Sanctions and Anti-Money Laundering Bill [HL]
Wednesday 18th October 2017
(7 years, 1 month ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text
Sanctions and Anti-Money Laundering Bill [HL]
Wednesday 1st November 2017
(7 years ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, I thank all noble Lords for attending the debate and for the useful comments already shared with me and my noble friend Lady Goldie during the meetings we have held since the Bill was introduced. This is an important piece of legislation and we need to get it right.
The United Kingdom has long played a leading role on the global stage in tackling threats to international peace and security. One method of influence increasingly used by the international community is the imposition of sanctions. Sanctions encompass a range of measures, such as travel bans, asset freezes, trade restrictions and broader economic measures. In recent years they have been employed in relation to Russia’s invasion of Ukraine and the conflict in Syria, and to put pressure on Iran to come to the negotiating table. Anti-money laundering regulations are also increasingly important in this globalised world and vital if the international community is to continue to protect itself from financial crime. The effectiveness of these measures depends on the consistent enforcement of technical and procedural controls mandated by the Financial Action Task Force, an international organisation of which the United Kingdom is a founder member.
I shall briefly set the scene as to where we are. The UK currently implements 35 sanctions regimes. These include country-specific regimes, such as those on North Korea, Syria and Iran, and regimes targeting terrorist organisations such as al-Qaeda and Daesh. Within these regimes there are currently around 2,000 individuals, groups and businesses subject to restrictive measures.
In broad terms, the UK implements four main types of sanction regime. The first is based entirely on UN Security Council resolutions. As a member of the UN, the UK is obliged to implement them. Indeed, our position as a permanent member of the Security Council means that we have agreed to those regimes in that forum before they become international law under the UN charter.
The second type of regime is where the EU has acted alone or with allies such as the US, generally where it has not been possible to reach agreement at the United Nations. I shall give an example of the former: after the annexation of Crimea, the UN was unable to impose sanctions on Russia because of Russia’s veto in the Security Council, so the EU decided to act in concert with the United States and other like-minded countries. The third type is hybrid regimes. These are where the EU has adopted UN sanctions but has decided to top up the provisions within those regimes with additional measures. An example of this occurred recently on North Korea. Finally, the UK has some domestic powers to impose sanctions—for example, under the Terrorist Asset-Freezing etc. Act 2010.
This is a technical Bill which ensures that the UK can continue to meet its international obligations and to implement UK sanctions and anti-money laundering measures after we leave the European Union. New domestic legislation is necessary because most of the UK’s powers to implement sanctions and anti-money laundering measures currently come from the European Communities Act 1972. When the EU withdrawal Act, as the Bill going through the other place will become, repeals the European Communities Act, it will freeze any sanctions regimes which are in force on the day on which the withdrawal Act commences, but we do not possess sufficient powers under current domestic legislation fully to impose, amend and lift existing or new EU UK autonomous sanctions regimes. Similarly, we do not currently possess sufficient domestic legal powers to update anti-money laundering and counterterrorist financing legislation after the UK ceases to be a member of the EU. This means that, without this Bill, the UK would quickly be in breach of international law.
Before I go into detail about the content of the Bill, I reassure noble Lords that there has been significant government engagement with individuals and businesses on this domestic framework. In April, the Foreign and Commonwealth Office, Her Majesty’s Treasury and the Department for International Trade published a White Paper and launched a public consultation on the UK’s future legal framework for imposing and implementing sanctions. My officials held round tables with a number of sectors including financial services, NGOs and the legal profession, as well as international partners. My right honourable friend Sir Alan Duncan, the Minister for Europe and the Americas, took part in a debate on sanctions in the other place on 19 July. On 2 August, the Government published their response to the consultation. This process had been transparent over the previous six months, and I intend to continue the same level of transparency with noble Lords as the Bill passes through this House.
Turning to the content of the Bill, I emphasise that it is about powers and not policy—it is a technical Bill which creates the legal framework for the UK to be able to continue to impose sanctions where appropriate. Part 1 allows the Government to impose a number of sanctions: financial, trade, transport and immigration. This will allow the UK to maintain the full range of sanctions available at the moment. Part 2 deals with anti-money laundering and counterterrorist financing regimes, and Part 3 deals with general matters such as supplementary provisions and definitions. For each new UK sanctions regime, the Government intend to bring forward a statutory instrument which contains details for that regime.
