The Situation in the Gulf

Lord Bates Excerpts

Monday 22nd July 2019 Lords Chamber

[Lord Ahmad of Wimbledon]

On the second point, I shall write to the noble Baroness. We are reviewing all our military assets. “HMS Montrose” has been deployed for a while in the region; “HMS Duncan”, on arriving, will immediately take over the operations of “HMS Montrose”.

On how we further bolster military assets, we are looking at that carefully. It is directly linked to the noble Baroness’s first question, on the operability of the current scheme. I can assure her that we are working closely with colleagues, particularly our French and German colleagues, to see how quickly we can make this proposal operational. The noble Baroness will have heard in the Statement the series of steps that we have taken. We continue to work with the maritime industry and are keeping it informed. On the commercial side, I stress again that any ship seeking or planning to navigate the Strait of Hormuz should inform us in advance so that we can provide all appropriate protections. That includes working with our key European partners in the region.

[Lord Bates (Con)]

My Lords, I was initially concerned about the Statement, in particular the contacts made by the Foreign Secretary over the weekend. It mentioned eight countries, with Iran’s Foreign Minister making it nine, but not India. I was significantly more encouraged by my noble friend’s response to the question asked by the noble Lord, Lord Collins. Can he confirm press reports in India that, of the 23 crew, 18 are Indian citizens? If so, does he accept that India is a critical Commonwealth partner for us in resolving this dispute, not only because it has so many of the crew but because of the strong historical and cultural ties between India and Iran and because India is the third largest consumer of oil and one of the largest receivers of gas and oil through the Strait of Hormuz? Could India not be an important partner in mediating a peaceful resolution to this dispute?

[Lord Ahmad of Wimbledon]

I agree with my noble friend. I reassure him that we have reached out to our Indian counterparts as part of wider engagement on this issue. We wish to ensure that anyone who can help de-escalate the current tensions is fully engaged. I agree with my noble friend also on the strength of our relationship with India, historically, currently and into the future, and on the importance of its presence in the region given its bilateral relationship with Iran. For all those reasons, India has an important role to play in de-escalating not just the current crisis but further tensions in that region.

UK Foreign Policy in a Shifting World Order (International Relations Committee Report)

Lord Bates Excerpts

Tuesday 21st May 2019 Lords Chamber

[Lord Bates (Con)]

My Lords, one of the hallmarks of the International Relations Committee of your Lordships’ House is the rigorous analysis and clarity of its conclusions, especially under the chairmanship of my noble friend Lord Howell. Chapter 1, paragraph 1 of the report clearly illustrates this point:

“The evidence we have taken since January confirms that the international scene is in a state of turmoil and upheaval”.


It should be noted that the January the committee refers to is of course January 2018. Recent events and developments have served only to underscore that judgment: the rising tensions in Iran, Pakistan-India, Venezuela, Libya and the US-China trade wars, to mention just a few. The report describes a worrying outlook, and the trajectory is downward.

Much attention is focused on great power tensions brought about by rising and declining powers and the shifting tectonic plates of the post-Cold War international order. Harvard Professor Graham Allison has referred to these shifts in power as the “Thucydides Trap”, taken from the History of the Peloponnesian War, in which Thucydides observed that it was the rise of Athens and the fear that this inspired in Sparta that made war inevitable. Picking up his theme of the inevitability of war, Professor Allison identifies 16 times in the past five centuries when an established power has made way for an emerging power—from France to the Habsburgs, the Habsburgs to the Ottomans, and so on, up to the present day. The trap is that in 12 out of those 16 examples it resulted in war: interestingly, not intentional conflicts but almost accidental wars, in which commitments, interests, allegiances and treaties with small states on relatively small issues spiralled out of control into a global conflagration.

We can all agree that a great power conflict in the nuclear age would be catastrophic for our civilisation, let alone our planet. I argue that the primary objective of the international community should be to manage that transition in a way that avoids the abyss of the trap of war—but how? The upholding of the international rules-based order happens primarily through the United Nations and specifically the UN Security Council. However, the report points out in chapter 4 that there is a major problem here. In table 1 it lists the 42 times a permanent member has vetoed a resolution since 1990. Russia has deployed the veto on 22 occasions, the United States on 18 occasions, and China on 10. The other two permanent members, Britain and France, have not used their veto for 40 years.

This inability of the international community to act decisively to uphold the rules-based order led the UN Secretary-General to lament to the Security Council last April that there was,

“escalation, fragmentation and division as far as the eye can see with profound regional and global ramifications”,

and to declare:

“The Cold War is back—with a vengeance but with a difference”,


as the old safeguards and mechanisms that managed the risk of escalation between the US and the Soviet Union in the past,

“no longer seem to be present”.

