Economic Crime and Corporate Transparency Bill (Nineteenth sitting)

Tom Tugendhat Excerpts

Committee stage
Tuesday 29th November 2022 Public Bill Committees

[Seema Malhotra]

It is a pleasure to speak briefly in support of the new clause tabled by my right hon. Friend the Member for Barking. It would amend the Proceeds of Crime Act 2002 such that any disclosure made as part of the suspicious activity reporting regime must include a risk rating. My right hon. Friend outlined very effectively the reasons why the new clause is important. Much of the evidence in our meetings at the outset of the Bill, which set out the context and stakeholder views, it was clear that the SARs regime was failing. The databases of referrals were going unreviewed and unlooked at, because the resources were not there. There was no effective means that we could see of prioritising SARs fed into the NCA.

SARs is an essential tool in our defence against money laundering, but if the system is not working, something needs to happen. Having an extra step in the process to help with prioritisation, look at risks and deal with those identified as higher risk would help, as my right hon. Friend outlined, to bring in quality, at a time when we know that quantity is the new battle. She said that the current estimate is three quarters of a million referrals, which is extraordinary. Given the scale and types of economic crime, the number of referrals is likely to get worse, not better. That is a good thing if we are starting to highlight and refer more cases as we start to clean up our systems. However, we then need to deliver on that; otherwise, the downside is that we will reduce confidence among those doing the referrals that anything will actually happen.

Nigel Kirby of Lloyds Bank said in his evidence to the Committee:

“I think the SARs regime and the Proceeds of Crime Act 2002 itself actually need—well, not necessarily to be turned upside down, but to be looked at as a whole.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 19, Q26.]

I think we have some agreement that the system itself is important, essential and necessary but that it needs wholesale reform to make it more efficient and effective and to ensure that it does what we ask of it.

[The Minister for Security (Tom Tugendhat)]

I thank the right hon. Member for Barking for the new clause. I will slightly gloss over one element and focus on something she mentioned several times—I always listen carefully to what she says—about the comparison between the FBI and the NCA. I take the comparison, but the NCA is not a direct comparator for the FBI. After all, the FBI includes the equivalent to MI5. It also includes counter-terrorism police and a lot of what we call regional organised crime units. It includes a lot of other areas of policing that simply do not come under the NCA’s budget, so the comparison of budgets is not apples and oranges; it is more like apples and cider—the bulk of one and the punch of the other are not quite the same. I hope the right hon. Lady will forgive me for saying that that is not entirely a fair comparison.

That said, the NCA does an enormous amount of good work and uses SARs in many different ways. I have the figure here: the UKFIU received and processed nearly 600,000 SARs in 2019-20. That has increased significantly every year. The action taken has resulted in about £192 million being denied to criminals in 2019-20, up 46% on the previous year. So this is something that we are already using heavily.

[Dame Margaret Hodge]

We all think that SARs is a helpful regime. I wonder whether the Minister has been given the information by the NCA. It got more than half a million SARs, but how much of that data did it use to get the millions that it got in? That is a heck of a lot of data, which should yield a huge amount of valuable information.

[Tom Tugendhat]

First, not every SAR leads to an actionable offence. Many of them are simply, and quite rightly, reports. They are reports because there are suspicions, but suspicion does not necessarily mean guilt. Many times these are companies that are taking on clients or that have clients who are suspicious, and they want to be sure they are doing the right thing so, responsibly, they report in. We should not confuse the absolute number of reports with a level of criminality. That would not be fair on the British population, those doing the reporting or the NCA, which is looking into these things.

[Alison Thewliss (Glasgow Central) (SNP)]

I did not mean to stop the Minister in mid-flow. He says that the number does not necessarily correlate to criminality. Is he concerned to hear that trust and company service providers have provided only 31 SARs, according to Graeme Biggar when he gave evidence to the Treasury Committee? A total of 31 seems impossibly low for the number of trust and company service providers, compared with what comes in from others.

[Tom Tugendhat]

The hon. Lady makes a fair point, but as she knows well that is not the point of the new clause, which is about the supervision of SARs and the ways in which they are checked and verified. That said, I have listened carefully to her and will have a look at that, because I do appreciate the point she makes. That said, I think these codes already enable the NCA to triage effectively, although if she has better ideas I am happy to listen and look at them further. However, I am to be convinced, because I think the Bill already addresses the areas she indicates. I get the point she is trying to make, but I am not sure that her suggestions would lead to a significant improvement on what is already there.

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[Alison Thewliss]

I suspect that if it goes to a vote, he will vote against the new clause, so he does not even need to argue against it. If it goes to a vote, he and his colleagues will vote against something that he has consistently and repeatedly supported in this House. He knows in his heart of hearts that this is the right thing to do. I am very interested to know whether, if the Government will not support the new clause—whether it goes to a vote or not—they will introduce something similar on Report. Both Ministers know that this is the right thing to do. The opportunity is here in the Bill. If the opportunity is there and the will is not, that leaves huge questions for the credibility of the entire Bill.

[Tom Tugendhat]

I am delighted to speak on the new clause. As the right hon. Member for Barking correctly identifies, it touches on many areas that my hon. Friend the Under-Secretary and I have spoken about on numerous occasions, and we are not alone in having done so. Section 172(1)(b) and (d) of the Companies Act 2006 speaks about the interests of employees and of the community being the responsibility of directors as well, so having an emphasis on directors’ responsibility in corporate legislation is not new. My hon. Friend the Under-Secretary has also spoken about it in building safety legislation, which the right hon. Lady cited.

There are many different examples of our recognition that the interests of the whole of society and of the whole United Kingdom are better protected when directors understand that they are there not simply to advance shareholder value, but to further the interests of the whole community of their employees and wider society in actions and responsibilities they undertake. Although I see all of the responsibility laid out and I take very seriously the point the right hon. Lady made, we still need to do a little bit of work on how this can be made to work. There are arguments, some of which hold water, about whether the 2017 money laundering regulations include elements that already cover some of these areas, and there are arguments about whether the Law Commission will want to look at different bits of this. I can assure the right hon. Lady that I will look at this extremely seriously, because she is absolutely right that the Bill offers an opportunity to introduce different reforms. I will look to make sure that any opportunity is fulfilled as quickly as possible.

[Dame Margaret Hodge]

I am grateful for that. The hon. Gentleman referred to the Companies Act 2006—I cannot remember which section. In the days when Tony Blair changed our jobs every year, I was lumbered with taking through the biggest Act in Parliament. We deliberately put that section in, in the face of massive opposition. At the time there was a front page story in the FT that said, “How dare you talk about any interest but shareholder interest?” But the provision has stood the test of time, I am pleased to say, and I am glad to hear him cite it.

I do not want to embarrass Ministers today by putting the issue to a vote. I know that they feel strongly about this, but so do we—really strongly. The Bill will not pass any litmus test of its potency if the new clause is not included. I know there will be resistance because the professions that would be subject to the new potential criminal liability are very strong in lobbying. They are probably strongly lobbying the Department for Business, Energy and Industrial Strategy, as well as the Treasury and other Government Departments. I say to Ministers that they have to resist that lobbying with every bone in their bodies, because this is not an attack on any profession. There ought to be a new offence that cleans up the profession, and we will pursue this issue right through every phase and stage of the Bill’s passage.

I want to say one final thing to the Minister. Of course we need to make the new clause work, but for goodness’ sake, we have the same offence in the Bribery Act and the tax evasion legislation, and it works perfectly well.

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[Alison Thewliss]

I wholeheartedly agree with the new clause. When the Treasury Committee looked at this issue, what struck me was that economic crime was nobody’s priority. Our report said:

“Economic crime seems not to be a priority for law enforcement. The number of agencies responsible for fighting economic crime and fraud is bewildering.”

If it is bewildering in that sense, it is bewildering to Parliament, too. This is a BEIS and Home Office Bill, yet it has huge Treasury implications and huge security implications, and that gets to the heart of why this new clause is so important. There needs to be a body in Parliament that holds all these agencies to account in one place. If BEIS does a little bit, and the Home Office does a little bit, and security does a little bit, and the Treasury does a little bit, there will not be the cohesive scrutiny of all those agencies that is needed. Committees could well be palmed off with different responses by different agencies, with nobody consistently holding them to account.

The work of the Treasury Committee is very wide ranging. We have two meetings a week, and that is not enough to cover all the issues we need to cover. Setting up a bespoke Committee that could build up expertise on this issue would allow for that accountability. It could meet in private if it needed to, although it would ideally meet in public. The point is that it would keep an eye on all the things that we have agreed to in the Bill, and we would be holding all these agencies and Ministers to account in a consistent way. The reports of the ECC would also, we hope, be taken seriously, and its recommendations implemented.

It is not really enough that the Treasury Committee or another Committee looks at economic crime every once in a while and sees how things are going. The Treasury Committee has done that previously, looking back at previous reports and asking, “How are things going now?” but there is not that week in, week out consistent scrutiny of what is happening. Without scrutiny and consistency, it is difficult to see how the Government will get this right. We are legislating here, but legislation cannot be put on a shelf and left; it has to be living legislation that is scrutinised on a regular basis. A committee of sort proposed in the new clause really would give Parliament a lot of power to ensure that these measures are implemented correctly and that the agencies responsible for economic crime, which affects all of our constituents, continue to be held to account.

[Tom Tugendhat]

The right hon. Member for Barking will not be surprised to hear that I am a huge fan of parliamentary scrutiny, not just of Government but of various issues that others have sometimes felt are not in the immediate remit of the scrutinising Committee. As she will be aware, I received some criticism when the Foreign Affairs Committee, which I was fortunate to chair, focused so clearly on economic crime in 2017-18—in fact, it was some of the first work that we did—because of the national security threat that it poses to the United Kingdom. Its importance in foreign policy is very clear.

The Treasury Committee has done an awful lot of extremely good work on this issue; over the years, it has done some excellent reports on economic crime. The Public Accounts Committee, the Justice Committee and others have also focused on economic crime at various points. However, while I completely understand the right hon. Lady’s argument, I cannot support the new clause, because it is simply not up to a Secretary of State to set up a Committee of the House. As she knows very well, that is a decision for the House; it would therefore not be appropriate to have that provision in the Bill.

I would add that there are various other elements that already scrutinise quite a lot of the agencies referred to. There is the Economic Crime Strategic Board, co-chaired by the Chancellor and the Home Secretary—I know it is within Government, but it is still a challenging body because it supervises the agencies of Government. Various other levels of scrutiny appear at different points, which help to oversee the function of the agencies and different elements that the Government are trying to deliver—that the ministerial element of the Government is trying to get the bureaucratic element of the Government to deliver. It is really important that we keep those intentions.

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[Tom Tugendhat]

Of course.

[Dame Margaret Hodge]

What we are seeking is scrutiny by the legislature. I take what he said, and will reflect on it. There is cross-party support for this concept; whether we have got it quite right is open to debate, and we will have to find another means of getting it debated in the House. On that basis, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 76

Whistleblowing: economic crime

“(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—

(a) has occurred,

(b) is occurring, or

(c) is likely to occur.

(2) The Secretary of State must, within twelve months of the date of Royal Assent to this Act, set up an office to receive reports of whistleblowing as defined in subsection (1) to be known as the Office for Whistleblowers.

(3) The Office for Whistleblowers must—

(a) protect whistleblowers from detriment resulting from their whistleblowing,

(b) ensure that disclosures by whistleblowers are investigated, and

(c) escalate information and evidence of wrongdoing outside of its remit to another appropriate authority.

(4) The objectives of the Office for Whistleblowers are—

(a) to encourage and support whistleblowers to make whistleblowing reports,

(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,

(c) to provide information and advice on whistleblowing, and

(d) to act on evidence of detriment to the whistleblower in line with guidance set out by the Secretary of State in regulations.

(5) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.” —(Dame Margaret Hodge.)

Brought up, and read the First time.

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[Stephen Kinnock]

We fully welcome the new clause, which we think is very important to ensure that all perpetrators of economic crime are caught and dealt with.

[Tom Tugendhat]

I merely point out that, while the new clause addresses many of the points that the right hon. Member for Barking has raised before, it also raises many of the same challenges. For that reason, I will object to it.

[Dame Margaret Hodge]

I will not at this point press the new clause to a vote, so I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 80

Forfeiture of recoverable property obtained through economic crime

“(1) Where the conditions in paragraph(2) are fulfilled, a notice may be served in accordance with subsection(4) by the Director of Public Prosecutions, the Director of Serious Fraud Office, or the Director General of the National Crime Agency (hereafter, ‘the Director’) upon the holder of an account held at a bank in the United Kingdom.

(2) The conditions mentioned in paragraph(1) are that—

(a) the Director has reasonable grounds to believe that property held in the bank account is recoverable property obtained as a result of an economic crime offence;

(b) in relation to the bank account or any property in the bank account, a consent request has been made to an authorized officer under Section 335 of the Proceeds of Crime Act;

(c) an authorized officer refused the consent requested;

(d) a court has granted an extension of a moratorium period for 186 days under section 336A of the Proceeds of Crime Act 2002; and

(e) a court has granted approval to the Director to serve the notice.

(3) A notice under this section shall be a notice by way of representation and shall—

(a) state the name of the holder of the bank account to whom it is addressed;

(b) specify the details of the bank account and of the property or part of the property in the bank account which in the opinion of the Director is recoverable property;

(c) state a date on which, and a place and time at which, the holder of the bank account is required to attend a hearing of the Court to show cause why the property so specified is not recoverable property and should not be forfeited; and

(d) be served on—

(i) the holder of the bank account, and

(ii) the bank at which the account in question is held,

and if an address for service on the holder of the bank account is not known, service on the bank only shall be taken as sufficient for the purposes of this paragraph.

(4) In this section and section [ Forfeiture of recoverable property obtained through economic crime: summary procedure ]—

(a) ‘economic crime offence’ means an offence listed in Schedule 8 of this Act; and

(b) ‘recoverable property’ has the meaning given in section 304 of the Proceeds of Crime Act 2002.”—(Dame Margaret Hodge.)

Brought up, and read the First time.

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[Stephen Kinnock]

We welcome these new clauses, which would give effect to the Government’s stated intention to unlock the proceeds of crime held in bank accounts to fund law enforcement efforts to tackle economic crime. Their adoption would also optimise the potential of the defence against money laundering regime and streamline the process of UK law enforcement identifying tainted wealth and being able to seek its forfeiture.

[Tom Tugendhat]

I thank the right hon. Member for Barking. While I agree with the intent behind her new clauses, I argue that they narrow slightly the scope in which the state can already recover much of the proceeds of crime. While they attempt to simplify, the reality is that we are already recovering large sums. I am not saying that we could not do more—we certainly could—but I am not convinced that the new clauses would add significantly to existing legislation. Last year, for example, a record £115 million of proceeds of crime were recovered under existing powers.

[Dame Margaret Hodge]

That is not a brilliant argument, but I will pursue this issue on Report, as we are doing with other issues around seizing and freezing assets. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 84

Compensation for Victims of Economic Crime

‘(1) The Secretary of State must, no later than 90 days from the date on which this Act comes into force, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.

(2) The strategy may include provisions on the management and disposal of any assets realised by the government, or any body with law enforcement responsibilities in relation to economic crime, under relevant UK legislation.’—(Stephen Kinnock.)

This new clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime.

Brought up, and read the First time.

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[Alison Thewliss]

If this is indeed the last opportunity I have to speak in the Committee, I thank the Ministers. I hope they have been listening closely to what we recommend and will bring back amendments on Report. I also thank my hon. Friend the Member for Paisley and Renfrewshire North for being so patient and helpful in supporting me throughout the passage of the Bill.

The new clause gets to the heart of the matter. Victims of economic crime often receive very little compensation but suffer greatly from the impact of the crime. It can be devastating for people, both financially and personally, and they are deeply affected by it for the rest of their lives, so anything that will go towards helping to compensate those victims seems like a sensible prospect.

[Tom Tugendhat]

As this is probably the last time I will speak in the Committee, I thank you, Mr Robertson. I also thank the right hon. Member for Barking for her input into the Bill not just today, but over many years and as Chair of the Public Accounts Committee. The way in which she has championed tackling economic crime, drawn the House’s attention to it, and focused the country on the real threats that we have faced has been impressive to us all, and I am personally enormously grateful to her. She certainly helped my work enormously when I chaired the Foreign Affairs Committee, and she has now helped to focus my work as a Minister. I am very grateful that I have had the privilege of working with her.

[Dame Margaret Hodge]

I forgot to thank you, Mr Robertson, for chairing the Committee and for showing such an interest in what we are doing. I also thank the Ministers and Members of all parties who have spoken and participated. I look forward to working further to get even more into the Bill.

