we have been on to make sanctions more precise and effective.
The Government recognise the risks of unintended effects of sanctions on British citizens, as mentioned in the amendment, and on other individuals and entities. A thorough consideration of the possible unintended effects of sanctions is already part of the process of designing and implementing sanctions regimes, and it will continue to be in future. Given that sanctions have an international dimension, it is important that we do not just look at British citizens, but have safeguards for anybody who is unintentionally affected by a sanctions regime. Our concern for justice should not be confined to British citizens.
I assure the Committee that our review, which we will report annually to Parliament under clause 27, will assess the humanitarian impact of each sanctions regime; our approach to mitigating the risks of unintended effects; and our approach to humanitarian licences and exemptions that allow non-governmental organisations to continue their work in countries affected by sanctions.
I hope that that explanation has reassured the Committee sufficiently for the hon. Member for Bishop Auckland to withdraw her amendment.
Helen Goodman
I accept what the Minister says about amendment 25, but I do not understand. Basically, he is saying that he agrees with our proposal but does not want it in the Bill, which I do not find very reassuring, to be honest. I wish to divide the Committee.
Question put, That the amendment be made.
Helen Goodman
I beg to move amendment 26, in clause 27, page 21, line 8, at end insert—
“(d) the steps taken to promote the adoption of sanctions on a multilateral basis;
(e) a summary of any representations made in relation to the exercise or proposed exercise of the powers and the response of the appropriate Minister to the same;
(f) a review from the Independent Reviewer, appointed pursuant to section 20 of the Terrorism Prevention and Investigation Measures Act 2011 (‘the 2011 Act’), of the operation of this Act in the reports by the Independent Reviewer produced pursuant to the 2011 Act.”
This amendment would require the review of regulations to include consideration of the steps taken to promote the adoption of sanctions, a summary of the representations made in relation to powers under this Act and an independent review of the operation of this Act.
I will not press the amendment to a vote, but moving it gives me the opportunity to make a couple of points and perhaps to ask a question. Proposed new paragraph (d) takes us back to whether we accept the Foreign Secretary’s rhetoric about being independent in how we implement sanctions, or whether we know that sanctions are most effective when we do them multilaterally. It is our firm view that we should implement sanctions multilaterally and that Ministers should explain to the House what they have done to secure international consensus on them.
Proposed new paragraph (e) was inspired by representations made to us by the voluntary sector, which wanted to be reassured that Ministers were listening to NGOs in their assessments. The clause says that Ministers have to explain the reasonableness of their “course of action”. That is a sensible thing to do. People will be confident that it is reasonable if they know that the views and information of NGOs have been taken into account. Mr Browder, whom the right hon. Member for Newbury referred to, was keen to have something along those lines, in order to demonstrate that the Government were in listening mode on the sanctions.
Proposed new paragraph (f), with the read-across to the Terrorism Prevention and Investigation Measures Act 2011, was also part of our Magnitsky package of measures. Rather than having a separate amendment with a new clause, I thought it was neater to wrap it in to the review at clause 27, to which Ministers have already agreed. I thought Ministers would find it easier to agree if we made this an amendment to clause 27.
Richard Benyon (Newbury) (Con)
The hon. Lady is right that this is a key part of the Magnitsky elements of the Bill. There may be a more elegant way of landing this and I am looking forward to hearing what the Minister says about it.
The review aspects are fundamental to achieving what I was talking about earlier: consistency with other jurisdictions. I know the Government are keen to work with us. It may be that that happens in the coming weeks and we find some mechanism by Report stage. Again, the Minister has this in his gift. There are those who say that what we propose would somehow be more than other countries have adopted as part of their Magnitsky legislation, but the US, for example, has a far more onerous oversight provision. It allows certain members of Congress the right to demand that the Government consider sanctioning certain individuals, and the Government have to respond within 120 days to give the reasons why they did or did not. That is called the congressional trigger, and there are other mechanisms in other jurisdictions elsewhere.