I know how important it is that we have robust parliamentary scrutiny of these new powers. I also know that the noble Lord, Lord Collins, in particular shares this view. This Bill allows for such scrutiny. Regulations which deal with UN regimes will be made under the negative procedure. Once agreed at the UN Security Council, the UK has an obligation to implement these sanctions under the UN charter. Not doing so would leave the UK in breach of international law. Regimes which both deal with UN obligations and include additional sanctions or hybrid regimes will also be made under the negative procedure. Regulations which do not deal with the UN regimes will be made under the made affirmative procedure. This will allow regimes to come into force immediately, thereby negating the risk that assets are removed before restrictions take effect, while allowing Parliament to debate the regulations.
The vast majority of anti-money laundering regulations will be made using draft affirmative procedures. The one exception to this will be where the UK makes updates to the current EU regulation. This requires enhanced due diligence measures to be applied to persons in countries with strategic deficiencies in their anti-money laundering regimes. Such updates need to be made quickly, and will be made by using the affirmative procedure. At present, anti-money laundering regulations are transposed into UK law through the negative procedure, so the Bill will increase parliamentary scrutiny.
Risks arising from money laundering and financial crime evolve quickly, as reflected by the Government’s active agenda to address these threats. The Bill therefore provides for the Government to take a sufficiently broad power to ensure that the UK’s anti-money laundering regime remains fit for purpose and is able to respond swiftly to emerging risks. The content of the current money laundering regulations is sufficiently technical that it is better suited for secondary legislation, rather than primary. This is in keeping with the approach typically taken in the UK and elsewhere to establish detailed obligations on the regulated sector.
In some of the meetings that we have held, engagement with noble Lords suggested that the current requirements of the fourth EU money laundering directive should be included in the Bill, and therefore capable of being amended only through primary legislation. I have listened to the discussions we had very carefully but it remains our view that this would dramatically increase the size of the Bill, adding more than 100 new clauses, and would not reflect the rapidly evolving nature of anti-money laundering policy. As many noble Lords will know, the EU is already in the process of amending the fourth money laundering directive, in spite of it being transposed only earlier this year. This demonstrates again the need to act swiftly. Similarly, when a Government of the future need to anticipate or react to new threats, they may wish to create new types of sanctions. It would be remiss of us not to ensure that the Bill was future-proofed so that it remained useful. Regulations which create new sanctions will be exercised through the draft affirmative procedure, thereby allowing Parliament to have a full say.
An important element of the Bill is the threshold for designations. The Bill proposes that, to impose restrictive measures on an individual, a Minister must have “reasonable grounds to suspect” that they are involved in an activity we want to change or prevent. This is the same standard that we currently use when considering designations at the United Nations and the EU. It is broadly equivalent to the “sufficiently solid factual basis” applied by EU courts. The application of this threshold was considered and endorsed by the Supreme Court in the case against Youssef in 2016; it was also considered acceptable by the EU General Court in the case against Mohammed Al-Ghabra, again in 2016, where the court emphasised the need for the threshold to be supported by sufficient evidence.
The importance of a clear threshold of this kind was also underlined by colleagues involved in the European Union Committee’s 11th report of the 2016-17 Session, The Legality of EU Sanctions, an inquiry conducted by its Justice Sub-Committee. Having the same threshold that we currently use when considering designations at the UN and EU will allow us to align with our international partners where our political objectives converge. Sanctions are always best applied by a broad coalition of countries. Working with partners increases the impact of the agreed measures and reduces the compliance burdens on business. I will return to this later.
As set out in our consultation response, the Bill also aligns the threshold for domestic counter-terrorism sanctions to this test of “reasonable grounds to suspect”. This is a change to the current approach under the Terrorist Asset-Freezing etc. Act 2010, where Treasury Ministers must have “reasonable grounds to believe” that an individual is involved in prohibited activity and that the measure is necessary for the protection of the public. No new designations under the TAFA threshold have been made for two years and a reduced threshold will have a number of benefits. It will bring counterterrorism sanctions in line with other UK financial sanctions regimes, improving the coherence and clarity of our sanctions framework as a whole. It will allow the Government to impose sanctions based on similar levels of evidence to those required by our international partners, ensuring that we can maintain productive international co-operation on this issue. It will also give the Government more flexibility in using asset-freezing tools domestically, and thereby help to mitigate the threat from terrorism.