[Tom Tugendhat]

If anybody thinks that I was trying to soft-soap the right hon. Lady in order to shut her up in future sittings, they do not know her very well. It would have not worked, and I have not tried it. All I have done is to pay credit to somebody who has definitely earned it. I also thank my fellow Minister and the Whips, who have got us through at lightning speed.

On the new clause, the powers in part 4 already increase the focus on victims. The compensation principles of the Serious Fraud Office, CPS, the National Crime Agency and others have committed law enforcement bodies to ensuring that compensation for economic crime is considered in every relevant case, including where there are overseas victims, so I believe that the Bill already focuses on many of the aspects that we have discussed. That said, we are coming to Report. As always, I will be listening, but I have yet to be convinced about the new clause, because I believe that it has largely been covered.

[Stephen Kinnock]

Has the Minister any thoughts on the international forums that have been set up—for example, the Russian Elites, Proxies, and Oligarchs Taskforce and the European Commission’s Freeze and Seize Taskforce. What contribution are the UK Government planning to make to those processes?

[Tom Tugendhat]

I can speak directly to that, because I have recently had a meeting about it with other Governments and other jurisdictions. So far, many people have come up with ways to freeze assets. That is not a particular challenge; the UK does so very actively. Seizing and forfeiting in totality is a different challenge, because it depends on ownership and on many aspects of common law jurisdiction that we would not want to understate. I assure the hon. Gentleman honestly that I have not given up on this, because compensation for the victims in Ukraine is the very least that we should expect, as he correctly identified. Ukraine’s inevitable victory, which is absolutely assured, leads us to start thinking about how we reconstruct that extraordinary country. It is clear that Russian state assets held abroad—some, sadly, are held in the UK—should go some way to contributing to that.

That said, how do we construct the legal arguments to ensure that that is possible? They need to be in keeping with British common law, for obvious reasons. We do not want a jurisdiction of forfeiture; we want a jurisdiction of law. There is more work to be done, therefore. We are working very closely with other common law jurisdictions, such as Australia, Canada and, indeed, the United States. There is an ongoing discussion, but it is not quite as straightforward as I would have hoped.

[Stephen Kinnock]

I have no further comments, and I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Schedule 1

Cryptoassets: terrorism

“Part 1

Amendments to the Anti-terrorism, Crime and Security Act 2001

1 Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 (forfeiture of terrorist property) is amended as follows.

2 After Part 4B insert—

‘Part 4BA

Seizure and detention of terrorist cryptoassets

Interpretation

10Z7A (1) In this Schedule—

“cryptoasset” means a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically;

“crypto wallet” means—

(a) software,

(b) hardware,

(c) a physical item, or

(d) any combination of the things mentioned in paragraphs (a) to (c),

which is used to store the cryptographic private key that allows cryptoassets to be accessed.

“terrorist cryptoasset” means a cryptoasset which—

(a) is within subsection (1)(a) or (b) of section 1, or

(b) is earmarked as terrorist property.

(2) The Secretary of State may by regulations made by statutory instrument amend the definitions of “cryptoasset” and “crypto wallet” in sub-paragraph (1).

(3) Regulations under sub-paragraph (2)—

(a) may make different provision for different purposes;

(b) may make consequential, supplementary, incidental, transitional, transitory or saving provision.

(4) A statutory instrument containing regulations under sub-paragraph (2) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.

(5) In this Part—

“cryptoasset-related item” means an item of property that is, or that contains or gives access to information that is, likely to assist in the seizure under this Part of terrorist cryptoassets;

“senior officer” means—

(a) a senior police officer;

(b) an officer of Revenue and Customs of a rank designated by the Commissioners for His Majesty’s Revenue and Customs as equivalent to that of a senior police officer;

(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;

“senior police officer” means a police officer of at least the rank of superintendent.

Seizure of cryptoasset-related items

10Z7AA (1) An authorised officer may seize any item of property if the authorised officer has reasonable grounds for suspecting that the item is a cryptoasset-related item.

(2) If an authorised officer is lawfully on any premises, the officer may, for the purpose of—

(a) determining whether any property is a cryptoasset-related item, or

(b) enabling or facilitating the seizure under this Part of any terrorist cryptoasset,

require any information which is stored in any electronic form and accessible from the premises to be produced in a form in which it can be taken away and in which it is visible and legible, or from which it can readily be produced in a visible and legible form.

(3) But sub-paragraph (2) does not authorise an authorised officer to require a person to produce privileged information.

(4) In this paragraph “privileged information” means information which a person would be entitled to refuse to provide—

(a) in England and Wales and Northern Ireland, on grounds of legal professional privilege in proceedings in the High Court;

(b) in Scotland, on grounds of confidentiality of communications in proceedings in the Court of Session.

(5) Where an authorised officer has seized a cryptoasset-related item under sub-paragraph (1), the officer may use any information obtained from the item for the purpose of—

(a) identifying or gaining access to a crypto wallet, and

(b) by doing so, enabling or facilitating the seizure under this Part of any cryptoassets.

Initial detention of cryptoasset-related items

10Z7AB (1) Property seized under paragraph 10Z7AA may be detained for an initial period of 48 hours.

(2) Sub-paragraph (1) authorises the detention of property only for so long as an authorised officer continues to have reasonable grounds for suspicion in relation to that property as described in paragraph 10Z7AA(1).

(3) In calculating a period of 48 hours for the purposes of this paragraph, no account is to be taken of—

(a) any Saturday or Sunday,

(b) Christmas Day,

(c) Good Friday,

(d) any day that is a bank holiday under the Banking and Financial Dealings Act 1971 in the part of the United Kingdom within which the property is seized, or

(e) any day prescribed by virtue of section 8(2) of the Criminal Procedure (Scotland) Act 1995 as a court holiday in a sheriff court in the sheriff court district within which the property is seized.

Further detention of cryptoasset-related items

10Z7AC (1) The period for which property seized under paragraph 10Z7AA may be detained may be extended by an order made—

(a) in England and Wales or Northern Ireland, by a magistrates’ court;

(b) in Scotland, by the sheriff.

(2) An order under sub-paragraph (1) may not authorise the detention of any property—

(a) beyond the end of the period of 6 months beginning with the date of the order, and

(b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order; but this is subject to sub-paragraph (4).

(3) A justice of the peace may also exercise the power of a magistrates’ court to make the first order under sub-paragraph (1).

(4) The court or sheriff may make an order for the period of 2 years in sub-paragraph (2)(b) to be extended to a period of up to 3 years beginning with the date of the first order.

(5) An application to a magistrates’ court, a justice of the peace or the sheriff to make the first order under sub-paragraph (1) extending a particular period of detention—

(a) may be made and heard without notice of the application or hearing having been given to any of the persons affected by the application or to the legal representatives of such a person, and

(b) may be heard and determined in private in the absence of persons so affected and of their legal representatives.

(6) An application for an order under sub-paragraph (1) or (4) may be made—

(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;

(b) in relation to Scotland, by a procurator fiscal.

(7) The court, sheriff or justice may make an order under sub-paragraph (1) if satisfied, in relation to the item of property to be further detained, that—

(a) there are reasonable grounds for suspecting that it is a cryptoasset-related item, and

(b) its continuing detention is justified.

(8) The court or sheriff may make an order under sub-paragraph (4) if satisfied that a request for assistance is outstanding in relation to the item of property to be further detained.

(9) A “request for assistance” in sub-paragraph (8) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the property to be further detained, made —

(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or

(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.

(10) An order under sub-paragraph (1) must provide for notice to be given to persons affected by the order.

Seizure of cryptoassets

10Z7AD (1) An authorised officer may seize cryptoassets if the authorised officer has reasonable grounds for suspecting that the cryptoassets are terrorist cryptoassets.

(2) The circumstances in which a cryptoasset is “seized” for the purposes of sub-paragraph (1) include circumstances in which it is transferred into a crypto wallet controlled by the authorised officer.

Prior authorisation for detention of cryptoassets

10Z7AE (1) Where an order is made under paragraph 10Z7AC in respect of a cryptoasset-related item, the court, sheriff or justice making the order may, at the same time, make an order to authorise the detention of any cryptoassets that may be seized as a result of information obtained from that item.

(2) An application for an order under this paragraph may be made, by a person mentioned in paragraph 10Z7AC(6), at the same time as an application for an order under paragraph 10Z7AC is made by that person.

(3) The court, sheriff or justice may make an order under this paragraph if satisfied that there are reasonable grounds for suspecting that the cryptoassets that may be seized are terrorist cryptoassets.

(4) An order under this paragraph authorises detention of the cryptoassets for the same period of time as the order under paragraph 10Z7AC authorises detention in respect of the cryptoasset-related item to which those cryptoassets relate.

Initial detention of cryptoassets

10Z7AF (1) Cryptoassets seized under paragraph 10Z7AD may be detained for an initial period of 48 hours.

(2) Sub-paragraph (1) authorises the detention of cryptoassets only for so long as an authorised officer continues to have reasonable grounds for suspicion in relation to those cryptoassets as described in paragraph 10Z7AD(1).

(3) In calculating a period of 48 hours for the purposes of this paragraph, no account is to be taken of—

(a) any Saturday or Sunday,

(b) Christmas Day,

(c) Good Friday,

(d) any day that is a bank holiday under the Banking and Financial Dealings Act 1971 in the part of the United Kingdom within which the property is seized, or

(e) any day prescribed by virtue of section 8(2) of the Criminal Procedure (Scotland) Act 1995 as a court holiday in a sheriff court in the sheriff court district within which the property is seized.

(4) This paragraph is subject to paragraph 10Z7AE.

Further detention of cryptoassets

10Z7AG (1) The period for which cryptoassets seized under paragraph 10Z7AD may be detained may be extended by an order made—

(a) in England and Wales or Northern Ireland, by a magistrates’ court;

(b) in Scotland, by the sheriff.

(2) An order under sub-paragraph (1) may not authorise the detention of any cryptoassets—

(a) beyond the end of the period of 6 months beginning with the date of the order, and

(b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order; but this is subject to sub-paragraph (4).

(3) A justice of the peace may also exercise the power of a magistrates’ court to make the first order under sub-paragraph (1).

(4) The court or sheriff may make an order for the period of 2 years in sub-paragraph (2)(b) to be extended to a period of up to 3 years beginning with the date of the first order.

(5) An application to a magistrates’ court, a justice of the peace or the sheriff to make the first order under sub-paragraph (1) extending a particular period of detention—

(a) may be made and heard without notice of the application or hearing having been given to any of the persons affected by the application or to the legal representatives of such a person, and

(b) may be heard and determined in private in the absence of persons so affected and of their legal representatives.

(6) An application for an order under sub-paragraph (1) or (4) may be made—

(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;

(b) in relation to Scotland, by a procurator fiscal.

(7) The court, sheriff or justice may make an order under sub-paragraph (1) if satisfied, in relation to the cryptoassets to be further detained, that condition 1, condition 2 or condition 3 is met.

(8) Condition 1 is that there are reasonable grounds for suspecting that the cryptoassets are intended to be used for the purposes of terrorism and that either—

(a) their continued detention is justified while their intended use is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or

(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.

(9) Condition 2 is that there are reasonable grounds for suspecting that the cryptoassets consist of resources of an organisation which is a proscribed organisation and that either—

(a) their continued detention is justified while investigation is made into whether or not they consist of such resources or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or

(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.

(10) Condition 3 is that there are reasonable grounds for suspecting that the cryptoassets are property earmarked as terrorist property and that either—

(a) their continued detention is justified while their derivation is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or

(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.

(11) The court or sheriff may make an order under sub-paragraph (4) if satisfied that a request for assistance is outstanding in relation to the cryptoassets to be further detained.

(12) A “request for assistance” in sub-paragraph (11) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the property to be further detained, made —

(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or

(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.

(13) An order under sub-paragraph (1) must provide for notice to be given to persons affected by the order.

Safekeeping of cryptoasset-related items and cryptoassets

10Z7AH (1) An authorised officer must arrange for any item of property seized under paragraph 10Z7AA to be safely stored throughout the period during which it is detained under this Part.

(2) An authorised officer must arrange for any cryptoassets seized under paragraph 10Z7AD to be safely stored throughout the period during which they are detained under this Part.

Release of cryptoasset-related items and cryptoassets

10Z7AI (1) This paragraph applies while any cryptoasset or other item of property is detained under this Part.

(2) A magistrates’ court or (in Scotland) the sheriff may, subject to sub-paragraph (9), direct the release of the whole or any part of the property if the following condition is met.

(3) The condition is that the court or sheriff is satisfied, on an application by the person from whom the property was seized, that the conditions for the detention of the property in this Part are no longer met in relation to the property to be released.

(4) A person within sub-paragraph (5) may, subject to sub-paragraph (9) and after notifying the magistrates’ court, sheriff or justice under whose order property is being detained, release the whole or any part of the property if satisfied that the detention of the property to be released is no longer justified.

(5) The following persons are within this sub-paragraph—

(a) in relation to England and Wales and Northern Ireland, an authorised officer;

(b) in relation to Scotland, a procurator fiscal.

(6) If any cryptoasset-related item which has been released is not claimed within the period of a year beginning with the date on which it was released, an authorised officer may—

(a) retain the item and deal with it as they see fit,

(b) dispose of the item, or

(c) destroy the item.

(7) The powers in sub-paragraph (6) may be exercised only—

(a) where the authorised officer has taken reasonable steps to notify—

(i) the person from whom the item was seized, and

(ii) any other persons who the authorised officer has reasonable grounds to believe have an interest in the item,

that the item has been released, and

(b) with the approval of a senior officer.

(8) Any proceeds of a disposal of the item are to be paid—

(a) into the Consolidated Fund if—

(i) the item was directed to be released by a magistrates’ court, or

(ii) a magistrates’ court or justice was notified under sub-paragraph (4) of the release;

(b) into the Scottish Consolidated Fund if—

(i) the item was directed to be released by the sheriff, or

(ii) the sheriff was notified under sub-paragraph (4) of the release.

(9) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the property is connected, the property is not to be released under this paragraph (and so is to continue to be detained) until the proceedings are concluded.

Part 4BB

Terrorist cryptoassets: crypto wallet freezing orders

Interpretation

10Z7B (1) In this Part—

(a) “cryptoasset exchange provider” means a firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—

(i) exchanging, or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,

(ii) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or

(iii) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets;

(b) “custodian wallet provider” means a firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer—

(i) cryptoassets on behalf of its customers, or

(ii) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets;

(c) “cryptoasset service provider” includes cryptoasset exchange provider and custodian wallet provider.

(2) In the definition of “cryptoasset exchange provider” in sub-paragraph (1)—

(a) “cryptoasset” includes a right to, or interest in, a cryptoasset;

(b) “money” means—

(i) money in sterling,

(ii) money in any other currency, or

(iii) money in any other medium of exchange,

but does not include a cryptoasset.

(3) The Secretary of State may by regulations made by statutory instrument amend the definitions in sub-paragraphs (1) and (2).

(4) Regulations under sub-paragraph (3)—

(a) may make different provision for different purposes;

(b) may make consequential, supplementary, incidental, transitional, transitory or saving provision.

(5) A statutory instrument containing regulations under sub-paragraph (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.

(6) For the purposes of this Part—

(a) a crypto wallet freezing order is an order that, subject to any exclusions (see paragraph 10Z7BD), prohibits each person by or for whom the crypto wallet to which the order applies is administered from—

(i) making withdrawals or payments from the crypto wallet, or

(ii) using the crypto wallet in any other way;

(b) a crypto wallet is administered by or for a person if the person is the person to whom services are being provided by a cryptoasset service provider in relation to that crypto wallet.

(7) In this Part—

“enforcement officer” means—

(a) a constable, or

(b) a counter-terrorism financial investigator;

“relevant court” means—

(a) in England and Wales and Northern Ireland, a magistrates’ court, and

(b) in Scotland, the sheriff;

“senior officer” means a police officer of at least the rank of superintendent;

“UK-connected cryptoasset service provider” means a cryptoasset service provider which—

(a) is acting in the course of business carried on by it in the United Kingdom,

(b) has terms and conditions with the persons to whom it provides services which provide for a legal dispute to be litigated in the courts of a part of the United Kingdom,

(c) holds, in the United Kingdom, any data relating to the persons to whom it provides services, or

(d) meets the condition in sub-paragraph (8).

(8) The condition in this sub-paragraph is that—

(a) the cryptoasset service provider has its registered office, or if it does not have one, its head office in the United Kingdom, and

(b) the day-to-day management of the provider’s business is the responsibility of that office or another establishment maintained by it in the United Kingdom.