What we would like to achieve is that as soon as practicable after six months have elapsed, beginning with the day the Act is passed, and every 12 months thereafter, the Secretary of State prepares a report about the exercise of the powers conferred by the Act and lays that report before Parliament. Subject to issues of clear confidentiality—I absolutely accept that is a requirement—that report should include a summary of any representations made in relation to the exercise or proposed exercise of powers and the response of the appropriate Minister to do the same.
I think there may be some work to be done on the question of who the independent reviewer should be. I note the form of words, which I was initially attracted to by the hon. Member for Bishop Auckland. There may be machinery of Government issues, which mean that that is not the right place for the independent reviewer to reside, but I think there are many ways of skinning this particular cat. The review element is fundamental, because it is important that those organisations that are taking forward evidence are able to have that evidence independently verified and Government held accountable.
On a related issue, which is not specific to this Bill but that makes my point, campaigners—with very good evidence—have brought cases about people connected to serious organised crime from overseas who operate in this country. They have taken that to agencies such as the Serious Fraud Office, the National Crime Agency and others, but it has not been taken up. When they have done that in other countries, assets have been frozen, people have been subject to visa denials and other measures have been taken. Somehow, people slip between the cracks in our system, and this is an opportunity to close that gap.
On where that independent reviewer resides, I am open to suggestions from my right hon. Friend the Minister or anyone. I am glad that the hon. Member for Bishop Auckland has given us a bit of breathing room to resolve this. By Report, we really need to have a review process that is independent and comprehensive; that addresses the measures that we require to allow people who have access to information to bring it forward; and that holds Government accountable for how they deal with that kind of information.
Sir Alan Duncan
The amendment is important because it overlaps with our earlier discussions about the broader Magnitsky issue. It also introduces two other elements, so it has three distinct elements.
The first element is the issue of adopting sanctions on a multilateral basis, which is what sanctions are really for. It is quite rare for sanctions to be adopted by only one country. Their whole effectiveness depends on multilateral co-operation. UN sanctions, which we are obliged to implement, are multilateral by their very nature. All the other sanctions that we have imposed in the past have also been multilateral, because we have imposed them as part of the EU. Although our departure from the EU necessitates our having an autonomous sanctions regime, we envisage that its operation will almost inevitably be multilateral. We agree that sanctions are more effective when they are adopted by a greater number of countries.
The UK plays a leading role as a permanent member of the UN Security Council in negotiating sanctions measures that build on the entire international community. We also work closely with the EU and other international partners in a range of groupings, such as the G7, and we will continue to work hard internationally to gain the widest possible support for sanctions measures.
In the second element of the amendment, the hon. Member for Bishop Auckland asks us to show our hand at all stages and to show the manner in which we piece sanctions together. However, to publicly reveal our discussions and the steps that we take to work with international partners could be damaging to those efforts. We would not wish to embarrass partners who, for their own reasons, decline to align with our sanctions policy or to risk the targets of sanctions understanding too much about which country was in which position on any given sanctions regime.
A related issue is whether an individual can nominate someone to be sanctioned, which they can. Any person can write to the Government and the Government will respond. Individuals may request that the Government apply new or additional sanctions regimes, and we will of course consider that.
Helen Goodman
How often does that happen in the real world? Does the Minister get a long letter from Amnesty International every week or every month that says, “We’ve seen this person and this person, and we think there is a problem”? I give that as an example, because one might imagine that it happened in that kind of way.
Sir Alan Duncan
I both thank and congratulate my right hon. Friend for the elegance with which he has made his point, and I can say in clear and simple language, “Message received.”
Perhaps I can also take this opportunity to inform the Committee, in a little more detail, our feeling and understanding of what we know are the independent oversight powers in the Bill, because they are a central part of the broader picture of oversight.
We think the Bill finds the right balance of powers and independent oversight of those powers, because—rightly—the powers to impose sanctions are placed in the hands of the Executive. As such, the Government will decide whether or not to impose sanctions and on whom. Likewise, in the first instance the Government will decide when to lift sanctions. That is in line with the standard practice of the Executive deciding foreign policy and is consistent with international practice.