The report identifies the need for the Security Council to reform. The Government in their response agree. Yet this gives rise to the classic diplomatic Catch-22, whereby action is required to reform the great powers’ veto but the reform cannot be secured because of that veto.

We know that sparks from small fires in the current tinder-dry conditions of global affairs could give rise to a major conflagration. We know that should a fire start, it will be virtually impossible to put out, because the deployment of the fire brigade may be vetoed, as we have seen in Yemen, Syria and Myanmar. We must therefore become much more focused on conflict prevention.

Yet during my time as a Minister at DfID, I was struck by the fact that when a military or emergency humanitarian response was required, the international community could mobilise with awesome efficiency and release billions of pounds, but when conflict prevention initiatives were suggested, there was a kind of gentle smile and a tilt of the head, and we would begin fumbling down the back of the ministerial sofa for loose change.

My argument is that the international order is changing and that the risk of a great power conflict is probably at its highest for 50 years. At the same time, it is becoming more and more difficult to respond effectively through multilateral institutions, so our attention must turn to working with others on conflict prevention. Peacebuilding, peacekeeping, arbitration and conflict prevention need to become a core competence of UK foreign policy going forward, not an optional add-on. This commitment is enshrined in global goal 16. We must learn to mobilise for peace where we used to mobilise for war. Perhaps the committee might bring its considerable expertise and wisdom to bear on the subject of the effectiveness of current UK conflict prevention and peacebuilding capabilities. I would like to think so.

Two weeks ago I stood on the steps of the magnificent Peace Palace in The Hague before I set off on the final leg of my walk from Belfast to Brussels, seeking common ground. The Peace Palace is home to the International Court of Justice and the Permanent Court of Arbitration. It was the vision of Queen Wilhelmina of the Netherlands and Tsar Nicholas II of Russia, and stemmed from The Hague peace conference. It was a time of heady international enlightenment and optimism in the aftermath of the Franco-Prussian War. The ideal was that wars could be ended and disputes between nations settled through recourse to law and arbitration. The splendid Peace Palace, funded by Scottish philanthropist Andrew Carnegie, opened its doors on 28 August 1913—only to have them slammed firmly shut less than a year later as the world was plunged into the most catastrophic war in human history.

Our great blessing is that there is no heady optimism around at the moment to cloud our judgment. We will not be sleepwalking into war as we did a century ago. The international community is alert to the dangers, and this may prove to be our salvation. I do not believe that war is inevitable, but we must adapt our approach to the new realities. Above all, we must never cease to engage and exert all our influence to preserve peace, upon which all else depends.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Bates Excerpts

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

[Baroness Bowles of Berkhamsted (LD)]

My Lords, there are two issues here. The first is to make sure that money laundering checks are carried out somewhere in the chain. There could be various mechanisms to do so, some of which are suggested in the amendments. Then there is the issue of how Companies House itself will get the money to conduct the checks. That is the point of the provision in Amendment 69L for a mechanism to levy a fee. Obviously, there could be other mechanisms. As to Amendment 69J, if there is no bank account, the fee could be levied at that point. Ways in which to tighten up and get the money are the objectives of this family of amendments.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I thank the noble Baroness, Lady Kramer, for leading a short but interesting debate on these matters. I shall put some remarks on the record to see whether they satisfy her and my noble friend.

Amendments 69H and 69J would prohibit trust or company service providers, known as TCSPs, that do not carry on business in the UK from incorporating UK companies, unless overseen by a UK anti-money laundering supervisor. The amendments would also require UK companies to establish a UK bank account and evidence this to Companies House. The money laundering regulations 2017 require TCSPs carrying on business in the UK to be fit and proper. We will also shortly formally establish the office for professional body anti-money laundering supervision, or OPBAS, which will work to ensure consistently high standards of anti-money laundering supervision by professional bodies, including TCSPs.

If there are factors that make it unclear whether a trust or company service provider could be regarded as acting by way of business in the UK—in which case it would fall within the jurisdiction of a UK anti-money laundering supervisor—HMRC considers on a case-by-case basis whether registration for supervision is necessary in order to combat attempted evasion of supervisory requirements. I therefore agree with the intention behind the amendment. However, given the pending establishment of the office for professional body anti-money laundering supervision, it is right that we establish this body first and then take proper account of its conclusions around TCSP supervision before taking further action in this space.

Additionally, the problem that the noble Baroness, Lady Kramer, and my noble friend Lord Naseby correctly identified ultimately results from trust or company service providers exploiting the comparative weakness of anti-money laundering supervision in certain overseas jurisdictions. In order to comprehensively address this, our emphasis should not be solely on expanding the scope of our anti-money laundering regime, particularly given the practical difficulties that would arise from UK supervisors seeking to exercise effective oversight over trust or company service providers established outside the UK and with no physical presence within the UK.