Application for crypto wallet freezing order

10Z7BA (1) This paragraph applies if an enforcement officer has reasonable grounds for suspecting that cryptoassets held in a crypto wallet administered by a UK-connected cryptoasset service provider are terrorist cryptoassets.

(2) Where this paragraph applies the enforcement officer may apply to the relevant court for a crypto wallet freezing order in relation to the crypto wallet in which the cryptoassets are held.

(3) But—

(a) an enforcement officer may not apply for a crypto wallet freezing order unless the officer is a senior officer or is authorised to do so by a senior officer, and

(b) the senior officer must consult the Treasury before making the application for the order or (as the case may be) authorising the application to be made, unless in the circumstances it is not reasonably practicable to do so.

(4) An application for a crypto wallet freezing order may be made without notice if the circumstances of the case are such that notice of the application would prejudice the taking of any steps under this Schedule to forfeit cryptoassets that are terrorist cryptoassets.

(5) An application for a crypto wallet freezing order under this paragraph may be combined with an application for an account freezing order under paragraph 10Q where a single entity—

(a) is both a relevant financial institution for the purposes of paragraph 10Q and a cryptoasset service provider for the purposes of this Part, and

(b) operates or administers, for the same person, both an account holding money and a crypto wallet.

Making of crypto wallet freezing order

10Z7BB (1) This paragraph applies where an application for a crypto wallet freezing order is made under paragraph 10Z7BA in relation to a crypto wallet.

(2) The relevant court may make the order if satisfied that there are reasonable grounds for suspecting that some or all of the cryptoassets held in the crypto wallet are terrorist cryptoassets.

(3) A crypto wallet freezing order ceases to have effect at the end of the period specified in the order (which may be varied under paragraph 10Z7BC) unless it ceases to have effect at an earlier or later time in accordance with this Part or Part 4BC or 4BD.

(4) The period specified by the relevant court for the purposes of sub-paragraph (3) (whether when the order is first made or on a variation under paragraph 10Z7BC) may not exceed the period of 2 years, beginning with the day on which the crypto wallet freezing order is (or was) made; but this is subject to sub-paragraph (5).

(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the day on which the crypto wallet freezing order is (or was) made.

(6) The relevant court may make an order under sub-paragraph (5) if satisfied that a request for assistance is outstanding in relation to some or all of the cryptoassets held in the crypto wallet.

(7) A “request for assistance” in sub-paragraph (6) means a request for assistance in obtaining evidence (including information in any form or article) in connection with some or all of the cryptoassets held in the crypto wallet, made—

(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or

(b) by an enforcement officer, to an authority exercising equivalent functions in a foreign country.

(8) A crypto wallet freezing order must provide for notice to be given to persons affected by the order.

Variation and setting aside of crypto wallet freezing order

10Z7BC (1) The relevant court may at any time vary or set aside a crypto wallet freezing order on an application made by—

(a) an enforcement officer, or

(b) any person affected by the order.

(2) But an enforcement officer may not make an application under sub-paragraph (1) unless the officer is a senior officer or is authorised to do so by a senior officer.

(3) Before varying or setting aside a crypto wallet freezing order the court must (as well as giving the parties to the proceedings an opportunity to be heard) give such an opportunity to any person who may be affected by its decision.

(4) In relation to Scotland, the references in this paragraph to setting aside an order are to be read as references to recalling it.

Exclusions

10Z7BD (1) The power to vary a crypto wallet freezing order includes (amongst other things) power to make exclusions from the prohibition on making withdrawals or payments from the crypto wallet to which the order applies.

(2) Exclusions from the prohibition may also be made when the order is made.

(3) An exclusion may (amongst other things) make provision for the purpose of enabling a person by or for whom the crypto wallet is administered—

(a) to meet the person’s reasonable living expenses, or

(b) to carry on any trade, business, profession or occupation.

(4) An exclusion may be made subject to conditions.

(5) Where a magistrates’ court exercises the power to make an exclusion for the purpose of enabling a person to meet legal expenses that the person has incurred, or may incur, in respect of proceedings under this Schedule, it must ensure that the exclusion—

(a) is limited to reasonable legal expenses that the person has reasonably incurred or that the person reasonably incurs,

(b) specifies the total amount that may be released for legal expenses in pursuance of the exclusion, and

(c) is made subject to the same conditions as would be the required conditions (see section 286A of the Proceeds of Crime Act 2002) if the order had been made under section 245A of that Act (in addition to any conditions imposed under sub-paragraph (4)).

(6) A magistrates’ court, in deciding whether to make an exclusion for the purpose of enabling a person to meet legal expenses in respect of proceedings under this Schedule—

(a) must have regard to the desirability of the person being represented in any proceedings under this Schedule in which the person is a participant, and

(b) must disregard the possibility that legal representation of the person in any such proceedings might, were an exclusion not made—

(i) be made available under arrangements made for the purposes of Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, or

(ii) be funded by the Department of Justice in Northern Ireland.

(7) The sheriff’s power to make exclusions may not be exercised for the purpose of enabling any person to meet any legal expenses in respect of proceedings under this Schedule.

(8) The power to make exclusions must, subject to sub-paragraph (6), be exercised with a view to ensuring, so far as practicable, that there is not undue prejudice to the taking of any steps under this Schedule to forfeit cryptoassets that are terrorist cryptoassets.

Restriction on proceedings and remedies

10Z7BE (1) If a court in which proceedings are pending in respect of a crypto wallet administered by a UK-connected cryptoasset service provider is satisfied that a crypto wallet freezing order has been applied for or made in respect of the crypto wallet, it may either stay the proceedings or allow them to continue on any terms it thinks fit.

(2) Before exercising the power conferred by sub-paragraph (1), the court must (as well as giving the parties to any of the proceedings concerned an opportunity to be heard) give such an opportunity to any person who may be affected by the court’s decision.

(3) In relation to Scotland, the reference in sub-paragraph (1) to staying the proceedings is to be read as a reference to sisting the proceedings.

Part 4BC

Forfeiture of terrorist cryptoassets

Interpretation

10Z7C (1) In this Part—

“cryptoasset service provider” has the same meaning as in Part 4BB (see paragraph 10Z7B(1));

“crypto wallet freezing order” has the same meaning as in Part 4BB (see paragraph 10Z7B(6));

“senior officer” means—

(a) a senior police officer;

(b) an officer of Revenue and Customs of a rank designated by the Commissioners for His Majesty’s Revenue and Customs as equivalent to that of a senior police officer;

(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;

“senior police officer” means a police officer of at least the rank of superintendent.

(2) Paragraph 10Z7B(6)(b) (administration of crypto wallets) applies in relation to this Part as it applies in relation to Part 4BB.

Forfeiture

10Z7CA (1) This paragraph applies—

(a) while any cryptoassets are detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG, or

(b) while a crypto wallet freezing order made under paragraph 10Z7BB has effect.

(2) An application for the forfeiture of some or all of the cryptoassets that are detained or held in the crypto wallet that is subject to the crypto wallet freezing order may be made—

(a) to a magistrates’ court by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer, or

(b) to the sheriff by the Scottish Ministers.

(3) The court or sheriff may order the forfeiture of some or all of the cryptoassets if satisfied that the cryptoassets are terrorist cryptoassets.

(4) An order under sub-paragraph (3) made by a magistrates’ court may provide for payment under paragraph 10Z7CJ of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—

(a) the proceedings in which the order is made, or

(b) any related proceedings under this Part.

(5) A sum in respect of a relevant item of expenditure is not payable under paragraph 10Z7CJ in pursuance of provision under sub-paragraph (4) unless—

(a) the person who applied for the order under sub-paragraph (3) agrees to its payment, or

(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.

(6) For the purposes of sub-paragraph (5)—

(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (3) had instead been a recovery order made under section 266 of that Act;

(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations;

(c) if the person who applied for the order under sub-paragraph (3) was an authorised officer, that person may not agree to the payment of a sum unless the person is a senior officer or is authorised to do so by a senior officer.

(7) Sub-paragraph (3) ceases to apply on the transfer of an application made under this paragraph in accordance with paragraph 10Z7CE.

Forfeiture: supplementary

10Z7CB (1) Sub-paragraph (2) applies where an application is made under paragraph 10Z7CA for the forfeiture of any cryptoassets detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG.

(2) The cryptoassets are to continue to be detained in pursuance of the order (and may not be released under any power conferred by this Schedule) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.

This is subject to Part 4BD (conversion to money)

(3) Where an application is made under paragraph 10Z7CA in relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order—

(a) sub-paragraphs (4) and (5) apply, and

(b) the crypto wallet freezing order is to continue to have effect until the time referred to in sub-paragraph (4)(b) or (5).

(4) Where the cryptoassets are ordered to be forfeited under paragraph 10Z7CA(3) or 10Z7CE(3)—

(a) the cryptoasset service provider that administers the crypto wallet must transfer the cryptoassets into a crypto wallet nominated by an authorised officer, and

(b) immediately after the transfer has been made, the freezing order ceases to have effect.

(5) Where the application is determined or otherwise disposed of other than by the making of an order under paragraph 10Z7CA(3) or 10Z7CE(3), the crypto wallet freezing order ceases to have effect immediately after that determination or other disposal.

(6) Sub-paragraphs (4)(b) and (5) are subject to paragraph 10Z7CF and Part 4BD.

(7) The Secretary of State may by regulations made by statutory instrument amend this paragraph to make provision about the forfeiture of cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order.

(8) Regulations under sub-paragraph (7) may in particular make provision about—

(a) the process for the forfeiture of cryptoassets;

(b) the realisation of forfeited cryptoassets;

(c) the application of the proceeds of such realisation.

(9) Regulations under sub-paragraph (7) may—

(a) make different provision for different purposes;

(b) make consequential, supplementary, incidental, transitional, transitory or saving provision, including provision which makes consequential amendments to this Part.

(10) A statutory instrument containing regulations under sub-paragraph (7) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.

Associated and joint property

10Z7CC (1) Paragraphs 10Z7CD and 10Z7CE apply if—

(a) an application is made under paragraph 10Z7CA in respect of cryptoassets,

(b) the court or sheriff is satisfied that some or all of the cryptoassets are terrorist cryptoassets, and

(c) there exists property that is associated with the cryptoassets in relation to which the court or sheriff is satisfied as mentioned in paragraph (b).

(2) Paragraphs 10Z7CD and 10Z7CE also apply in England and Wales and Northern Ireland if—

(a) an application is made under paragraph 10Z7CA in respect of cryptoassets,

(b) the court is satisfied that some or all of the cryptoassets are earmarked as terrorist property, and

(c) the cryptoassets in relation to which the court is satisfied as mentioned in paragraph (b) belong to joint tenants and one of the tenants is an excepted joint owner.

(3) In this paragraph and paragraphs 10Z7CD and 10Z7CE, “associated property” means property of any of the following descriptions that is not itself the forfeitable property—

(a) any interest in the forfeitable property;

(b) any other interest in the property in which the forfeitable property subsists;

(c) if the forfeitable property is part of a larger property, but not a separate part, the remainder of that property.

References to property being associated with forfeitable property are to be read accordingly.

(4) In this paragraph and paragraphs 10Z7CD and 10Z7CE, the “forfeitable property” means the cryptoassets in relation to which the court or sheriff is satisfied as mentioned in sub-paragraph (1)(b) or (2)(b) (as the case may be).

(5) For the purposes of this paragraph and paragraphs 10Z7CD and 10Z7CE—

(a) an excepted joint owner is a joint tenant who obtained the property in circumstances in which it would not (as against them) be earmarked, and

(b) references to the excepted joint owner’s share of property are to so much of the property as would have been theirs if the joint tenancy had been severed.

Agreements about associated and joint property

10Z7CD (1) Where—

(a) this paragraph applies, and

(b) the person who applied for the order under paragraph 10Z7CA (on the one hand) and the person who holds the associated property or who is the excepted joint owner (on the other hand) agree,

the magistrates’ court or sheriff may, instead of making an order under paragraph 10Z7CA(3), make an order requiring the person who holds the associated property or who is the excepted joint owner to make a payment to a person identified in the order.

(2) The amount of the payment is (subject to sub-paragraph (3)) to be the amount which the persons referred to in sub-paragraph (1)(b) agree represents—

(a) in a case where this paragraph applies by virtue of paragraph 10Z7CC(1), the value of the forfeitable property;

(b) in a case where this paragraph applies by virtue of paragraph 10Z7CC(2), the value of the forfeitable property less the value of the excepted joint owner’s share.

(3) The amount of the payment may be reduced if the person who applied for the order under paragraph 10Z7CA agrees that the other party to the agreement has suffered loss as a result of—

(a) the seizure of the forfeitable property under paragraph 10Z7AD and its subsequent detention, or

(b) the making of a crypto wallet freezing order under paragraph 10Z7BB.

(4) The reduction that is permissible by virtue of sub-paragraph (3) is such amount as the parties to the agreement agree is reasonable, having regard to the loss suffered and any other relevant circumstances.

(5) An order under sub-paragraph (1) may, so far as required for giving effect to the agreement, include provision for vesting, creating or extinguishing any interest in property.

(6) An order under sub-paragraph (1) made by a magistrates’ court may provide for payment under sub-paragraph (11) of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—

(a) the proceedings in which the order is made, or

(b) any related proceedings under this Part.

(7) A sum in respect of a relevant item of expenditure is not payable under sub-paragraph (11) in pursuance of provision under sub-paragraph (6) unless—

(a) the person who applied for the order under paragraph 10Z7CA agrees to its payment, or

(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.

(8) For the purposes of sub-paragraph (7)—

(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (1) had instead been a recovery order made under section 266 of that Act;

(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations.

(9) If there is more than one item of associated property or more than one excepted joint owner, the total amount to be paid under sub-paragraph (1), and the part of that amount which is to be provided by each person who holds any such associated property or who is an excepted joint owner, is to be agreed between both (or all) of them and the person who applied for the order under paragraph 10Z7CA.

(10) If the person who applied for the order under paragraph 10Z7CA was an authorised officer, that person may enter into an agreement for the purposes of any provision of this paragraph only if the person is a senior officer or is authorised to do so by a senior officer.

(11) An amount received under an order under sub-paragraph (1) must be applied as follows—

(a) first, it must be applied in making any payment of legal expenses which, after giving effect to sub-paragraph (7), are payable under this sub-paragraph in pursuance of provision under sub-paragraph (6);

(b) second, it must be applied in payment or reimbursement of any reasonable costs incurred in storing or insuring the forfeitable property and any associated property whilst detained under this Schedule;

(c) third, it must be paid—

(i) if the order was made by a magistrates’ court, into the Consolidated Fund;

(ii) if the order was made by the sheriff, into the Scottish Consolidated Fund.

Associated and joint property: default of agreement

10Z7CE (1) Where this paragraph applies and there is no agreement under paragraph 10Z7CD, the magistrates’ court or sheriff may transfer the application made under paragraph 10Z7CA to the appropriate court.

(2) The “appropriate court” is—

(a) the High Court, where the application under paragraph 10Z7CA was made to a magistrates’ court;

(b) the Court of Session, where the application under paragraph 10Z7CA was made to the sheriff.

(3) Where (under sub-paragraph (1)) an application made under paragraph 10Z7CA is transferred to the appropriate court, the appropriate court may order the forfeiture of the property to which the application relates, or any part of that property, if satisfied that what is to be forfeited—

(a) is within subsection (1)(a) or (b) of section 1, or

(b) is property earmarked as terrorist property.

(4) An order under sub-paragraph (3) made by the High Court may include provision of the type that may be included in an order under paragraph 10Z7CA(3) made by a magistrates’ court by virtue of paragraph 10Z7CA(4).

(5) If provision is included in an order of the High Court by virtue of sub-paragraph (4) of this paragraph, paragraph 10Z7CA(5) and (6) apply with the necessary modifications.

(6) The appropriate court may, as well as making an order under sub-paragraph (3), make an order—

(a) providing for the forfeiture of the associated property or (as the case may be) for the excepted joint owner‘s interest to be extinguished, or

(b) providing for the excepted joint owner‘s interest to be severed.

(7) Where (under sub-paragraph (1)) the magistrates’ court or sheriff decides not to transfer an application made under paragraph 10Z7CA to the appropriate court, the magistrates’ court or sheriff may, as well as making an order under paragraph 10Z7CA(3), make an order—

(a) providing for the forfeiture of the associated property or (as the case may be) for the excepted joint owner‘s interest to be extinguished, or

(b) providing for the excepted joint owner‘s interest to be severed.