However, the role of the courts—as the independent arbiter and judicial authority overseeing the powers in the Bill—is significant. The courts can look at decisions made by the Government under the Bill and judge whether those decisions were correct. If not, the courts’ judgment will of course be binding on the Government. Furthermore, the Bill has significant transparency requirements and the Minister has numerous reporting obligations to Parliament. The reports will all be laid before and scrutinised by Parliament. As is the case now, parliamentary Committees can produce their own independent reports and can take evidence and make recommendations. That will continue. There is far more scope for such independent oversight by Parliament than there is now, where decisions are taken in Brussels and there are limited reporting requirements to the UK Parliament. As such, we believe that the Bill finds the right balance of Executive decision making, independent judicial arbitration by the courts and independent political oversight and scrutiny by Parliament.
Helen Goodman
We have had another interesting exchange. We are extremely grateful to the right hon. Member for Newbury, who knows about the issues in great detail. When it was first suggested to me that we involve the independent reviewer for terrorism, I was a bit taken aback as well. At first blush, one thinks that sanctions and terrorism are not quite the same thing. However, that person is looking at assets frozen under terrorism legislation as well, so it is appropriate, and I do not think that the job description-type points that the Minister made quite hit the nail on the head.
Had the Minister said to us, “No, we have thought about this, but the independent reviewer for terrorism is not the right person—we would propose that it would be X,Y or Z,” that would have been a good response. Then, we would have had more confidence in the Minister’s willingness to engage in the consensus-building process that we are all, across the House, looking for on the Bill. It seems to me that the Minister is being extremely cautious, to the point of not acknowledging that some changes will have to be made if the Government are to get the Bill on to the statute book. The Minister would have done well to have thought about that between 20 February and today, and he would do well to be more flexible now than he has been.
The suggestion that we rely on the courts is not very practical. That means, in effect, that people have to take the Government to court using the judicial review processes. It is incredibly ad hoc and unsystematic. It will mean that somebody with a lot of money who is critical of the Government’s actions can go to court and get their justice. This is not a place where we are about to have legal aid, is it?
Sir Alan Duncan
There are many stages to be gone through before it ever needs to go to court. One of the provisions that I really pressed hard for in the preparation of the Bill was that there could be swift and direct redress for someone caught up in sanctions unfairly—as they might see it—who needs to defend themselves but does not have money. That is why there is a process for being able to submit arguments that say they have been wrongly caught up. If they are justified, those issues can hopefully be resolved before there is any need to go to court. The hon. Lady is making a very valid point, and, if it were the case, that is addressed in the Bill.
Helen Goodman
I am sorry, but I think we are now conflating two things. The Minister is conflating the arguments that were had in the other place on designated persons, and the arguments here. The changes that were made with respect to designated persons were completely reasonable. I would go further than that: I would say that the Minister in the other place, Lord Ahmad, was right to resist the blandishments of Lord Pannick, who wanted to provide a court process for UN sanctions as well as non-UN sanctions, but that is not what we are talking about here. I am disappointed that the Minister has not shown a more flexible posture, and indicated more clearly that he is prepared to think again. His intervention was really a defence of the Bill. He did not indicate that he was prepared to go some way, but not to have this precise wording. That being the case, I think we do want to test the will of the Committee.
Richard Benyon
Perhaps there is an opportunity, in the relatively short period of time between now and Report, for us to work collectively with the Government to try to identify a structure that would read better in the Bill, and that would give the kind of assurances that the hon. Lady is after. Without having gone into the weeds of the issue, I am quite attracted by what Congress has—the congressional trigger is a relatively powerful means of holding the Executive to account. The Joint Committee on Human Rights may be a vehicle in Parliament to give it an added degree of independent oversight. I have not consulted to any great degree with those who have been working on this matter for longer than I have, or with those who understand more about drafting a Bill, but I would be very keen to work with the hon. Lady on trying to achieve that.
Helen Goodman
I am grateful to the right hon. Gentleman. I do not know whether the Minister would like to intervene again in the light of that, or whether he is content with what he has said.