Such circumstances would present significant challenges for effective supervision, which typically includes measures such as on-site visits to firms that present higher risks of money laundering. The most effective way of addressing the problem which the proposers of the amendment have highlighted is through effective international co-ordination to drive up standards of supervision in jurisdictions with weaker anti-money laundering regimes than we have here in the UK. This is the agenda which we promote with international partners through the Financial Action Task Force, and it is this agenda which will offer a durable, long-term solution to the problem of weak overseas supervision of trust or company service providers.

Amendment 69J would amend the Companies Act 2006 to require UK companies to establish a UK bank account and evidence this to Companies House on an annual basis, or otherwise pay a fee or financial penalty. The wider purpose behind this part of the Companies Act is to provide a simple mechanism for companies to confirm that corporate information registered with Companies House as required under other obligations is accurate and up to date. The amendment would significantly change the purpose of the annual confirmation statement. As drafted, it would additionally require all UK companies to demonstrate annually that they hold a UK bank account; otherwise, they would have to pay a financial penalty. This would mark a significant increase in the reporting burden on the 3.9 million entities registered with Companies House, the majority of which are small, local businesses which would have to provide evidence of a UK bank account every year.

Amendment 69K would require company formation agents—defined for these purposes as including the UK registrar of companies at Companies House—to conduct customer due diligence. I appreciate my noble friend’s remarks about the consultation which has taken place, led by my noble friend Lord Ahmad, with colleagues and officials. I understand and sympathise with my noble friend’s intention; it is quite correct that we should take steps to avoid corporate vehicles being used for money laundering. However, I hope I can convince him that his amendment is not the best way to do that—although he prefaced his remarks by saying that it was a probing amendment. He will probably want to reflect on my remarks in response to it.

The amendment would represent a fundamental change in the principles under which the UK’s company law system has long operated. The UK registrar of companies has a statutory duty to incorporate and dissolve limited companies. This is carried out by Companies House, which registers company information and makes it available to the public. Companies House is not—unlike trust or company service providers, which are already supervised for anti-money laundering purposes under the money laundering regulations—a private-sector profit-making business. The registrar has no discretion in law to refuse or decline a request to incorporate a company. Companies House therefore cannot decline to establish a business relationship in the way that firms regulated for anti-money laundering purposes must when they cannot discharge their customer due diligence obligations. Because of the registrar’s statutory obligations, Companies House is not considered to be a company formation agent. If approved, the amendment would require further substantial revision to UK company law to allow Companies House to operate in the same fashion as company formation agents.

Approximately 600,000 new companies are registered each year at Companies House. The customer due diligence measures required under the money laundering regulations are significant, and are required to be applied by regulated firms on an ongoing, risk-sensitive basis to prevent illicit actors making use of the financial system. They are not intended—either by international standards, EU law or UK law—to be applied by a public body to all companies that are incorporated within the UK. Were these measures to be adopted, they would be a significant, unfunded burden upon Companies House and would fundamentally alter its relationship with the company formation process. They would also unnecessarily delay the process of company formation. The overwhelming majority of UK companies are set up for legitimate commercial purposes. Applying this amendment as drafted would not address or identify higher risks of money laundering or terrorist financing, but would instead impose an across-the-board administrative burden on Companies House and individual companies.

--- Later in debate ---

[Lord Naseby]

My Lords, I am grateful to the Minister, but he is just repeating the problem. I understand what he is saying about the EU directive, although I am not skilled in that area and would not claim to be. However, I am quite skilled in the practicalities of life, and if a quarter of a million companies are being registered and nobody is checking them, that is a huge loophole, and Her Majesty’s Government have to find a way around that. The commercial sector is doing its proper due diligence—yes, it does it for a fee—but the Government have to say, “Right, it shall all be done by the private sector and Companies House will carry on doing the little bit of work it does for £12”, or develop a section at Companies House to do it. I accept that more work may well need to be done, but we cannot have such a situation in this country.

I can even give the Minister a small case history of what could happen. Somebody goes to Companies House, pays their £12 and registers. It is then reported to HMRC that they have registered. They then write in four months later to say that they have ceased trading. That is a wonderful vehicle for money laundering: they are a registered company, and HMRC has forgotten about them because they have told it that they are not trading. If a quarter of a million of them are doing this—I am not saying there are quite as many as that—it is a huge loophole and Her Majesty’s Government have to figure out how to deal with that section of companies that are currently being registered fully through Companies House.

[Lord Bates]

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

[Baroness Kramer]

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

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