(8) An order under sub-paragraph (6) or (7) may be made only if the appropriate court, the magistrates’ court or the sheriff (as the case may be) thinks it just and equitable to do so.

(9) An order under sub-paragraph (6) or (7) must provide for the payment of an amount to the person who holds the associated property or who is an excepted joint owner.

(10) In making an order under sub-paragraph (6) or (7), and including provision in it by virtue of sub-paragraph (9), the appropriate court, the magistrates’ court or the sheriff (as the case may be) must have regard to—

(a) the rights of any person who holds the associated property or who is an excepted joint owner and the value to that person of that property or (as the case may be) of that person’s share (including any value that cannot be assessed in terms of money), and

(b) the interest of the person who applied for the order under paragraph 10Z7CA in realising the value of the forfeitable property.

(11) If the appropriate court, the magistrates’ court or the sheriff (as the case may be) is satisfied that—

(a) the person who holds the associated property or who is an excepted joint owner has suffered loss as a result of—

(i) the seizure of the forfeitable property under paragraph 10Z7AD and its subsequent detention, or

(ii) the making of the crypto wallet freezing order under paragraph 10Z7BB, and

(b) the circumstances are exceptional,

an order under sub-paragraph (6) or (7) may require the payment of compensation to that person.

(12) The amount of compensation to be paid by virtue of sub-paragraph (11) is the amount the appropriate court, the magistrates’ court or the sheriff (as the case may be) thinks reasonable, having regard to the loss suffered and any other relevant circumstances.

(13) Compensation to be paid by virtue of sub-paragraph (11) is to be paid in the same way that compensation is to be paid under paragraph 10Z7CM.

Continuation of crypto wallet freezing order pending appeal

10Z7CF (1) This paragraph applies where, on an application under paragraph 10Z7CA in relation to a crypto wallet to which a crypto wallet freezing order applies—

(a) the magistrates’ court or sheriff decides—

(i) to make an order under paragraph 10Z7CA(3) in relation to some but not all of the cryptoassets to which the application related, or

(ii) not to make an order under paragraph 10Z7CA(3), or

(b) if the application is transferred in accordance with paragraph 10Z7CE(1), the High Court or Court of Session decides—

(i) to make an order under paragraph 10Z7CE(3) in relation to some but not all of the cryptoassets to which the application related, or

(ii) not to make an order under paragraph 10Z7CE(3).

(2) The person who made the application under paragraph 10Z7CA may apply without notice to the court or sheriff that made the decision referred to in sub-paragraph (1) for an order that the crypto wallet freezing order is to continue to have effect.

(3) Where the court or sheriff makes an order under sub-paragraph (2) the crypto wallet freezing order is to continue to have effect until—

(a) the end of the period of 48 hours starting with the making of the order under sub-paragraph (2), or

(b) if within that period of 48 hours an appeal is brought (whether under paragraph 10Z7CG or otherwise) against the decision referred to in sub-paragraph (1), the time when the appeal is determined or otherwise disposed of.

(4) Sub-paragraph (3) of paragraph 10Z7AF applies for the purposes of sub-paragraph (3) as it applies for the purposes of that paragraph.

Paragraphs 10Z7CA to 10Z7CE: appeals

10Z7CG (1) Any party to proceedings for an order for the forfeiture of cryptoassets under paragraph 10Z7CA may appeal against—

(a) the making of an order under paragraph 10Z7CA;

(b) the making of an order under paragraph 10Z7CE(7);

(c) a decision not to make an order under paragraph 10Z7CA unless the reason that no order was made is that an order was instead made under paragraph 10Z7CD;

(d) a decision not to make an order under paragraph 10Z7CE(7).

Paragraphs (c) and (d) do not apply if the application for the order under paragraph 10Z7CA was transferred in accordance with paragraph 10Z7CE(1).

(2) Where an order under paragraph 10Z7CD is made by a magistrates’ court, any party to the proceedings for the order (including any party to the proceedings under paragraph 10Z7CA that preceded the making of the order) may appeal against a decision to include, or not to include, provision in the order under paragraph 10Z7CD(6).

(3) An appeal under this paragraph lies—

(a) in relation to England and Wales, to the Crown Court;

(b) in relation to Scotland, to the Sheriff Appeal Court;

(c) in relation to Northern Ireland, to a county court.

(4) An appeal under this paragraph must be made before the end of the period of 30 days starting with the day on which the court or sheriff makes the order or decision.

(5) Sub-paragraph (4) is subject to paragraph 10Z7CH.

(6) The court hearing the appeal may make any order it thinks appropriate.

(7) If the court upholds an appeal against an order forfeiting any cryptoasset or other item of property, it may, subject to sub-paragraph (8), order the release of the whole or any part of the property.

(8) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the property is connected, the property is not to be released under this paragraph (and so is to continue to be detained) until the proceedings are concluded.

Extended time for appealing in certain cases where deproscription order made

10Z7CH (1) This paragraph applies where—

(a) a successful application for an order under paragraph 10Z7CA relies (wholly or partly) on the fact that an organisation is proscribed,

(b) an application under section 4 of the Terrorism Act 2000 for a deproscription order in respect of the organisation is refused by the Secretary of State,

(c) the property forfeited by the order under paragraph 10Z7CA was seized under this Schedule on or after the date of the refusal of that application,

(d) an appeal against that refusal is allowed under section 5 of the Terrorism Act 2000,

(e) a deproscription order is made accordingly, and

(f) if the order is made in reliance on section 123(5) of the Terrorism Act 2000, a resolution is passed by each House of Parliament under section 123(5)(b) of that Act.

(2) Where this paragraph applies, an appeal under paragraph 10Z7CG against the making of an order under paragraph 10Z7CA, and against the making (in addition) of any order under paragraph 10Z7CE(7), may be brought at any time before the end of the period of 30 days beginning with the date on which the deproscription order comes into force.

(3) In this paragraph a “deproscription order” means an order under section 3(3)(b) or (8) of the Terrorism Act 2000.

Realisation or destruction of forfeited cryptoassets etc

10Z7CI (1) This paragraph applies where any cryptoasset or other item of property is forfeited under this Part.

(2) An authorised officer must—

(a) realise the property, or

(b) make arrangements for its realisation.

This is subject to sub-paragraphs (3) to (5).

(3) The property is not to be realised—

(a) before the end of the period within which an appeal may be made (whether under paragraph 10Z7CG or otherwise), or

(b) if an appeal is made within that period, before the appeal is determined or otherwise disposed of.

(4) The realisation of property under sub-paragraph (2) must be carried out, so far as practicable, in the manner best calculated to maximise the amount obtained for the property.

(5) Where an authorised officer is satisfied that—

(a) it is not reasonably practicable to realise any cryptoasset, or

(b) there are reasonable grounds to believe that the realisation of any cryptoasset would be contrary to the public interest,

the authorised officer may destroy the cryptoasset.

(6) But—

(a) the authorised officer may destroy the cryptoasset only if the officer is a senior officer or is authorised to do so by a senior officer, and

(b) the cryptoasset is not to be destroyed—

(i) before the end of the period within which an appeal may be made (whether under paragraph 10Z7CG or otherwise), or

(ii) if an appeal is made within that period, before the appeal is determined or otherwise disposed of.

(7) The question of whether the realisation of the cryptoasset would be contrary to the public interest is to be determined with particular reference to how likely it is that the entry of the cryptoasset into general circulation would facilitate criminal conduct by any person.

Proceeds of realisation

10Z7CJ (1) This paragraph applies where any cryptoasset or other item of property is realised under paragraph 10Z7CI.

(2) The proceeds of the realisation must be applied as follows—

(a) first, they must be applied in making any payment required to be made by virtue of paragraph 10Z7CE(9);

(b) second, they must be applied in making any payment of legal expenses which, after giving effect to paragraph 10Z7CA(5) (including as applied by paragraph 10Z7CE(5)), are payable under this sub-paragraph in pursuance of provision under paragraph 10Z7CA(4) or, as the case may be, 10Z7CE(4);

(c) third, they must be applied in payment or reimbursement of any reasonable costs incurred in storing or insuring the property whilst detained under this Schedule and in realising the property;

(d) fourth, they must be paid—

(i) if the property was forfeited by a magistrates’ court or the High Court, into the Consolidated Fund;

(ii) if the property was forfeited by the sheriff or the Court of Session, into the Scottish Consolidated Fund.

(3) If what is realised under paragraph 10Z7CI represents part only of an item of property, the reference in sub-paragraph (2)(c) to costs incurred in storing or insuring the property is to be read as a reference to costs incurred in storing or insuring the whole of the property.

Victims etc: detained cryptoassets

10Z7CK (1) A person who claims that any cryptoassets detained under this Schedule belong to the person may apply for some or all of the cryptoassets to be released.

(2) An application under sub-paragraph (1) is to be made—

(a) in England and Wales or Northern Ireland, to a magistrates’ court;

(b) in Scotland, to the sheriff.

(3) The application may be made in the course of proceedings under paragraph 10Z7AG or 10Z7CA or at any other time.

(4) The court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant if it appears to the court or sheriff that—

(a) the applicant was deprived of the cryptoassets to which the application relates, or of property which they represent, by criminal conduct,

(b) the cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and

(c) the cryptoassets belong to the applicant.

(5) If sub-paragraph (6) applies, the court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant or to the person from whom they were seized.

(6) This sub-paragraph applies where—

(a) the applicant is not the person from whom the cryptoassets to which the application relates were seized,

(b) it appears to the court or sheriff that those cryptoassets belong to the applicant,

(c) the court or sheriff is satisfied that the release condition is met in relation to those cryptoassets, and

(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom those cryptoassets were seized.

(7) The release condition is met—

(a) if the conditions in Part 4BA for the detention of the cryptoassets are no longer met, or

(b) in relation to cryptoassets which are subject to an application for forfeiture under paragraph 10Z7CA, if the court or sheriff decides not to make an order under that paragraph in relation to the cryptoassets.

(8) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cryptoassets are connected, the cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.

Victims etc: crypto wallet freezing orders

10Z7CL (1) A person who claims that any cryptoassets held in a crypto wallet in respect of which a crypto wallet freezing order has been made belong to the person may apply for some or all of the cryptoassets to be released.

(2) An application under sub-paragraph (1) is to be made—

(a) in England and Wales or Northern Ireland, to a magistrates’ court;

(b) in Scotland, to the sheriff.

(3) The application may be made in the course of proceedings under paragraph 10Z7BB or 10Z7CA or at any other time.

(4) The court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant if it appears to the court or sheriff that—

(a) the applicant was deprived of the cryptoassets to which the application relates, or of property which they represent, by criminal conduct,

(b) the cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and

(c) the cryptoassets belong to the applicant.

(5) If sub-paragraph (6) applies, the court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant.

(6) This sub-paragraph applies where—

(a) the applicant is not the person from whom the cryptoassets to which the application relates were seized,

(b) it appears to the court or sheriff that those cryptoassets belong to the applicant,

(c) the court or sheriff is satisfied that the release condition is met in relation to those cryptoassets, and

(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom those cryptoassets were seized.

(7) The release condition is met—

(a) if the conditions for the making of the crypto wallet freezing order are no longer met in relation to the cryptoassets to which the application relates, or

(b) in relation to cryptoassets held in a crypto wallet subject to a crypto wallet freezing order which are subject to an application for forfeiture under paragraph 10Z7CA, if the court or sheriff decides not to make an order under that paragraph in relation to the cryptoassets.

(8) Cryptoassets are not to be released under this paragraph—

(a) if an application for their forfeiture under paragraph 10Z7CA is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;

(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cryptoassets are connected, until the proceedings are concluded.

(9) In relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order, references in this paragraph to a person from whom cryptoassets were seized include a reference to a person by or for whom the crypto wallet was administered immediately before the crypto wallet freezing order was made.

Compensation

10Z7CM (1) This paragraph applies if no order is made under paragraph 10Z7CA, 10Z7CD or 10Z7CE in respect of cryptoassets detained under this Schedule or held in a crypto wallet that is subject to a crypto wallet freezing order under paragraph 10Z7BB.

(2) Where this paragraph applies, the following may make an application to the relevant court for compensation—

(a) a person to whom the cryptoassets belong or from whom they were seized;

(b) a person by or for whom a crypto wallet to which the crypto wallet freezing order applies is administered.

(3) If the relevant court is satisfied that the applicant has suffered loss as a result of the detention of the cryptoassets or the making of the crypto wallet freezing order and that the circumstances are exceptional, the relevant court may order compensation to be paid to the applicant.

(4) The amount of compensation to be paid is the amount the relevant court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.

(5) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by an officer of Revenue and Customs, the compensation is to be paid by the Commissioners for His Majesty’s Revenue and Customs.

(6) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by a constable, the compensation is to be paid as follows—

(a) in the case of a constable of a police force in England and Wales, it is to be paid out of the police fund from which the expenses of the police force are met;

(b) in the case of a constable of the Police Service of Scotland, it is to be paid by the Scottish Police Authority;

(c) in the case of a police officer within the meaning of the Police (Northern Ireland) Act 2000, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.

(7) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by a counter-terrorism financial investigator, the compensation is to be paid as follows—

(a) in the case of a counter-terrorism financial investigator who was—

(i) a member of the civilian staff of a police force (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2011, or

(ii) a member of staff of the City of London police force,

it is to be paid out of the police fund from which the expenses of the police force are met;

(b) in the case of a counter-terrorism financial investigator who was a member of staff of the Police Service of Northern Ireland, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.

(8) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by an immigration officer, the compensation is to be paid by the Secretary of State.

(9) If an order under paragraph 10Z7BB, 10Z7CA, 10Z7CD or 10Z7CE is made in respect of some of the cryptoassets detained or held, this paragraph has effect in relation to the remainder.

(10) This paragraph does not apply if the relevant court makes an order under paragraph 10Z7CK or 10Z7CL.

(11) In this paragraph “relevant court” means—

(a) in England and Wales and Northern Ireland, a magistrates’ court;

(b) in Scotland, the sheriff.

Part 4BD

Conversion of cryptoassets

Interpretation

10Z7D (1) In this Part—

“converted cryptoassets” is to be read in accordance with paragraphs 10Z7DC and 10Z7DD;

“crypto wallet freezing order” has the same meaning as in Part 4BB (see paragraph 10Z7B(6));

“relevant court” means—

(a) in England and Wales and Northern Ireland, a magistrates’ court;

(b) in Scotland, the sheriff;

“relevant financial institution” has the same meaning as in Part 4B (see paragraph 10Q);

“UK-connected cryptoasset service provider” has the same meaning as in Part 4BB (see paragraph 10Z7B(7)).

(2) Paragraph 10Z7B(6)(b) (administration of crypto wallets) applies in relation to this Part as it applies in relation to Part 4BB.

(3) In this Part references to the conversion of cryptoassets into money are references to the conversion of cryptoassets into—

(a) cash, or

(b) money held in an account maintained with a relevant financial institution.

(4) For the purposes of Parts 2 to 4, converted cryptoassets detained under this Part are not to be treated as cash detained under this Schedule.

Detained cryptoassets: conversion

10Z7DA (1) Sub-paragraph (2) applies while any cryptoassets are detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG (including where cryptoassets are subject to forfeiture proceedings).

(2) A person within sub-paragraph (3) may apply to the relevant court for an order requiring all of the cryptoassets detained pursuant to the order to be converted into money.

(3) The following persons are within this sub-paragraph—

(a) an authorised officer;

(b) a person from whom the cryptoassets were seized.

(4) In deciding whether to make an order under this paragraph, the court must have regard to whether the cryptoassets (as a whole) are likely to suffer a significant loss in value during the period before they are released or forfeited (including the period during which an appeal against an order for forfeiture may be made).

(5) Before making an order under this paragraph the court must give an opportunity to be heard to—

(a) the parties to the proceedings, and

(b) any other person who may be affected by its decision.

(6) As soon as practicable after an order is made under this paragraph, an authorised officer must convert the cryptoassets, or arrange for the cryptoassets to be converted, into money.

(7) The conversion of cryptoassets under sub-paragraph (6) must be carried out, so far as practicable, in the manner best calculated to maximise the amount of money obtained for the cryptoassets.

(8) At the first opportunity after the cryptoassets are converted, the authorised officer must arrange for the amount of money obtained for the cryptoassets to be paid into an interest-bearing account and held there.

(9) Interest accruing on the amount is to be added to it on its forfeiture or release.

(10) Where cryptoassets are converted into money in accordance with an order made under this paragraph—

(a) the cryptoassets are no longer to be treated as being detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG, and

(b) any application made under paragraph 10Z7CA(2) in relation to the cryptoassets which has not yet been determined or otherwise disposed of (including under paragraph 10Z7CD or 10Z7CE) is to be treated as if it were an application made under paragraph 10Z7DG(2) in relation to the converted cryptoassets.