Noble Lords will be aware of how this threat has changed even in the short time since TAFA was passed. I need not dwell on this matter too long, but terrorists and others who wish us harm can cause significant damage without significant resources. Therefore it is an important point, especially in the light of the foreign fighters flooding back to their own countries, including the United Kingdom, as Daesh is dismantled in Iraq and Syria.
That said, a fine balance must also be struck between keeping our citizens safe—a priority for any Government is the security of their citizens—at the same time as protecting the fundamental rights of individuals. While the threshold for designating individuals for counterterrorism asset freezes may have been lowered by the Bill, the protections and procedural safeguards offered elsewhere are robust and in line with international best practice. Let me highlight two areas.
Lord Marlesford (Con)
My Lords, just a moment ago the Minister—if I heard him right—said that terrorists are flooding back into the United Kingdom. Is that really what the Government think?
Lord Ahmad of Wimbledon
I shall repeat what I said for my noble friend. I said terrorists are flooding back to their places of origin, and of course there are people who may seek to return to the United Kingdom from Iraq and Syria. With the defeat of Daesh, that is a real possibility, so we need to ensure that there are measures both to keep them where they are in terms of prosecution and, if they do return, to ensure that any sanctions that we need are readily available.
I was about to provide practical examples of, first, challenges to designations allowing a route for redress for sanctioned individuals and entities; and, secondly, of reviews of regimes to ensure that the Government conduct due diligence on the restrictive measures they impose. In the Bill, there are two methods by which an individual can challenge their designation. The first allows them to request a reassessment of their listing by the Secretary of State. This is designed to offer quick redress to individuals, enabling those who are incorrectly designated or who can provide evidence which refutes the reason for their designation to be removed from a listing by the Secretary of State with the minimum of delay. If the designation is upheld following the administrative reassessment, individuals can challenge that designation before the High Court on the principles of judicial review. This is the second means of challenge. Provision is included in the Bill to allow for classified evidence to be shared with the court where appropriate. For UN sanctions, which the UK has an obligation to implement under international law, an individual can make a request that the Secretary of State uses his best endeavours to remove that person’s name from the UN list. Were the Secretary of State to decide not to seek a delisting at the UN, the individual can challenge that decision before the High Court.
It is important that the Government review sanction regimes and listings to make sure they remain fit for purpose and up to date. Sanctions are not designed to be punitive or permanent. They are always intended as a temporary measure designed to prevent or change behaviour. Regimes must have a clear purpose. A regular review will ensure that remains the case. The Government will conduct an annual political review of each regime to check that it remains appropriate for its purpose. Every three years the Government will review all the designations under the regime to make sure they remain necessary and continue to meet the evidential threshold. As now, the Government will continue to be able to grant licences to allow activities that would otherwise be prohibited—for example, to allow individuals subject to an asset freeze to pay for their essential needs, such as food or legal fees.
We recognise that there have been criticisms of the current EU licensing system. This was highlighted to me last year when we had to ask the EU to amend the Syrian regime so that general licences could be granted permitting NGOs to provide humanitarian aid and associated support activities. This Bill will give the Government more flexibility to issue such general licences, which will provide more clarity to humanitarian organisations and reduce unnecessary bureaucracy.
I know that many noble Lords will be interested in what impact the new regime will have on business. We recognise that multiple divergent sanction regimes can raise compliance costs for business. This is already an issue on Iran, for example, where the EU and US apply different sanctions. As our impact assessment sets out, we expect the aggregate impact of the Bill on UK businesses to be less than £1 million. Most of these costs will relate to compliance as companies familiarise themselves with the UK regime and related guidance.
In designing and implementing future UK sanctions, we will, wherever possible, work closely with the EU, the United States and other international partners to ensure maximum alignment and to reduce the impact on business. We want to maintain close co-operation on sanctions with European and other international partners because, as I said earlier, they are most effective when delivered by a number of countries together. UN sanctions have global reach and are always our preferred option. Outside the UN, we expect to remain aligned with like-minded partners such as the EU and the US on many of the policy goals that drive sanctions.
For example, we continue to believe that sanctions on Russia must remain until the Minsk agreement has been fully implemented. It is too early to speculate on exactly what future co-operation with the EU will look like, and decisions in this regard will be taken at the appropriate time. As the Prime Minister has said, we are leaving the EU, not Europe. Our aspiration is to remain close to partners on foreign policy issues, as proposed in Foreign Policy, Defence and Development: A Future Partnership Paper, which was published by the Department for Exiting the European Union on 12 September. For now, we remain active in shaping and implementing sanctions within the EU.