Helen Goodman
Okay. In the light of the intervention from the right hon. Member for Newbury, I will stick with what I had first thought to do, and will not press the amendment. However, the Minister needs to understand that we will have to come back to this matter on Report. From his point of view, it would be best if he took the initiative. He has not taken any initiative so far. If he does not, we will. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Helen Goodman
I beg to move amendment 36, in clause 27, page 21, line 17, at end insert—
“(5A) The Appropriate Minister who made the regulations must in each quarterly period lay before Parliament a report for each sanctions regime and regulation containing—
(a) the aggregate value of funds and other assets frozen;
(b) the number of suspected breaches and the aggregate value of such breaches; and
(c) actions taken on suspected breaches.”
This amendment would require the Government to report to Parliament on a quarterly basis about the impact of sanctions regimes, including the number and value of suspected breaches of those sanctions.
We discussed this matter a bit the other day. The amendment is a request for information from the Government on breaches to sanctions. I will not embarrass the Treasury Minister again by going into the full detail of how, on 8 February, he told me that the sanctions busting in 2017 was £117 million, but by 22 February it had shot up to £1.4 billion, and how concerned I was by that. Our interest in transparency did not begin with that episode. We think that it is important to have more information about this subject.
The amendment would require Ministers to report regularly on the value of funds and assets frozen, the number of breaches, and the actions taken on those breaches. We discussed this issue when we were looking at the Crown Prosecution Service guidelines on breaches. We need to understand this matter better, and we think that without shining the light of transparency on it, breaches can very easily be swept under the carpet and not acted on. We are not happy about that, particularly given how the Government have acted in the past when challenged.
I will share an episode with the Committee—it will take a couple of minutes, but I think that it is relevant. In July 2011, information was sought from the Treasury on its reasons for approving and licensing the CAMEC platinum deal—the CAMEC being the Central African Mining and Exploration Company. It bought a platinum mine in Zimbabwe from the sanctioned regime of Robert Mugabe. It transferred $100 million to the Mugabe regime as part of the purchase, and that injection of hard currency funded a campaign of violence against opposition supporters. The funds appear to have paid for weapons, trucks and the dispatch of youth militias and war veterans to crush the opposition.
John Glen
It is not about the reporting, but the frequency of the reporting. The point I am making is that to increase it to quarterly would add unnecessary compliance cost to industry, when that cost is already considerable if necessary. It would also result in an administrative burden for Government to produce figures that may not be of much practical use. We do not think that is the best way to spend the limited resource of public money.
Providing quarterly reporting regime by regime may also risk breaking other laws. At the moment we only provide regime figures for the largest regimes. For the small regimes there may only be a small number of designated persons with frozen funds in the UK so providing that specific information, which can easily be traced back to them, may risk breaching data protection laws.
The Government have already committed to being transparent where appropriate. As part of the monetary penalty guidance published last year by the Office of Financial Sanctions Implementation, the Government committed to publishing details of breaches and criminal prosecutions. That is a matter of public record.
For those reasons, I urge the hon. Member for Bishop Auckland to withdraw the amendment.
Helen Goodman
I am sorry, but notwithstanding the blandishments of the right hon. Member for Newbury, I do not think that the Minister has made the case for keeping that information secret. The fact that the numbers can jump around in the way that they did last month suggests that the Government have not got a grip. One way to incentivise Ministers is through the OFSI, which after all is the body that the Treasury set up to run sanctions policy. We have a whole group of people there devoting their lives to that—perhaps they are even in room, supporting the Minister today—and to supporting Ministers to do that. It is a perfectly reasonable piece of information for us to be requesting. It would help Ministers to manage things better and help to give the public confidence that breaches of sanctions are being dealt with properly. I am afraid that I therefore wish to press the amendment to a vote.
Question put, That the amendment be made.
Helen Goodman
I have some questions about chapter 3. It would not be appropriate to table amendments, but I want to ask the Minister for some explanation of what is going on with clauses 29 to 32, because I could not really follow them. It looks to me as if Ministers are taking the powers in chapter 3 for a transition period—we will leave the European Union at the end of March 2019, we will use the powers under chapter 3 during the transitional period, and then, when we move into our new deep and special relationship with the European Union thereafter, as the Prime Minister would describe it, we will use the other powers in the Bill. Will the Minister tell me whether I have understood that properly?