(11) An order made under this paragraph must provide for notice to be given to persons affected by the order.

(12) No appeal may be made against an order made under this paragraph.

Frozen crypto wallet: conversion

10Z7DB (1) This paragraph applies while a crypto wallet freezing order under paragraph 10Z7BB has effect (including where cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order are subject to forfeiture proceedings).

(2) A person within sub-paragraph (3) may apply to the relevant court for an order requiring all of the cryptoassets held in the crypto wallet to be converted into money.

(3) The following persons are within this sub-paragraph—

(a) an authorised officer;

(b) a person by or for whom the crypto wallet is administered.

(4) In deciding whether to make an order under this paragraph, the court must have regard to whether the cryptoassets (as a whole) are likely to suffer a significant loss in value during the period before—

(a) the crypto wallet freezing order ceases to have effect, or

(b) the cryptoassets are forfeited (including the period during which an appeal against an order for forfeiture may be made).

(5) Before making an order under this paragraph the court must give an opportunity to be heard to—

(a) the parties to the proceedings, and

(b) any other person who may be affected by its decision.

(6) As soon as practicable after an order is made under this paragraph, the UK-connected cryptoasset service provider that administers the crypto wallet must convert the cryptoassets, or arrange for the cryptoassets to be converted, into money.

(7) The conversion of cryptoassets under sub-paragraph (6) must be carried out, so far as practicable, in the manner best calculated to maximise the amount of money obtained for the cryptoassets.

(8) At the first opportunity after the cryptoassets are converted, the UK-connected cryptoasset service provider must arrange for the amount of money obtained for the cryptoassets to be paid into an interest-bearing account nominated by an authorised officer and held there.

(9) But—

(a) the UK-connected cryptoasset service provider may deduct any reasonable expenses incurred by the provider in connection with the conversion of the cryptoassets, and

(b) the amount to be treated as the proceeds of the conversion of the cryptoassets is to be reduced accordingly.

(10) Interest accruing on the amount obtained for the cryptoassets is to be added to it on its forfeiture or release.

(11) Where cryptoassets are converted in accordance with an order made under this paragraph—

(a) the crypto wallet freezing order ceases to have effect,

(b) any application made under paragraph 10Z7CA(2) in relation to the cryptoassets which has not yet been determined or otherwise disposed of (including under paragraph 10Z7CD or 10Z7CE) is to be treated as if it were an application made under paragraph 10Z7DG(2) in relation to the converted cryptoassets, and

(c) any application made under paragraph 10Z7CF(2) in relation to the crypto wallet which has not yet been determined or otherwise disposed of may not be proceeded with.

(12) An order made under this paragraph must provide for notice to be given to persons affected by the order.

(13) No appeal may be made against an order made under this paragraph.

Conversion: existing forfeiture proceedings

10Z7DC (1) Where—

(a) cryptoassets are forfeited under paragraph 10Z7CA or 10Z7CE, and

(b) before the cryptoassets are realised or destroyed in accordance with paragraph 10Z7CI, an order is made under paragraph 10Z7DA requiring the cryptoassets to be converted into money,

paragraph 10Z7DJ(1) applies in relation to the converted cryptoassets as if they had been detained under paragraph 10Z7DD and forfeited under paragraph 10Z7DG (and accordingly paragraph 10Z7CI ceases to apply).

(2) Where—

(a) cryptoassets are forfeited under paragraph 10Z7CA or 10Z7CE, and

(b) before the cryptoassets are realised or destroyed in accordance with paragraph 10Z7CI, an order is made under paragraph 10Z7DB requiring the cryptoassets to be converted into money,

paragraph 10Z7DJ(2) applies in relation to the converted cryptoassets as if they had been detained under paragraph 10Z7DE and forfeited under paragraph 10Z7DG (and accordingly paragraph 10Z7CI ceases to apply).

(3) Where—

(a) an appeal may be made under paragraph 10Z7CG(1) or (2) in relation to the determination of an application under paragraph 10Z7CA(2) for the forfeiture of cryptoassets (including where paragraph 10Z7CD or 10Z7CE applies), and

(b) an order is made under paragraph 10Z7DA or 10Z7DB requiring the cryptoassets to be converted into money,

the appeal may instead be made under paragraph 10Z7DH (within the time allowed by paragraph 10Z7CG(4)) as if it were an appeal against the determination of an application under paragraph 10Z7DG.

(4) Where—

(a) an appeal is made under paragraph 10Z7CG(1) or (2) in relation to the determination of an application under paragraph 10Z7CA(2) for the forfeiture of cryptoassets (including where paragraph 10Z7CD or 10Z7CE applies), and

(b) before the appeal is determined or otherwise disposed of, an order is made under paragraph 10Z7DA or 10Z7DB requiring the cryptoassets to be converted into money,

the appeal is to be treated as if it had been made under paragraph 10Z7DH(1) in relation to the determination of an application under paragraph 10Z7DG for the forfeiture of the converted cryptoassets.

Detained cryptoassets: detention of proceeds of conversion

10Z7DD (1) This paragraph applies where cryptoassets are converted into money in accordance with an order under paragraph 10Z7DA.

(2) The proceeds of the conversion (the “converted cryptoassets”) may be detained initially until the end of the period that the cryptoassets could, immediately before the conversion, have been detained under Part 4BA (ignoring the possibility of any extension of that period).

(3) The period for which the converted cryptoassets may be detained may be extended by an order made by the relevant court.

(4) An order under sub-paragraph (3) may not authorise the detention of the converted cryptoassets beyond the end of the period of 2 years beginning with the relevant date; but this is subject to sub-paragraph (5).

(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the relevant date.

(6) In sub-paragraphs (4) and (5) “the relevant date” means the date on which the first order under paragraph 10Z7AE or 10Z7AG (as the case may be) was made in relation to the cryptoassets.

(7) An application for an order under sub-paragraph (3) or (5) may be made—

(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;

(b) in relation to Scotland, by a procurator fiscal.

(8) The relevant court may make an order under sub-paragraph (3) only if satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be further detained—

(a) are within subsection (1)(a) or (b) of section 1, or

(b) are property earmarked as terrorist property.

(9) The relevant court may make an order under sub-paragraph (5) only if satisfied that a request for assistance is outstanding in relation to the cryptoassets mentioned in sub-paragraph (1).

(10) A “request for assistance” in sub-paragraph (9) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the cryptoassets, made—

(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or

(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.

Frozen crypto wallets: detention of proceeds of conversion

10Z7DE (1) This paragraph applies where cryptoassets held in a crypto wallet subject to a crypto wallet freezing order are converted into money in accordance with an order under paragraph 10Z7DB.

(2) The proceeds of the conversion (the “converted cryptoassets”) may be detained initially until the end of the period that the crypto wallet freezing order was, immediately before the conversion, due to have effect under Part 4BB (ignoring the possibility of any extension of that period).

(3) The period for which the converted cryptoassets may be detained may be extended by an order made by the relevant court.

(4) An order under sub-paragraph (3) may not authorise the detention of the converted cryptoassets beyond the end of the period of 2 years beginning with the day on which the crypto wallet freezing order was made; but this is subject to sub-paragraph (5).

(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the day on which the crypto wallet freezing order was made.

(6) An application for an order under sub-paragraph (3) or (5) may be made—

(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;

(b) in relation to Scotland, by a procurator fiscal.

(7) The relevant court may make an order under sub-paragraph (3) only if satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be further detained—

(a) are within subsection (1)(a) or (b) of section 1, or

(b) are property earmarked as terrorist property.

(8) The relevant court may make an order under sub-paragraph (5) only if satisfied that a request for assistance is outstanding in relation to the cryptoassets mentioned in sub-paragraph (1).

(9) A “request for assistance” in sub-paragraph (8) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the cryptoassets, made—

(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or

(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.

Release of detained converted cryptoassets

10Z7DF (1) This paragraph applies while any converted cryptoassets are detained under paragraph 10Z7DD or 10Z7DE.

(2) The relevant court may, subject to sub-paragraph (7), direct the release of the whole or any part of the converted cryptoassets if the following condition is met.

(3) The condition is that, on an application by the relevant person, the court is not satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be released—

(a) are within subsection (1)(a) or (b) of section 1, or

(b) are property earmarked as terrorist property.

(4) In sub-paragraph (3) “the relevant person” means—

(a) in the case of converted cryptoassets detained under paragraph 10Z7DD, the person from whom the cryptoassets mentioned in sub-paragraph (1) of that paragraph were seized, and

(b) in the case of converted cryptoassets detained under paragraph 10Z7DE, any person affected by the crypto wallet freezing order mentioned in sub-paragraph (1) of that paragraph.

(5) A person within sub-paragraph (6) may, subject to sub-paragraph (7) and after notifying the magistrates’ court or sheriff under whose order converted cryptoassets are being detained, release the whole or any part of the converted cryptoassets if satisfied that the detention is no longer justified.

(6) The following persons are within this sub-paragraph—

(a) in relation to England and Wales or Northern Ireland, an authorised officer;

(b) in relation to Scotland, a procurator fiscal.

(7) Converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained)—

(a) if an application for their forfeiture under paragraph 10Z7DG is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;

(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, until the proceedings are concluded.

Forfeiture

10Z7DG (1) This paragraph applies while any converted cryptoassets are detained under paragraph 10Z7DD or 10Z7DE.

(2) An application for the forfeiture of some or all of the converted cryptoassets may be made—

(a) to a magistrates’ court by, the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;

(b) to the sheriff, by the Scottish Ministers.

(3) The court or sheriff may order the forfeiture of some or all of the converted cryptoassets if satisfied that the converted cryptoassets to be forfeited—

(a) are within subsection (1)(a) or (b) of section 1, or

(b) are property earmarked as terrorist property.

(4) But in the case of property which belongs to joint tenants, one of whom is an excepted joint owner, the order may not apply to so much of it as the court thinks is attributable to the excepted joint owner’s share.

(5) Where an application for forfeiture is made under this paragraph, the converted cryptoassets are to continue to be detained under paragraph 10Z7DD or 10Z7DE (and may not be released under any power conferred by this Part) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.

(6) For the purposes of this paragraph—

(a) an excepted joint owner is a joint tenant who obtained the property in circumstances in which it would not (as against them) be earmarked, and

(b) references to the excepted joint owner’s share of property are to so much of the property as would have been theirs if the joint tenancy had been severed.

Forfeiture: appeals

10Z7DH (1) Any party to proceedings for an order for the forfeiture of converted cryptoassets under paragraph 10Z7DG who is aggrieved by an order under that paragraph or by the decision of the court not to make such an order may appeal—

(a) from an order or decision of a magistrates’ court in England and Wales, to the Crown Court;

(b) from an order or decision of the sheriff, to the Sheriff Appeal Court;

(c) from an order or decision of a magistrates’ court in Northern Ireland, to a county court.

(2) An appeal under sub-paragraph (1) must be made before the end of the period of 30 days starting with the day on which the court makes the order or decision.

(3) The court hearing the appeal may make any order it thinks appropriate.

(4) If the court upholds an appeal against an order forfeiting the converted cryptoassets, it may, subject to sub-paragraph (5), order the release of some or all of the converted cryptoassets.

(5) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, the converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.

Extended time for appealing in certain cases where deproscription order made

10Z7DI (1) This paragraph applies where—

(a) a successful application for an order under paragraph 10Z7DG relies (wholly or partly) on the fact that an organisation is proscribed,

(b) an application under section 4 of the Terrorism Act 2000 for a deproscription order in respect of the organisation is refused by the Secretary of State,

(c) the converted cryptoassets forfeited by the order under paragraph 10Z7DG were converted from cryptoassets which were seized under this Schedule on or after the date of the refusal of that application,

(d) an appeal against that refusal is allowed under section 5 of the Terrorism Act 2000,

(e) a deproscription order is made accordingly, and

(f) if the order is made in reliance on section 123(5) of the Terrorism Act 2000, a resolution is passed by each House of Parliament under section 123(5)(b) of that Act.

(2) Where this paragraph applies, an appeal under paragraph 10Z7DH against the making of an order under paragraph 10Z7DG may be brought at any time before the end of the period of 30 days beginning with the date on which the deproscription order comes into force.

(3) In this paragraph a “deproscription order” means an order under section 3(3)(b) or (8) of the Terrorism Act 2000.

Application of forfeited converted cryptoassets

10Z7DJ (1) Converted cryptoassets detained under paragraph 10Z7DD and forfeited under paragraph 10Z7DG, and any accrued interest on them, must be applied as follows—

(a) first, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the safe storage of the cryptoassets mentioned in paragraph 10Z7DD(1) during the period the cryptoassets were detained under Part 4BA;

(b) second, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the conversion of those cryptoassets under paragraph 10Z7DA(6);

(c) third, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the detention of the converted cryptoassets under this Part;

(d) fourth, they must be paid—

(i) if forfeited by a magistrates’ court in England and Wales or Northern Ireland, into the Consolidated Fund, and

(ii) if forfeited by the sheriff, into the Scottish Consolidated Fund.

(2) Converted cryptoassets detained under paragraph 10Z7DE and forfeited under paragraph 10Z7DG, and any accrued interest on them, must be applied as follows—

(a) first, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the detention of the converted cryptoassets under this Part;

(b) second, they must be paid—

(i) if forfeited by a magistrates’ court in England and Wales or Northern Ireland, into the Consolidated Fund, and

(ii) if forfeited by the sheriff, into the Scottish Consolidated Fund.

(3) But converted cryptoassets are not to be applied or paid under sub-paragraph (1) or (2)—

(a) before the end of the period within which an appeal under paragraph 10Z7DH may be made, or

(b) if a person appeals under that paragraph, before the appeal is determined or otherwise disposed of.

Victims etc

10Z7DK (1) This paragraph applies where converted cryptoassets are detained under this Part.

(2) Where this paragraph applies, a person (“P”) who claims that the relevant cryptoassets belonged to P immediately before—

(a) the relevant cryptoassets were seized, or

(b) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held,

may apply to the relevant court for some or all of the converted cryptoassets to be released to P.

(3) The application may be made in the course of proceedings under paragraph 10Z7DD, 10Z7DE or 10Z7DG or at any other time.

(4) The relevant court may, subject to sub-paragraph (9), order the converted cryptoassets to which the application relates to be released to the applicant if it appears to the relevant court that the condition in sub-paragraph (5) is met.

(5) The condition in this sub-paragraph is that—

(a) the applicant was deprived of the relevant cryptoassets, or of property which they represent, by criminal conduct,

(b) the relevant cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and

(c) the relevant cryptoassets belonged to the applicant immediately before—

(i) the relevant cryptoassets were seized, or

(ii) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held.

(6) If sub-paragraph (7) applies, the relevant court may, subject to sub-paragraph (9), order the converted cryptoassets to which the application relates to be released to the applicant or to the person from whom the relevant cryptoassets were seized.

(7) This sub-paragraph applies where—

(a) the applicant is not the person from whom the relevant cryptoassets were seized,

(b) it appears to the relevant court that the relevant cryptoassets belonged to the applicant immediately before—

(i) the relevant cryptoassets were seized, or

(ii) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held,

(c) the relevant court is satisfied that the release condition is met in relation to the converted cryptoassets, and

(d) no objection to the making of an order under sub-paragraph (6) has been made by the person from whom the relevant cryptoassets were seized.

(8) The release condition is met—

(a) if the conditions in this Part for the detention of the converted cryptoassets are no longer met, or

(b) in relation to converted cryptoassets which are subject to an application for forfeiture under paragraph 10Z7DG, if the court or sheriff decides not to make an order under that paragraph in relation to the converted cryptoassets.

(9) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, the converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.

(10) Where sub-paragraph (2)(b) applies, references in this paragraph to a person from whom relevant cryptoassets were seized include a reference to a person by or for whom the crypto wallet mentioned in that provision was administered immediately before the crypto wallet freezing order was made in relation to the crypto wallet.

(11) In this paragraph “the relevant cryptoassets” means—

(a) in relation to converted cryptoassets detained under paragraph 10Z7DD, some or all of the cryptoassets mentioned in sub-paragraph (1) of that paragraph, and

(b) in relation to converted cryptoassets detained under paragraph 10Z7DE, some or all of the cryptoassets mentioned in sub-paragraph (1) of that paragraph.

Compensation

10Z7DL (1) This paragraph applies if no order is made under paragraph 10Z7DG in respect of converted cryptoassets detained under this Part.

(2) Where this paragraph applies, the following may make an application to the relevant court for compensation—

(a) a person to whom the relevant cryptoassets belonged immediately before they were seized;

(b) a person from whom the relevant cryptoassets were seized;

(c) a person by or for whom the crypto wallet mentioned in paragraph 10Z7DE(1) was administered immediately before the crypto wallet freezing order was made in relation to the crypto wallet.

(3) If the relevant court is satisfied that—

(a) the applicant has suffered loss as a result of—

(i) the conversion of the relevant cryptoassets into money, or

(ii) the detention of the converted cryptoassets, and

(b) the circumstances are exceptional,

the relevant court may order compensation to be paid to the applicant.

(4) The amount of compensation to be paid is the amount the relevant court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.

(5) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by an officer of Revenue and Customs, the compensation is to be paid by the Commissioners for His Majesty’s Revenue and Customs.

(6) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by a constable, the compensation is to be paid as follows—

(a) in the case of a constable of a police force in England and Wales, it is to be paid out of the police fund from which the expenses of the police force are met;

(b) in the case of a constable of the Police Service of Scotland, it is to be paid by the Scottish Police Authority;

(c) in the case of a police officer within the meaning of the Police (Northern Ireland) Act 2000, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.

(7) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by a counter-terrorism financial investigator, the compensation is to be paid as follows—

(a) in the case of a counter-terrorism financial investigator who was—

(i) a member of the civilian staff of a police force (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2011, or

(ii) a member of staff of the City of London police force,

it is to be paid out of the police fund from which the expenses of the police force are met;

(b) in the case of a counter-terrorism financial investigator who was a member of staff of the Police Service of Northern Ireland, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.

(8) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by an immigration officer, the compensation is to be paid by the Secretary of State.

(9) This paragraph does not apply if the relevant court makes an order under paragraph 10Z7DK.

(10) In this paragraph—

“the relevant cryptoassets” means—

(a) in relation to converted cryptoassets detained under paragraph 10Z7DD, the cryptoassets mentioned in sub-paragraph (1) of that paragraph;

(b) in relation to converted cryptoassets detained under paragraph 10Z7DE, the cryptoassets mentioned in sub-paragraph (1) of that paragraph;

“the relevant crypto wallet freezing order”, in relation to converted cryptoassets detained under paragraph 10Z7DE, means the crypto wallet freezing order mentioned in sub-paragraph (1) of that paragraph.”

3 In Part 1, in paragraph 1(1) (terrorist cash), for “and 4B” substitute “to 4BD”.

4 In Part 4B (forfeiture of terrorist money held in bank and building society accounts), after paragraph 10Z6 insert—

“Victims etc

10Z6A (1) A person who claims that money in respect of which an account freezing order has been made belongs to them may apply to the relevant court for the money to be released.

(2) The application may be made in the course of proceedings under paragraph 10S or 10Z2 or at any other time.

(3) The court may, subject to sub-paragraph (7), order the money to which the application relates to be released to the applicant if it appears to the court that—

(a) the applicant was deprived of the money to which the application relates, or of property which it represents, by criminal conduct,

(b) the money the applicant was deprived of was not, immediately before the applicant was deprived of it, property obtained by or in return for criminal conduct and nor did it then represent such property, and

(c) the money belongs to the applicant.

(4) If sub-paragraph (5) applies, the court may, subject to sub-paragraph (7), order the money to which the application relates to be released to the applicant.

(5) This sub-paragraph applies where—

(a) the applicant is not the person from whom the money to which the application relates was seized,

(b) it appears to the court that the money belongs to the applicant,

(c) the court is satisfied that the release condition is met in relation to the money, and

(d) no objection to the making of an order under sub-paragraph (4) has been made by the person from whom the money was seized.

(6) The release condition is met—

(a) in relation to money held in a frozen account, if the conditions for making an order under paragraph 10S in relation to the money are no longer met, or

(b) in relation to money held in a frozen account which is subject to an application for forfeiture under paragraph 10Z2, if the court or sheriff decides not to make an order under that paragraph in relation to the money.

(7) Money is not to be released under this paragraph—

(a) if an account forfeiture notice under paragraph 10W is given in respect of the money, until any proceedings in pursuance of the notice (including any proceedings on appeal) are concluded;

(b) if an application for its forfeiture under paragraph 10Z2, is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;

(c) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cash is connected, until the proceedings are concluded.

(8) In relation to money held in an account that is subject to an account freezing order, references in this paragraph to a person from whom money was seized include a reference to a person by or for whom the account was operated immediately before the account freezing order was made.”

5 In Part 6, in paragraph 19(1), at the appropriate places insert—

““cryptoasset” has the meaning given by paragraph 10Z7A(1);”;

““crypto wallet” has the meaning given by paragraph 10Z7A(1);”;

““justice of the peace”, in relation to Northern Ireland, means lay magistrate;”;

““terrorist cryptoasset” has the meaning given by paragraph 10Z7A(1);”.

Part 2

Amendments to the Terrorism Act 2000

6 The Terrorism Act 2000 is amended as follows.

7 In Schedule 6 (financial information)—

(a) in paragraph 6(1) (meaning of financial institution)—

(i) omit the “and” after paragraph (ha), and

(ii) after paragraph (i) insert—

(b) after sub-paragraph (1AA) insert—

“(1AB) For the purposes of sub-paragraph (1)(j), “cryptoasset exchange provider” means a firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—

(a) exchanging or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,

(b) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or

(c) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets.

(1AC) For the purposes of sub-paragraph (1)(k), “custodian wallet provider” means a firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer—

(a) cryptoassets on behalf of its customers, or

(b) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets.

(1AD) For the purposes of sub-paragraphs (1AB) and (1AC), “cryptoasset” means a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically.

(1AE) For the purposes of sub-paragraph (1AB)—

(a) “cryptoasset” includes a right to, or interest in, the cryptoasset;

(b) “money” means—

(i) money in sterling,

(ii) money in any other currency, or

(iii) money in any other medium of exchange,

but does not include a cryptoasset.

(1AF) The Secretary of State may by regulations amend the definitions in sub-paragraphs (1AB) to (1AE).”

8 In section 123 (orders and regulations), after subsection (6ZE) insert—

“(6ZF) Regulations under paragraph 6(1AF) of Schedule 6 may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”’—(Tom Tugendhat.)

Part 1 of this Schedule amends the Anti-terrorism, Crime and Security Act 2001 to make provision for a civil recovery regime in relation to terrorist cryptoassets. Part 2 of this Schedule amends the Terrorism Act 2000 to make provision about financial institutions and cryptoassets.

Brought up, read the First and Second time, and added to the Bill.

Bill, as amended, to be reported.

Economic Crime and Corporate Transparency Bill (Seventeenth sitting)

Tom Tugendhat Excerpts

Committee stage
Thursday 24th November 2022 Public Bill Committees

[Alison Thewliss]

I support the new clauses. The anti-money laundering supervisory duties are incredibly important, as they are part of firmly closing the door on economic crime. It is important that we use this opportunity to strengthen the powers in the Bill. Frankly, if we do not do it now, when will we get round to it again?

New clause 44 asks HMRC to prioritise its AML supervisory function. That seems sensible. I would note that some additional resources will be needed; the Treasury Committee’s economic crime report points to the fact that some 30,000 businesses fall into this bracket.

I note the ongoing review of OPBAS. I do not want the Minister to get ahead of the review, but it might be useful to get a perspective on the direction of travel. At the most extreme end of that review—the Committee heard evidence on this point recently—the Government could propose that OPBAS loses its AML supervisory function. It would be interesting to hear the Minister’s perspective on where he thinks the review will end up. It is quite awkward that the review does not tie in with the Bill’s timetable: the review is ongoing, we are legislating here and we do not quite know where it will end up.

I wonder whether the Minister could clarify a point that the FCA’s chief executive, Nikhil Rathi, could not clarify when he came to the Committee. The most recent report about the performance of OPBAS is dated September 2021. It feels to me that we are overdue a report on the effectiveness of OPBAS. Is the delay a result of the ongoing review or is there some other reason for it? The September 2021 report stated that:

“The vast majority (just over 80%) of PBSs had not implemented an effective risk-based approach. Only a third of PBSs were effective in developing and recording in writing adequate risk profiles for their sector”.

The report also raised various other points about the effectiveness of OPBAS. It has been operating for several years now, but we still do not feel that it is doing what it should to supervise and ensure that the anti-money laundering responsibilities of those it supervises are carried out. If the Minister does not have information on the status of that report today, I would be perfectly content for him to write to me.

Maybe OPBAS has upped its game incredibly since the last report came out—we just do not know. That also hinders our approach to the Bill, because we do not know whether these functions are being adequately carried out. While the FCA chief executive was able to say that there has been improvement, he was not able to say what that improvement looks like. Have 100% of PBSs now implemented an “effective risk-based approach” or is it 50%, or somewhere in between? We just do not know.

It is important that we use all the opportunities we have in the Bill to up the resources for the FCA, OPBAS and HMRC to carry out their functions. As I say, anti-money laundering supervision is the key to ensuring we close the door on money laundering. Those bodies are meant to stop it, and if we do not tighten the legislation and provide the resource there is very little point having the Bill.

[The Minister for Security (Tom Tugendhat)]

I thank the right hon. Member for Birmingham, Hodge Hill and for Barking for their amendments, and I welcome the effort and energy they put into the oversight mechanisms that are so important in ensuring that the Bill is effective. That is the nice bit. They know what is coming next.

I do agree enormously on the importance of supervision, which has been emphasised, but I am afraid I cannot support new clause 44. Despite what the right hon. Member for Barking says, HMRC already has an anti-money laundering supervisory function and it does take its responsibilities extremely seriously. It supervises nine sectors and is the default supervisor for trust and company service providers where they are not already subject to supervision by the FCA or one of the 22 professional bodies.

[Dame Margaret Hodge]

I wish I had brought some of my previous notes with me. What evidence does the Minister have of that, apart from HMRC telling us that?

[Dame Margaret Hodge]

I am amazed that it did. Is there evidence of the number of visits or assessments carried out? I can remember a quote from the previous permanent secretary, who said, “It is not our core business.”

[Tom Tugendhat]

The core business of HMRC is raising money and ensuring that that money is clean. That is absolutely essential. Until HMRC works out whether or not the money is clean, it is hard to raise money. I would be hard pressed to describe my hon. Friend the Under-Secretary as a dodgy individual, but if he is going through these AML checks I think it is a good indication that HMRC is taking such matters very seriously. As I say, the checks are already being done and the responsibilities are held by branches of the Government, including HMRC and other professional bodies.

The amendments are therefore a duplication. The reality is that HMRC carried out 3,500 formal compliance inspections with businesses last year and issued over £2.5 million of penalties in 2021-22. That demonstrates that the business checks are not symbolic. They are not minor. They are extremely serious. HMRC takes them very seriously. I think the Government is entirely in agreement with the right hon. Lady that these checks need to happen, but the scale and type of reform to improve effectiveness and solve these problems is not yet clear. The Treasury will no doubt have many views when its formal consultation on the possible options opens. The consultation will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model. The right hon. Lady knows very well that we need to get this right, not just to be quick.

On new clause 72, I welcome the desire to strengthen the UK’s anti-money laundering regime. I also share the support for the work OPBAS does. However, it is not yet the right time for the proposed changes, and I cannot support the suggested amendment. In June of this year, the Treasury published a review of the UK’s anti-money laundering regime, which considered the performance of the supervisory regime, including the work of OPBAS. It concluded that although there have been significant improvements in recent years, further reform is necessary to ensure effective supervision across the regulated sector. The review set out four options for reform, ranging from strengthening OPBAS to structural reform to establish a new statutory supervisor. Further policy work to develop these options is already under way, and the Treasury has committed to publishing a consultation before a decision on the direction for reform is made. It would be wrong to preclude the ongoing policy analysis and public consultation by making the changes proposed by the amendment.

[Dame Margaret Hodge]

I heard the Minister’s words with gloom. Initially, the Government put out a consultation with four options, and to speed it up, we decided to go with the weakest of the options—the one to which there would be the least objections. What I think I just heard him say, which is so gloomy, is that the Government will now publish a further consultation. All this stuff in the Bill will come into being and we will have absolutely no assurance that proper checking, regulation and supervision will be carried out on company service providers.

[Tom Tugendhat]

As I say, this is really a matter for the Treasury, and it has committed to publishing a consultation before the decision is made. It would be wrong of me to preclude the ongoing policy analysis and public consultation by making—

[Seema Malhotra]

May I clarify whether the Minister has had any discussions with Treasury colleagues about the matter and raised his concerns? Have they acknowledged the need to act much faster?

[Tom Tugendhat]

I have had many conversations with Treasury colleagues in recent weeks and months on various aspects of the challenges that economic crime poses to the UK. Many of us are committed—in fact, the Treasury is very committed—to ensuring that economic crime is reduced in this country. The support that the Treasury has given in various different ways has resulted in many things, including a very successful operation conducted this morning by the Metropolitan police that resulted in the arrest of many people connected to economic crime. That may sound tangential on the grounds that it is about fraud, but the reality is that all of it is connected. We see a very strong overlap between money laundering, fraud and various other different forms of economic crime. The Treasury, unsurprisingly, is extremely committed to making sure that economic crime in this country reduces. The Home Office and the Department for Business, Energy and Industrial Strategy are absolutely committed to making sure that we considerably reduce the level of fraud in this country.

What is important now is to ensure that we make OPBAS as effective as possible, and that we look for some of the reforms that we have started to highlight, because that means that the changes required by the amendment will be unnecessary. I hope that we can focus on that aim.

I have just been given a statistic that records that in October 2022, HMRC named 68 estate agents that had breached anti-money laundering regulations, and fined them a collective total of £519,000. We can see that the supervision of estate agents is not just conducted by my hon. Friend the Under-Secretary but by many others around the country and is taken extremely seriously.

[Dame Margaret Hodge]

I hear what the Minister says, but I think we will just be setting up another duff register unless we get the regulation of those company service providers toughened up at the same time as we introduce the Bill. I want to press new clause 72 to a vote.

Economic Crime and Corporate Transparency Bill (Sixteenth sitting)

Tom Tugendhat Excerpts

Committee stage
Tuesday 22nd November 2022 Public Bill Committees

[The Chair]

With this it will be convenient to consider clauses 161 and 162 stand part.

[The Minister for Security (Tom Tugendhat)]

It is nice to see you this afternoon, Ms Elliott. I look forward to proceeding in order for some parts of this afternoon sitting.

Clause 160 details the Bill’s territorial extent. In preparing the Bill, both Ministers and officials have engaged extensively with their counterparts in the devolved Administrations to ensure that we tackle economic crime and strengthen corporate transparency across all of the United Kingdom. The measures in the Bill extend to England and Wales, Scotland, and Northern Ireland. Some of its provisions have a lesser extent, where they amend existing legislation that extends only to one or two different parts of the UK. In the opinion of the UK Government, the Bill makes some provision for areas within the devolved competence of Wales, Scotland and Northern Ireland. However, the Bill respects the devolution settlements and, where relevant, legislative consent motions are being sought from the devolved Administrations.

Clause 161 sets out procedural detail for the commencement of the Bill’s provisions. It stipulates the various dates when, and conditions under which, the various sections and subsections will come into force. The Secretary of State can make regulations that set the date for certain provisions to come into force. Different days may be appointed for different purposes. The Secretary of State can also make transitional or savings provisions for regulations made under certain clauses, as set out in the Bill. Any regulations made under the clause are to be made by statutory instrument.

Clause 162 establishes that the title of the Bill once it becomes an Act will be the Economic Crime and Corporate Transparency Act. The short title is a standard clause in any Bill.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Ms Elliott.

I have a few limited remarks to make as we approach the end of clause-by-clause consideration and before we move on to new clauses. As the Minister said, clause 160 extends the Bill to England and Wales, Scotland, and Northern Ireland. I was grateful for his comments about liaison with the Scottish Parliament and the Welsh Senedd. There are obviously current challenges in respect of the Northern Ireland Executive. I would be grateful for some clarity about how the engagement with the devolved Administrations is going, because it has been a theme, certainly during the earlier debates. It is important that we can have confidence that all the issues that are being raised in our deliberations are coming into the Bill.

Clause 161 sets out when the Bill’s provisions will come into force. I am sure the Minister will want to give assurances that that will be no later than is absolutely necessary, bearing in mind the urgency of the measures. Clause 162 establishes the short title and we welcome it.

[Tom Tugendhat]

Different devolved Administrations have been contacted in different ways. Some of them have been written to, and I have sought conversations with some, although that has not always been achieved because of other people’s diaries as well as my own. The conversation is ongoing and, although I hope the Bill will be passed soon, it will have to continue because many things are going to change over the coming years.