That being the case, we flip back to the end of the Bill. This is where I am slightly puzzled by what Ministers intend. Clause 55 on commencement says:
“The Secretary of State may by regulations make transitional or saving provision in connection”
with the provisions of the Bill coming into force. It is all about Ministers making regulations when they want to. I do not understand why Ministers have not tied up the commencement provisions, the transitional provisions and the enforcement of the regulations with the definitions that we have used in the European Union (Withdrawal) Bill, and why we are not using the words “exit day” here, which we defined in that other Bill.
Let me remind the Minister what it says in the European Union (Withdrawal) Bill:
“ ‘exit day’ means 29 March 2019 at 11.00 p.m.”
and
“A Minister of the Crown may by regulations...amend the definition of ‘exit day’ in subsection (1) to ensure that the day and time specified in the definition are the day and time that the Treaties are to cease to apply to the United Kingdom, and...amend subsection (2) in consequence of any such amendment.”
The Minister will remember that we had a long debate, with the right hon. and learned Member for Beaconsfield (Mr Grieve) putting forward a new way of deciding on exit day, and the right hon. Member for West Dorset (Sir Oliver Letwin) tabling an amendment that was eventually accepted. I do not understand why a different approach is being used here.
The point matters not just for neat-and-tidiness, but because it will need to tie up with the rest of the negotiations and the deal that Ministers are negotiating on Brexit. For sanctions to work, it will be necessary to have an agreed approach to information sharing, on criminal justice and on border control. None of that is covered in the Bill and it is therefore very unclear what will happen in practice.
I did not know how to table amendments to raise the point, which is why I am asking a simple question to the Minister on how he is handling it. I am not the only person who has noticed the problems. UK Finance, the coalition of the banks, has said that
“the ‘jurisdictional’ description is left rather open ended.”
They are saying, “We know when EU law applies and when it does not apply, but will European Court of Justice judgments apply?” I would like the Minister to explain in concrete terms how he thinks that will work in the period before we leave, in the transitional period and in the post-transitional world of the new deep and special relationship.
Sir Alan Duncan
I will explain the clause, and I hope answer the hon. Lady’s questions. As part of our membership of the UN and the European Union, we currently impose sanctions on more than 2,000 people and organisations. Upon our departure from the EU, it may be that there has been insufficient parliamentary time or civil service capacity to comprehensively review all EU sanctions listings, and to prepare and pass appropriate statutory instruments to incorporate them under the regular powers conveyed by the Bill.
In those circumstances, to ensure that we meet our international obligations and do not become a route through which sanctioned individuals can move their assets, it may be necessary to retain some lists of persons sanctioned by the EU, as frozen EU laws under the European Union (Withdrawal) Bill. The freezing of existing EU sanctions via the withdrawal agreement is a safeguard measure to make completely sure that there are no gaps in our sanctions regimes as a result of leaving the EU. If that proves necessary, Ministers will need powers to amend those lists by adding or removing individuals from them, and the clause provides that power. It is a backstop measure, operable only for a maximum period of two years after the date of departure. All it does is allow Ministers to amend the list of designated persons. It does not allow new regimes to be set up, or substantive changes to be made to retained regimes, such as setting up a new arms embargo. That would require action under clause 1.
Helen Goodman
We can debate the matter when we come to clause 55, if the Minister has been better briefed by then, but when does he picture Ministers starting to use the powers? Is it on 1 April 2019 or 1 January 2021? If it is not until 1 January 2021, what will happen during the intervening period? Is he satisfied that simply using the lists will work if we are in a period when we do not have integration on borders, criminal justice and so on?
Sir Alan Duncan
The clause enables us to exercise those powers, but we cannot at this stage provide the date specificity that the hon. Lady is seeking, because that is a matter of negotiation.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clauses 30 to 33 ordered to stand part of the Bill.
Clause 34
court reviews: further provision
Question proposed, That the clause stand part of the Bill.
Sir Alan Duncan
The purpose of the clause is to ensure that those acting in good faith and in compliance with this legislation are properly protected from damages being awarded against them. The clause will not protect individuals if they are found to have been negligent or to have acted in bad faith. The measure is aligned with existing EU law and is necessary to ensure, for example, that enforcement officers acting under the law may perform their duties without fear of destitution.
The clause also restricts the circumstances in which the court may award damages against the state. Sanctions are imposed to counter unacceptable behaviour. They may need to be applied quickly and in situations in which there is incomplete information. However, the clause will still allow damages awards where there is evidence of negligence or of acts in bad faith. In practice, therefore, the clause restricts damages awards only in cases where the Government act in accordance with the information available to them and lawfully apply a sanction on the basis of sufficient evidence.
If damages awards were allowed in those circumstances, applying sanctions would carry a very significant risk to the public purse. Indeed, it is likely that the larger and more important the sanction target, the higher the financial risk to the taxpayer. It is therefore important to allow the Government to respond swiftly to developing situations and to protect the taxpayer to restrict the availability of damages as a remedy in the specific circumstances of negligence or acts of bad faith.
There was consultation before the Bill. As a piece of legislation that covers the whole of the UK, we believe that the powers should be as consistent as possible.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Clauses 35 and 36 ordered to stand part of the Bill.
Clause 37
Guidance about regulations under section 1
Helen Goodman
I beg to move amendment 28, in clause 37, page 29, line 39, at end insert—
‘(d) reporting obligations;
(e) licensing requirement provisions.
(3) Where civilian payments and humanitarian activity are exempt from any prohibitions and requirements imposed by the regulations, the appropriate Minister must issue guidance.
(4) The guidance under subsection (3) must include—
(a) best practice for complying with the processing of civilian and humanitarian activities to reduce the risk of funds benefiting designated individuals, entities or organisations;
(b) mechanisms to limit the impact of prohibitions and requirements on a permissible civilian and humanitarian activity;
(c) circumstances where the prohibitions and requirements may be relevant in the context of the otherwise permissible delivery of a humanitarian activity; and
(d) options setting out effective banking and payment corridors for the processing of payments in support of a civilian and humanitarian activity which is not subject to any prohibitions or requirements.’
This amendment would require that the guidance issued about regulations under section 1 includes guidance on reporting obligations and licensing requirements. It would also require the Government to issue guidance on civilian payments and humanitarian activity exempt from prohibitions and requirements imposed by regulations.
The Chair
With this it will be convenient to discuss amendment 27, in clause 37, page 29, line 39, at end insert—
‘(3) Where regulations under section 1 make provision as to the meaning of any reference in the regulations to a person “owned” or “controlled” by another person pursuant to section 50(3), the appropriate Minister must issue guidance.’
This amendment would require the Government to issue guidance setting out the meaning of a person “owned” or “controlled” by another person when regulations are issued to make provision for this purpose under section 50(3).
Helen Goodman
The amendments relate to the importance of having guidance. There is considerable concern in the voluntary and financial sectors that the regulations as provided for under clause 36—
“an appropriate Minister may make regulations”—
are a piece of volunteerism and not an obligation on the Minister. That is causing some anxiety and confusion among those actors who have to implement the sanctions, whether NGOs or the financial sector. I will give a slightly more detailed description of this, because it is a bit complicated.
Last year Chatham House looked at the issue in some detail. It concluded that a number of UN Security Council sanctions regimes authorise the imposition of targeted sanctions against non-state armed group parties to armed conflicts. Of particular relevance to humanitarian action are financial sanctions such as asset freezes, which, among other things, require member states to ensure that funds, financial assets or economic resources are not made available to or for the benefit of designated entities. Asset freezes can be problematic for humanitarian action. There is a risk that the obligation not to make assets available to designated groups will be interpreted as covering incidental payments that must be made to such groups—for road tolls or locally purchased fuel, for example—so that humanitarian relief reaches civilians in need. It may also be interpreted as covering humanitarian goods or equipment that are diverted to such groups or otherwise benefit them, directly or indirectly. The scope of potential liability for violating asset freezes is very broad, and no intent or knowledge is required for that to be an offence, which is harsher than the bar for other kinds of breaches.