Question put and agreed to.

Clause 160 accordingly ordered to stand part of the Bill.

Clauses 161 and 162 ordered to stand part of the Bill.

New Clause 1

Change of addresses of officers of overseas companies by registrar

“In section 1046 of the Companies Act 2006 (overseas companies: registration of particulars), after subsection (6) insert—

‘(6A) Where regulations under this section require an overseas company to deliver to the registrar for registration—

(a) a service address for an officer of the company, or

(b) the address of the principal office of an officer of the company,

the regulations may make provision corresponding or similar to any provision made by section 1097B or 1097C (rectification of register relating to service addresses or principal office addresses) or to provision that may be made by regulations made under that section.’”.—(Kevin Hollinrake.)

Where an overseas company is required to provide a service address or principal office address for a director or secretary, this new clause enables regulations to be made conferring power on the registrar to change the address if it does not meet the statutory requirements or is inaccurate.

Brought up, and read the First time.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

I beg to move, That the clause be read a Second time.

Economic Crime and Corporate Transparency Bill (Second sitting)

Tom Tugendhat Excerpts

Tuesday 25th October 2022 Public Bill Committees

[The Chair]

Our first witnesses, the fifth panel, are Martin Swain from Companies House and Adrian Searle from the National Economic Crime Centre.

[The Minister for Security (Tom Tugendhat)]

May I just declare an interest, very briefly?

[The Chair]

Absolutely. We will all listen with bated breath to the Minister’s declaration of interest.

[Tom Tugendhat]

I simply refer to my wider declaration in the Register of Members’ Financial Interests.

[The Chair]

Thank you. Mr Swain, would you introduce yourself briefly for the record?

Martin Swain: Good afternoon. I am Martin Swain. I am one of the executive directors of Companies House, with responsibility for—

--- Later in debate ---

[Jackie Doyle-Price]

Q It is partly about powers and laws. It is partly about resource, but fundamentally it is about the behaviour of the regulators. Mr Browder, some of the things you alluded to earlier would be about informing those behaviours. Coming back to the extent of laundered money that goes through the City of London, to what extent do we need to make sure that we are driving behavioural change within the institutions through which these monies are being routed?

Bill Browder: People are very simple: they operate on the basis of rewards and punishments. There are big rewards for people in the City of London to launder money. Banks make money off transactions and accounts and so on. Company formation agencies make money off selling directors and forming companies. Lawyers make money setting up these structures. There is no consequence if they are involved in in dirty business—none. Nobody faces any consequence.

What we have just seen at Companies House is remarkable: thousands of companies being registered for no commercial purpose other than to launder money. These companies then set up foreign bank accounts. We know who the directors are. Some of the directors are UK citizens. The company formation agencies are UK company formation agencies. We report it to the police, and nothing happens. If nothing is going to happen, then you are not going to change the culture.

America has the Foreign Corrupt Practices Act. Most American corporate executives do not want to be prosecuted and therefore do not make bribes abroad. Austria does not, and so they do. We are in a situation where there is no consequence for doing any of this type of stuff. It does not matter what is written in this law; it does not matter what was written in the previous law. There was a great law passed called the unexplained wealth order. It is a beautiful law, which solved a huge problem, which is not having to get evidence from the bad guys in the kleptocrat countries, and just using the evidence that we have here. We have used it in four or five cases, and most of the cases have actually been on behalf of dictators going after their enemies. We have a total failure of law enforcement. It probably should be studied as a separate issue: why is law enforcement not doing its job? Why is it failing?

You can write as many great laws as you want—there is some good stuff in this law, and good stuff in the previous laws—but if no one is going to enforce it, then you are never going to change the risk-reward and people are going to carry on doing stuff. All this will continue, and I will sit here 10 years from now making the same allegations about how this is a centre of money laundering.

Oliver Bullough: I would like to agree with everything Bill just said. People are more or less rational: they act according to their incentives. We can try and change the culture in the City of London as much as we like but, essentially, if there is no prospect of being arrested, prosecuted and jailed, or at the very least given a large fine, for committing these kinds of crimes, then someone will always be available to commit them because the reward will be sufficiently large and there will be no downside.

I gave a talk to a school a couple of years ago. One of the kids had been sitting silently throughout, and he put his hand up and asked me at the end, “Yeah, Mister, if you know all this about money laundering, why don’t you just go and do it?” I still do not really know the answer to that question, because there is no real reason not to do it. It is a gimme of a crime. You are 99.9% likely to get away with it.

What is particularly frustrating is that when we have prosecuted fraud and put resources into prosecuting fraud, it not only pays for itself, but is a huge profit centre. We saw that from Lord Agnew, who ran a small anti-fraud office from the Cabinet Office during the covid pandemic. He had a small anti-fraud budget that returned tenfold the amount of money that was paid. It is a complete no-brainer to go after this money and these crimes. We would be benefiting the country in every way.

I agree with Bill; it is very frustrating to hear talk about changing culture, when what we really need to do is to change people’s incentives. The way to do that is to enforce the laws that we have.

[Tom Tugendhat]

Q Mr Browder and Mr Bullough, thank you very much for coming. We have spoken about these issues at the Foreign Affairs Committee, which I used to chair. In the past, we have consistently covered the need for transparency. I hope you will agree that the Bill demonstrates a desire to be much more transparent. I hope you will also agree that many of the anti-money laundering provisions go much of the distance towards addressing the concerns we have raised in the past.

We will be listening for further ideas in the future, but do you agree that the Bill at least sets out the first steps to where we really do need to be going to make sure that the crimes begin to be prosecuted? Just to answer your question, Oliver, the reason you do not launder money is that you are and remain a person of integrity; sadly, you are not very rich for it, but there you go. That is the price.

Bill Browder: I have never had any trouble with the laws as they are written here. We probably do not even need this. It is a great law—congratulations; I applaud you on putting it together. It is 252 pages of mind-numbing stuff—

[Tom Tugendhat]

Of detail, Bill!

Bill Browder: It is great. There is no problem with the actual legislation. This is a rule-of-law country, and the laws have been written, and continue to be written, very well. There is just a huge disconnect between that and the enforcement.

I would add one little detail, if you want to get into the nitty-gritty. We have seen that UK companies are used abroad to set up accounts—this was mentioned by Dr Susan Hawley and perhaps one other—because it looks legit to have a British company with a Cypriot or Latvian bank account. Somehow, when you get a transfer from a British company with a European bank, everything then—that is how these people get away with it.

I would therefore add one small provision to this law, which is easily done. When people are setting up their companies, they should have to disclose, on an annual basis, where they have foreign bank accounts. If you were to do that, then every anti-corruption investigator could go around and start looking at that. I do not think that it is a huge additional disclosure requirement. People have to disclose their income, expenses and so on, so why not disclose where they have bank accounts?

[The Chair]

Q Mr Bullough, do you want to join in on that?

Oliver Bullough: I think it was Samuel Johnson who said, about a dog walking on its hind legs, that

“It is not done well; but you are surprised to find it done at all.”

I am happy that the Bill exists; I was happy that there was another one earlier in the year. I would prefer it, however, if Parliament sat back and, instead of passing two fairly minor economic crime Bills in one year, put them together into one with all the other things that desperately need doing, take a long time over it and, when passed, really ensure that the law, as passed, is enforced.

Bill mentioned unexplained wealth orders. Those were a fantastic idea—perhaps hugely overhyped when they were brought in, but a great idea—and a real potential silver bullet for tackling top-end economic crime by both organised criminals and kleptocrats. Sadly, after the failure of the case against the daughter of the former President of Kazakhstan, they have not really been used at all. That is because the National Crime Agency does not have the money it needs to do the job, and that is because politicians have not sufficiently prioritised fighting economic crime. That is where the money comes from.

Yes, by all means, it is good to have another Bill, but I would far prefer to see the existing laws properly enforced by properly-resourced law enforcement agencies with continuous political support than have another Bill. I say that as someone who has been banging on about the problems with Companies House for absolutely ages.

Newport Wafer Fab Sale

Tom Tugendhat Excerpts

Thursday 15th July 2021 Commons Chamber

[Amanda Solloway]

As laid out in the integrated review, China is a systemic competitor. The scale and reach of China’s economy, the size of its population, its technological advancement and increasing ambition to project its influence on the global stage, for example through the belt and road initiative, will have profound implications worldwide. Open, trading economies such as the UK will need to engage with China and remain open to Chinese trade and investment, but they must protect themselves against practices that have an adverse effect on prosperity and security. Co-operation with China is vital in tackling transnational-type challenges, particularly climate change and biodiversity loss.

The UK wants a mature, positive relationship with China, based on mutual respect and trust. There is considerable scope for constructive engagement and co-operation, but as we strive for that positive relationship, we will not sacrifice either our values or our security. It has always been the case that where we have concerns, we will raise them, and where we need to intervene, we will. The Government have a range of legislative and regulatory powers to protect infrastructure and critical services, including the new National Security and Investment Act 2021. The NSI Act is nation-agnostic: acquisitions should be considered on a case-by-case basis, which will help to ensure that the Act is not discriminatory and that we uphold our World Trade Organisation obligations.

[Tom Tugendhat (Tonbridge and Malling) (Con)]

I pay tribute to my hon. Friend the Member for The Cotswolds (Sir Geoffrey Clifton-Brown) for the timing of his urgent question—which is clearly rather better than my timing. May I ask the Minister—who is very kindly in her place—about the National Security and Investment Act 2021? The Act set forth various conditions for securing various elements of British industry, but as set out, that was all to be done by central Government, not by devolved Administrations. Clearly this is one of those moments, because there is a global semiconductor chip shortage, delaying the production of white goods, cars and, indeed, military equipment.

I am told that Newport Wafer Fab is a key partner for the development of—I am afraid I will have to use the technical terms, because I am not qualified to translate them—RF MMIC high-frequency GaN designs for defence 5G radar systems. This is a £5.4 million project led by the Compound Semiconductor Applications Catapult and Cardiff University, with Newport Wafer Fab providing process development expertise and a route to scale up within a proposed expansion of Newport Wafer Fab 10.

If that does not put Newport Wafer Fab into the national security bracket, I do not know what does. The idea that this is a matter for the Assembly or the Government in Wales is, I am afraid, simply not the case. The Prime Minister seems to have pre-empted that, as he has asked the National Security Adviser, as he told the Liaison Committee the other day, to have a look into this. Will the Minister now commit, on behalf of her Department, to present the National Security Adviser’s report to Parliament, to allow us to hear the evaluation of Her Majesty’s Government and to debate it?

[Amanda Solloway]

I acknowledge the work that my hon. Friend does, which is greatly appreciated. As he will know, the Act focuses on acquisitions of control over qualifying and entitled assets. That means that once the Act is commenced we will be able to scrutinise and, if necessary, intervene in takeover companies and in the purchase of individual assets, such as intellectual property. The Government are absolutely clear that where concerns are raised we will intervene. However, my hon. Friend and the House will appreciate that I cannot go into any detail or comment on commercial transactions or national security assessments.

National Security and Investment Bill

Tom Tugendhat Excerpts

2nd reading & 2nd reading: House of Commons
Tuesday 17th November 2020 Commons Chamber

[Edward Miliband]

The hon. Gentleman makes the point that the United States has exactly the regime that I am talking about and does indeed have those wide powers of intervention, so the notion that people are going to set up in the United States rather than Britain, when they have much stronger powers than us, does not hold water.

[Tom Tugendhat (Tonbridge and Malling) (Con)]

The right hon. Gentleman is of course right that there is a difference between the United States and the United Kingdom. One of the differences is that there are 350 million people in the United States. It is a continental power, a position that the UK sadly does not share. It does mean that our investment regime and our investment protocols have to recognise that we are having foreign direct investment of a very different nature.

I appreciate that this is a matter for debate, and I also appreciate that this is something where we will probably not agree. In fact, interestingly, the right hon. Gentleman seems to align much more closely with the former Prime Minister’s special adviser Mr Dominic Cummings than he does with me. Apart from that, it is actually a matter for a separate Bill. I may actually have some views where I sympathise more with him, but this Bill is quite clearly about national security. There are issues about how much further it should go, but what he says is not the scope of this Bill.

[Edward Miliband]

I can say to the hon. Gentleman that this is the first time I have been called a Cummings-ite. I have been called many things in my time, but a Cummings-ite after Cummings is really unusual.

The final point I will make before I conclude, because many hon. and right hon. Members want to speak in this debate, is that when I listen to Government Members, I feel that they accept the logic that we have to move away from the old view—the two decades ago view best embodied perhaps by the Enterprise Act 2002—when it comes to national security. They say, “We are worried about the investment effects, but national security matters.” Of course it does, and I agree with that. But then, when it comes to our industrial base, suddenly they have a completely different view, which is, “No, no, no. We can’t go back. We can’t change our view.” I think there is a degree, dare I say it, of inconsistency on that.

--- Later in debate ---

[Tom Tugendhat (Tonbridge and Malling) (Con)]

I start, as many other hon. Members rightly have, by paying tribute to the ministerial team and the team of civil servants for their consultation on the Bill with not just Members of this House, but the wider business community. It is a hugely important Bill. When, no doubt, some of it becomes an Act, we will all be living with the consequences, which are difficult to imagine in a fast-changing world in which technology is evolving.

I welcome enormously not just the consultation that the Secretary of State has already contributed to, and which he has welcomed, but that which he has also invited, because that is a really important part of the next few weeks and months. It shows wisdom and extreme judgment to make sure that the Bill survives contact with the enemy.

I welcome the fact that the Bill has been crafted to recognise the competition that we are seeing increasingly between states. The Minister in his place, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), as a former member of the Foreign Affairs Committee, knows only too well what we are seeing around the world and has regularly spoken with me about the various natures of competition that he, too, envisions. I welcome that he sees the Bill as being about the UK’s response and ensuring the prosperity and happiness of the British people around the world.

Power is not just about state power; it is also about the economics of strategic challenge through business. As the sadly likely recession following the covid pandemic rises, the reality is that state capitalism will pose a greater problem. As the wells of private sector investment dry up, companies able to draw on national reserves may do better.

Other countries have already seen that and reacted early. In March, in response to similar pressures that the Secretary of State responded to earlier, the Australian foreign investment review board reduced the threshold to zero for calling in acquisitions. In August, France reduced the shareholding required to trigger an inquiry from 25% to 10% for similar reasons. The United States has not followed suit on that basis, but the CFIUS regime, as we all know, is one of the most mature in the world. The Committee on Foreign Investment in the United States has, in some ways, led the way, so the need to adapt to changing circumstances is not so immediate.

For our Government to introduce the Bill now is a welcome demonstration that the UK sees the changing circumstances and recognises that state-owned enterprises pose a different threat from five, 10 or 20 years ago. The Bill also recognises, in the 17 sectors that other hon. Members have spoken about, the rapid pace of technological change that we are seeing and the urgency of making sure that we realise what we are looking at. As assets are being developed that are essential to our continued prosperity and security, they now emerge much more quickly than we ever imagined.

Indeed, I would argue that two of the biggest strategic losses for the United Kingdom in recent years were the 2014 sale of DeepMind to Google and the 2016 sale of ARM to SoftBank, but they have been completed. What those two firms have both enabled, however, is quite phenomenal. Deep Mind, which one can pretty safely say is the world’s premier AI company, is an extraordinary asset. When it started in 2010, it was seen as a sideline, but today in 2020 it is seen very much as the main event.

The UK is not directly comparable with some of the other countries that we have spoken about. Some people have mentioned France, Germany or Australia, but the UK has about double the foreign direct investment of France or Germany, and our international co-operation—our links abroad—are quite different.

Here I declare that my entry in the Register of Members’ Financial Interests shows that I, too, invest in businesses across the UK, and the reason why is that I think, as a Conservative, that if someone believes in business, they should put their money where their mouth is. I am proud to support some young people who have come up with some ideas, some of which may succeed and one of which may even make me as rich as the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stratford-on-Avon—[Laughter.]

This Bill looks at the challenge that such businesses are starting up with, and here I pay tribute to my constituency neighbour and right hon. Friend the Member for Tunbridge Wells (Greg Clark) who spoke about the de minimis clause—the minimum amount that should be called in. Of course, it is absolutely right that companies can evolve. Technology can adapt very quickly, and ideas that one thought were insignificant can become very significant.