Although asset freezes are most likely to have an adverse impact on humanitarian action and, consequently, they have received the greatest attention, other forms of sanction may have a similar impact. In Syria, the problem was oil and petrol. Broader financial crimes risks arising from the Financial Action Task Force have also complicated humanitarian work.
The role of the UK financial sector in implementing sanctions is also relevant. It is not clear whether, when assessing the impact of sanctions, the UK intends to borrow the EU’s 50% rule for ownership and control. UK Finance states that
“the clarity of the ownership and control structures becomes of paramount importance and can be one of the most complex elements of ensuring sanctions compliance. If ownership or control is established in accordance with set criteria, the making available of funds or economic resources to non-listed legal persons or entities which are owned or controlled by a listed person or entity will in principle be considered a sanctions breach. The EU, and indeed many other jurisdictions, tend to apply a 50 percent rule and criterion to establish the ownership and control of an entity…if a listed individual has 50 percent or more ownership of a non-listed entity, EU persons/entities are prohibited from making available funds”.
There is no reference in the Bill to existing EU standards. The purpose of amendment 27 is to clarify that.
Alison Thewliss
I am concerned about the use of the word “may” in the clause, which states that the guidance “may include guidance” about certain things. I am concerned that that is not sufficiently well developed. I very much support the hon. Member for Bishop Auckland’s amendments, which would add a wee bit more clarity, detail and guidance. The clause is worth while, but the Government would do well to listen to the detail that she laid out.
John Glen
I am not necessarily denying the role of Government in issuing guidance in a whole range of areas. What I am dealing with here is the necessity of adding the provision into the Bill when the need to give guidance is sufficiently catered for in the text of the Bill.
The Bill will put the requirements in a better place because of the new flexibility on exemptions, licensing grounds and the ability to provide general licences. We are therefore unable to agree to the level of guidance sought, and I ask the hon. Member for Bishop Auckland to withdraw her amendment.
Helen Goodman
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 37 ordered to stand part of the Bill.
Clause 38 ordered to stand part of the Bill.
Clause 39
Revocation and amendment of regulations under section 1
Amendment made: 6, in clause 39, page 30, line 24, leave out “(d)” and insert “(h)”—(Sir Alan Duncan.)
The provision amended here is a condition which applies to the power to amend regulations made under Clause 1 which state a purpose within Clause 1(2). The amendment expands the reference to Clause 1(2) so that it covers paragraphs (e) to (h) of Clause 1(2) (as well as paragraphs (a) to (d)).
Clause 39, as amended, ordered to stand part of the Bill.
Clause 40 ordered to stand part of the Bill.
Clause 41
Power to amend Part 1 so as to authorise additional sanctions
Question proposed, That the clause stand part of the Bill.
Alison Thewliss
I want to express some concerns that I mentioned on Second Reading. The clause grants a lot of powers to Ministers. It allows them to amend the definition of sanctions. What I and the House of Lords Constitution Committee are concerned about is how that is then scrutinised by Parliament. I do not know whether the Minister has had any time to think about how it might work since Second Reading, but I am concerned that the legislation does not include a mechanism to look at sanctions that is similar to the one that exists in the European Scrutiny Committee. I would like a wee bit further clarity on whether the Government have plans to do that. If not, why not? What might the mechanism look like?
John Glen
I beg to move Government amendment 7, in clause 43, page 33, line 13, leave out subsection (2).
This amendment removes the provision that prevents contraventions of regulations under Clause 43 (money laundering and terrorist financing etc) from being enforceable by criminal proceedings.
In moving this amendment, I acknowledge the recognition that this House has given to the importance of a rigorous anti-money laundering regime. To ensure the robustness of future anti-money laundering regulations, corresponding powers to create criminal offences are necessary. At the same time, I recognise that Lord Judge and others in the other place expressed significant concerns about the scope of criminal offence powers in the Bill upon its introduction. It is important to note that those concerns were not about the existence of offences for breaching anti-money laundering regimes; instead, they were concerns about the unchecked ability of Ministers to create offences.
The amendment reinstates the power to create criminal offences, while the package of amendments as a whole directly addresses those concerns through additional safeguards, which narrow the scope of and the ability to use these powers. I shall elaborate upon these safeguards, which the Government have discussed with Lord Judge since the passage of this Bill through the other place, and then I will turn to amendments 10, 11 and 12. Before I do so, however, it would be useful to consider how anti-money laundering regulations have operated with criminal offence powers in the past.
In accordance with standard practice, when implementing EU directives on money laundering, criminal offences in this area have been created by Ministers in secondary legislation made under the powers in the European Communities Act 1972. That was done under the negative procedure, with no prior consultation with Parliament and no need to seek Parliament’s consent. That position will be improved for future money laundering regulations made under the Bill. They will now be made under the draft affirmative procedure, so Parliament will consider and vote on them before they come into force. Using the affirmative procedure is a direct response to the concerns raised, to ensure that where changes need to be made, they will be properly scrutinised.
Criminal offences were created by both the Money Laundering Regulations 2017 and their predecessors, the Money Laundering Regulations 2007, which were brought into force by the then Labour Government. As hon. Members can see, the approach has been supported on a cross-party basis in the past. The detailed provisions in such regulations set standards and procedures for regulated businesses. They are designed to prevent money laundering and terrorist financing and to help law enforcement authorities to investigate those crimes, and should also be seen in the context of a separate penalty regime for the key substantive money laundering offences. Such offences are established under part 7 of the Proceeds of Crime Act 2002, which provides for more punitive prison sentences of up to 14 years, for example for those guilty of directly laundering the proceeds of crime. Money launderers are typically prosecuted through those offences as they allow for longer sentences.
Without the power to create new criminal offences in secondary legislation, the enforceability of new regulations would be seriously weakened. That would dramatically lower the effectiveness of the UK’s anti-money laundering regime. More generally, it is not unusual for requirements to be set in delegated legislation that can be enforced using criminal penalties, In the area of financial services, for example, the regulated activities order, made under the Financial Services and Markets Act 2000, specifies which activities are or are not regulated. Carrying on such activities without permission from the regulator is a criminal offence. It remains the position of the Government that it is neither unusual nor improper for Parliament to confer powers of that type to Ministers.
Helen Goodman
I just want to clarify with the Minister the status of his conversations with Lord Judge. I do not know if he was trying to give us the impression that Lord Judge had agreed the amendments. I felt on Tuesday that he was trying to give that impression, so I spoke to Lord Judge, who told me that he had indeed had conversations with Ministers, but he did not say to me that he had approved the amendments. Is the Minister now trying to tell us that Lord Judge has agreed Government amendment 7?
John Glen
What I can tell the Committee is that officials have had sensitive conversations with Lord Judge. It is not for us to presume the outcome of his deliberations at this point. I am setting out what we have discussed and the consequence of those discussions. Clearly, Lord Judge will make his position known in his own way in due course.
I would like to set out why the ability to create criminal offences for the UK’s anti-money laundering regimes is necessary. The issue has been considered previously, when the Government consulted specifically on whether to remove the criminal offence provisions in the Money Laundering Regulations 2007. The British Bankers Association stated that removing such provisions would be at odds with the objective of driving an effective anti-money laundering regime.
Further, the Crown Prosecution Service argued that provisions for creating criminal offences in the Money Laundering Regulations that are different from those of the Proceeds of Crime Act 2002 serve a separate and useful function in tackling money laundering. In some instances, prosecuting according to the Proceeds of Crime Act could jeopardise ongoing investigations. It said that in such cases, the ability to prosecute for a regulatory offence relating to defective anti-money laundering counter-terrorist financing systems can be an important tool. Finally, HMRC noted in response to the same consultation that abolishing criminal sanctions for breaches of regulations carries significant risk to its ability to tackle money laundering.