However, the reality is that that rarely happens overnight and, with the nature of British capitalism being as it is, the value of a company will be appreciated in the market a long time before the technology is appreciated by the Government. Therefore, although I understand why the minimum number is set at zero, there is an argument—I would welcome the Government’s thoughts on this—for setting it even as low as £1 million, which is actually a very small sum these days for many of the venture capital enterprises in our country.

I welcome the fact that this Bill makes the important distinction between national interest and national security. I see the hon. Member for Aberavon (Stephen Kinnock) in his place, and I know well that if this Bill were about national interest, he would be making one of the strong speeches about the steel industry that I have heard him make over the past five years, but this Bill is not about that. This Bill is fundamentally about the threats to the UK people and to our national security, not just our immediate interests.

It is important to make that distinction in the long term because, of course, to change that would be to fundamentally open a different question. It may be one that Opposition Members or, indeed, some Government Members, would wish to engage with, but it would be a big change to the investment environment of the United Kingdom. It would change our employment structures considerably and challenge many of the services that are built on the UK economy, from law and accountancy to finance and investment. It is a rather larger question, and I am glad that it is not included in the scope of this Bill.

The Government recognise that more consideration is needed, and they could do a little more, if I may say so, just to advertise the consideration that they are looking for in the 17 sectors. Having spoken to many lawyers in recent days—a confusion of lawyers, in fact—and to several businesses, it is quite clear that, although the consultation is welcomed, not all are as aware of what is required as would be beneficial.

If I may, I am going to start claiming some credit for some of this, because the Minister will know that the Foreign Affairs Committee has long pressed for tougher measures to protect our vital national security interests against growing threats. In our May 2018 report entitled “Moscow’s Gold”, we highlighted the corrupt investments associated with the Kremlin, but not unique to that Mafia-style regime, that have direct implications for the UK’s national security. The sanctions regime we rejected is a welcome addition to the state’s arsenal against those who seek to damage our national security. In 2019, we went further: in our report, “A cautious embrace: defending democracy in an age of autocracies”, we recommended that the Government establish a power to block listings on the UK markets on national security grounds as a matter of urgency. The Government have now announced their intention to do so to stop companies with questionable ownership from taking advantage of UK listings.

The fact that the Bill builds on both those reports is enormously welcome. They also led us to ask some pretty important questions about how the Government could achieve their aim, because there are various elements in which those questions exposed gaps or failures in the British structure that would allow the Government to be properly informed of where to get the information. That is why I will ask a few initial questions, before the Foreign Affairs Committee spends a few weeks hearing evidence and listening to commentators on the Bill and investors, practitioners and lawyers about its application. Indeed, we may even suggest amendments.

To turn to my first question, the Government have been clear that state-owned entities and sovereign wealth funds are not inherently more likely to pose a national security risk, especially if they have operational independence in economic investment strategies. This is of course important for many countries around the world, including Norway and many others, who operate very large sovereign wealth or national pension programmes. However, regimes such as that of the Chinese Communist party use opaque ownership structures to hide state interference. Will the Minister tell us what structures will be created and legal powers given to ensure that we can draw on the expertise and knowledge of those Departments and agencies across Government, including the Foreign, Commonwealth and Development Office, to shape decisions accurately? It is clear to all of us that UK missions around the world will need to be actively involved to ensure that the information required to take decisions is provided in a timely manner.

My second question is about the fact that this Bill provides gateways for disclosure of information to my right hon. Friend the Secretary of State and disclosure by him to a public or overseas authority. What we really need to know as well is not just how much he is able to exchange, but how much he is able to draw on other intelligence agencies and other partners and particularly, perhaps, on those in democratic and law-abiding countries, including the European Union, as we will no longer be part of the investment screening regulation and we have never been part of the different agencies or regulators in the United States, Australia and many other countries. Who are the likely partners with whom he is intending to share and how will we support each other?

Thirdly, the best estimate of the impact assessment suggests that the new notification regime will cost about £49 million a year and about £425 million over 10 years. Those numbers are, of course, uncertain. The new regime is expected to result in up to 1,800 notifications a year, which is a vast increase compared with the approximately 60 notifications a year that the Competition and Markets Authority currently deals with. The Bill introduces an investment security unit that will be staffed by 100 officials. May I seek assurance that this unit will have the capacity and necessary competencies to effectively screen this high volume of transactions and to expand if notifications are more than expected? The Minister will have heard from many people that there is the possibility that voluntary notification will result in a much higher level of disclosure than anyone is currently expecting, and therefore, the 100 officials could rapidly become overwhelmed and the timelines that he has very sensibly set out, of 30 and 45 days, could become impossible.

[Mr Kevan Jones]

Does the hon. Gentleman agree that this unit or some of the individuals in it will need a high classification of security clearance? Without that, they will not be able to make informed judgments on some of these applications.

[Tom Tugendhat]

I agree entirely with the right hon. Member that what we are looking at here is a multi-agency taskforce, not a BEIS departmental body. The reason, of course, why it has to be a multi-agency taskforce is that, as he says quite correctly, the need to have access to high-level intelligence is clear, but so is the need to be able to understand the changing nature of the technology and, indeed, the changing nature of some of the individuals and groups that may be affected. It is, after all, entirely possible that a company owned one day by one individual abroad is likely to be, or is in the direction of being, controlled by a rather less salubrious individual only a few days later, and the need for such multi-agency taskforce access is clear.

Insufficient resources would of course cost delays and have a serious impact on the UK economy. Indeed, it could lead to the various obstacles that I know the Minister has been incredibly careful about avoiding, which is why he has made the scope of the Bill so narrow. I am sure that he will be able to help me in assuring me that this group will have the resources it needs. Fourthly, given the sensitivity of the cases—my mistake: I was going to repeat exactly what the right hon. Member for North Durham (Mr Jones) said, so I shall skip it. I was going to ask for exactly the same.

As this Bill makes its way through the House, the Foreign Affairs Committee will be following it closely. As I have said, we will be conducting various hearings with various people along the way in the next few weeks, and we will, I hope, be making welcome suggestions that the Minister will be able to consider. Properly implemented and with due consultation and consideration, this new investment regime should provide certainty and transparency for UK businesses and investors in this country. It is an important and valuable change to our laws to ensure that our businesses are able to prosper in the safe knowledge that the information they develop and the innovations they provide allow the happiness and prosperity of these people, our friends and our allies.

--- Later in debate ---

[Mr Kevan Jones (North Durham) (Lab)]

I was going to say it is a pleasure to follow the hon. Member for Bolton North East (Mark Logan), but I am not sure that it is. I welcome any measure that aims to protect or increase our national security. We live in an interconnected world now—a global world—in which capital is no respecter of national boundaries. We also live in a world in which nation states are using strategic investment as a way to pursue their own national interests, and there was mention earlier of the Chinese belt and road initiative.

We also live in a world in which nations or individuals use investments to launder money or to buy influence or protection, as was highlighted in the Intelligence and Security Committee’s Russia report. So the measures in the Bill are to be welcomed but, as the hon. Member for Dundee East (Stewart Hosie) said, the issues that it addresses were raised seven years ago in the ISC report on Huawei. None the less, I wish to mention a few areas where the Bill is still deficient.

The right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith) mentioned the Secretary of State’s role. A call-in will be triggered on whether a transaction creates a risk to national security. Notification takes place in one of two ways—a transaction is notifiable either under four criteria or under a voluntary system. I believe the voluntary system is fraught with administrative difficulties and needs to change. However, I want to focus on how the assessment is then made and the role that the Secretary of State plays in deciding whether a case goes forward. I do so by reference to a recent case—that of the Cobham company.

The Bill would not have prevented the £4 billion sale of Cobham to a US company, even though the Ministry of Defence had huge issues around the sale, partly because it would allow unauthorised persons to understand either the details of the MOD capacity and activities, or give them a more strategic picture of the capabilities and activities that had been built up. The MOD said that the transaction posed a risk to the existing MOD programmes if the merger entity took decisions to exit from an investment or to move offshore the associated capabilities.

At the time, Lady Cobham’s concern was that Cobham would be split into various entities and sold off—and, lo and behold, that it is exactly what is happening. It has gone from four divisions to nine, and the risks to national security were clearly evident at the time. I see nothing in the Bill that would have stopped that, because it comes back to the decision of the Business Secretary.

I am not anti-business in any way, but I am not sure that BEIS takes a view in terms of security issues, which would be perhaps more evident in the Ministry of Defence and so on. So there is an issue about who takes the final decision on such bids’ going forward. I would prefer that to be a decision of the national security committee or a sub-committee of that, so that we may have in-depth intelligence reasoning—and I accept that such decisions should be taken on national security grounds only. If we look at the United States model, we see that some very dubious decisions are taken there on national security grounds, which, frankly, are more to do with protectionism rather than anything else.

[Tom Tugendhat]

Does the right hon. Gentleman agree that there is a real role for Committees of this House in such processes and that the ability to subpoena both witnesses and papers would add not only depth to the Government’s investigation but protection to the Business Secretary who was forced to take the decision?

[Mr Jones]

I agree. There is an issue, in some of these cases, around national security. A point was raised earlier in the debate about whether the ISC should look at such decisions. Certainly there is an argument for an annual report, which I would welcome.

I said earlier that I had a fundamental problem with one individual’s taking such decisions, and I am sorry, but I do not think that the new investment security unit is the vehicle. The hon. Gentleman has referred to it as a taskforce, but unless it has national security at its heart, the push for business to get things moved on will take over, rather than what we should be looking at—national security. So decisions should not be left with the Business Secretary.

The other issue I raise is with supply chains. We all know that supply chains are now very complicated, long and diverse, from small companies right down to SMEs. I asked who will map those supply chains. We might say that small companies will self-notify, but would we miss things? There is a key role here for our security services in terms of flagging up things about particular companies, and I do not see that in this process. A small company very low down the supply chain, which may have only a very small element of either a nuclear project or a defence project, might lead to a security risk. I do not think that the new investment security unit will be able to deal with this. That is a role for our security services, which should be at the heart of this, rather than just being a member of the taskforce.

The other area I wish to focus on is in relation to the core areas. Listing them in the way that they have been listed is not helpful. For example, the term “military dual use” brings in a whole host of issues. Is a vehicle that is used for military purposes “dual use” even if it has a civilian use? Trying to define things in a list is actually very unhelpful. I would sooner come at it from the point of view of security and intelligence-driven information, which would inform the decisions that are taken. I am also a bit reluctant for things to be added to that core list by secondary legislation.

Then we come to an area that has already been touched on, which is the role of universities. The Bill mentions

“moveable property, ideas, information or techniques which have industrial, commercial or other economic value.”

When does an idea become a commercial value? I personally think that we need to be looking carefully at this. There is some perfectly legitimate and important foreign investment in our universities, and I do not want to stifle it, but if we have, for example, a Chinese or Russian company investing in a university, particularly in a research programme, is that covered by this Bill? At the initial stage, the investment goes in, but there is no actual product as such. A separate look at that needs to be part of our overall assessment, and, again, that can only be done not from a broad brush stroke approach, but from letting our security services look at some of these areas.

The other point I want to make is to do with land, which is referred to in the Bill, but, again, what is strategic? Would it be allowable, for example, for a Chinese or Russian company, or any company, to start buying up real estate with Government offices on it? The other thing that the Bill does not really cover—the Minister might say that there are measures to cover this—is the issue relating to the well-trailed arguments about the way in which Russian and former eastern European countries have used the property market in the UK, not only to launder money but to build up huge assets in terms of power and influence.

I have just two final points. One is referred to in the appeal system as closed hearings. Members may be aware of what closed hearings are. This is where intelligence, which is an informed decision, goes before a court within a closed hearing. These hearings are mainly used in terrorism-related activities or other national security cases. I would be interested to hear from the Minister in his summing up exactly how he envisages that working in relation to this Bill and how he will manage closed cases, because they are very controversial. At the moment, for example, there are a lot of legal challenges to cases when intelligence goes before the court and then it is ruled that it cannot be heard in open hearings. I just wondered what the Minister has to say on that.

My final concern is around the time limit, which I do not quite understand. It is six months from the date that it comes available to the Secretary of State. I am very opposed to anything that is retrospective, because, as has already been argued, to try to unpick these things will be very difficult. I just want to understand from the Minister the reason behind the five-year retrospection.

Yes, I welcome this Bill, but what it should have at the heart of it is security and intelligence. At the moment, there is too much emphasis on business. I am not arguing for one minute that we should get security and intelligence looking at every single investment decision. I am pro-investment, but the balance here is possibly wrong if we are trying to stop what we all want to stop, which is malign activity in our economy.

Budget Resolutions

Tom Tugendhat Excerpts

Thursday 12th March 2020 Commons Chamber

[Tom Tugendhat (Tonbridge and Malling) (Con)]

It is an absolute privilege to see you in the Chair, Madam Deputy Speaker, and to be called to speak. You are the first woman to Chair a Budget statement, which is fantastic. You may have heard that, way back in the long distant past, there was another woman who spoke during a Budget statement. The last woman who did so was Margaret Thatcher, who led for the Opposition way back in the 1970s. You are in good company.

What a fantastic Budget! I welcome it enormously. This was in many ways a pragmatic Budget, with the 25 basis points offered by the Bank of England for us to refinance ourselves and ensure that the debt works for the future.

The Budget was also in many ways designed for Tonbridge and west Kent. On flooding, it will make sure that the Medway is properly protected and that we can get the money into Leigh, East Peckham, Hildenborough, and up around Penshurst and Edenbridge.

This was also a Budget that finally listened to me. I know this will surprise many in the House, but having asked three Chancellors for business rates to be reduced, third time lucky, we have got it. I am absolutely delighted that Tonbridge high street will see the benefits, as of course will Edenbridge and West Malling. For those of us who have been driving around west Kent lately, the issue of potholes keeps coming up. Tyre makers may regret the announcement, but almost everyone else will celebrate it, so I thank the Government for focusing on potholes.

On further education, in the past we have had a bit of trouble locally with some further education colleges, so I am delighted that the investment into Hadlow and west Kent will really make a difference to people’s lives. It is fantastic news and I welcome all of it.

One thing was very noticeable in the Budget: we are dealing with a global emergency that is very unpredictable. We do not know how the virus will affect us. We do not know the full effect it will have on every society and community. It is therefore absolutely right that the Chancellor has pulled together a war chest of £30 billion and not said exactly where it is going to go, because we do not know. The right thing to do is to build up reserves and to prepare to deploy them when we need them. We are in the moment of the phony war. We do not know quite how things will emerge. I hope the Minister will take the message back to other Departments that, on equipping, we need to think in terms of a wartime analogy. We need to consider what urgent operational requirements to bring forward. What shortcuts should we take in normal procedure to ensure that we are as ready as we can be in our hospitals, homes and communities? What are the experimental technologies that we perhaps would not have rolled out this early, and now have no choice but to roll out? Where are the areas of investment which, if we make them now rather than waiting until they are fully tested, will actually save lives?

This is one of those moments where we remember stories like the boy who cried wolf. We remember that it is right to prevent panic and right to make sure that people think about what we are doing. It is right to follow the ordinary advice, but it is also right to remember that in the story there was a wolf and the wolf did eventually come. What we are preparing for, as we are seeing in Italy, China and around the world, is the reality of a human threat, predominantly to the lives, sadly, of many of the older members of our community. There is also a huge economic threat. However this plays out in our community, the concern and fear will have affected investment decisions in our community, in our country and around the world, so the reserves that the Chancellor has wisely built up will be needed in some way in the months and, sadly, probably even years to come.

That means working together, and here I just want to pick up a point on globalisation that my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) touched on. Globalisation has, in many ways, been a fantastic success. It has seen us prosper and trade around the world. It has seen liberty and opportunity spread across the globe, but not all globalisation has been good. Some globalisation has brought practices, ideas and concepts that fundamentally threaten the liberties that have enabled people—these islands—to prosper and shape the world around us. Sadly, we are now seeing some of that through the competitive practices that we are enabling, allowing or tolerating some companies to bring into our markets. Here, of course, I am referring to some companies in our telecoms market.

I urge the Government, with all respect, to think again about the decisions that they are taking, when those may not actually enable competition, but close it down, and when they may not enable communication and prosperity, but in the long term, reverse it. These are really hard and expensive decisions but we must look at how we do it, because power in our community starts from the bottom. That is why the decision to invest in devolution was so important. I look forward to devo-Kent. Kent is one of the oldest kingdoms of our country—at the time when Scotland was the kingdom of Fife and others, Kent was a kingdom in her own right.

I look forward to power coming back to the people, to devolution going to the whole United Kingdom and to our Government looking hard at globalisation and the competitive practices that are being brought to these islands, remembering that there is no point in taking back control from Brussels only to hand it over to Beijing.

[Several hon. Members rose—]