In conclusion, this is an important Bill to ensure that a legislative framework is available to the Government to maintain and adjust sanctions and anti-money laundering measures once we have left the European Union. It will allow us to continue to fulfil our international obligations and to work with allies to protect and promote our shared values. I beg to move.
Baroness Bowles of Berkhamsted (LD)
My Lords, I will mainly speak on the anti-money laundering aspects of the Bill; other colleagues will speak on the sanctions part. I convey apologies from my noble friend Lady Kramer, who regrets not being available to speak today.
I am not entirely convinced that the two components of the Bill, sanctions and anti-money laundering, sit well together. Sanctions have generally come through an intergovernmental and ministerial channel, while the administrative money laundering requirements have come under the co-legislative procedure, with equal power for the European Parliament. I thank the Minister for explaining some of the web of where the various aspects reside, but it is also helpful to review this. The primary money laundering offences appear in the Proceeds of Crime Act, not referenced in the Bill, which also contains requirements for regulated businesses to report suspicious activity, with three secondary criminal offences for failing to report suspicious activity, tipping off or prejudicing an investigation. A similar set of primary and secondary offences appears in the Terrorism Act. The money laundering regulations of 2017, and their 2007 predecessor, cover further administrative provisions on businesses, including criminal offences for contravening a relevant requirement and for prejudicing investigations.
The EU directives in fact require only effective enforcement and deterrent: it is left open how that should happen, and the UK included criminal offences which appear to have been first introduced by secondary legislation in 2007 and added to in the 2017 regulations. Maybe it can be said that these offences derive from, or at least follow, the pattern of the POCA secondary offences. The money laundering definition in POCA is so wide as to cover use of money or any asset that has come from criminal activity, so in theory it covers use of a stolen paperclip, as some wag has suggested on Wikipedia.
With such a scope, it remains an insult that property bought with the proceeds of crime can hide under anonymity of the beneficial owner, enabling both the property and rental from it to evade any effective discovery.
I turn to today’s Bill. It is proposed that significant money laundering legislation is to continue to be made by unamendable regulation, and these may be substantial and manifold regulations all in one. This is legislation that impinges on the daily lives of everyone opening a bank account or transferring money, and who may become subject to—well, under this Bill, I would say almost anything.
The fourth money laundering directive is clear on issues of proportionality and other guidance around the nature of things that should be covered in risk assessments and supervisory behaviour, such as record-keeping. The 2017 regulations add further detail relevant to the UK, but I am not sure they are quite so hot on proportionality. In future, though, under Clause 41 of today’s Bill, we are to get the regulatory imposition of anything that the Minister of the day might fancy in the name of money laundering or terrorist financing, which, as I have said, are defined very broadly. It is a very strange way to take back control if instead of transposing EU legislation—which, whether or not you care for the system, has a full parliamentary process—we replace it with the omnibus rubber-stamping of standards from the Financial Action Task Force, which has no such scrutiny or accountability, and simultaneously paves the way for the exercise of generic powers and the creation of unspecified criminal offences, all by regulation.
We know what happens with regulations. A good example on this very subject comes up next Monday concerning the transposition of the fourth money laundering directive. There is to be a regret Motion, not least because the instrument was laid with three days’ notice. How much regret can we tolerate? It gets worse if there is a rejection because it results in threats to the existence of this House. Switching to an affirmative procedure does not make any difference in that regard, even if it is a bit more respectful.
Schedule 2 gives some 27 wide regulatory powers to amend all the administrative topics that are in the 2017 regulation, and it is far from clear what safeguards will continue. I have called them topics because that is what they are; they are headings. There are no checks and balances, no mention of proportionality, no policy relating to the type of risk factors to cover, all kinds of yet-to-be-prescribed measures against yet-to-be-prescribed customers, and no indications regarding the use of information and data by supervisors or the need for supervisors to keep proper records. I could go on. It may be a technical Bill but I am afraid that power without policy is a very dangerous instrument.
The Government may have wanted to keep the schedule to three pages but there is a reason why the fourth money laundering directive is longer: it contains balance because it had to stand up to proper parliamentary scrutiny. I declare an interest in so far as that directive came under my remit as chair of the Economic and Monetary Affairs Committee in the European Parliament. I could ask why I should have less say here than I did there. Further, Schedule 2 states that these 27 powers are:
“Without prejudice to the generality of section 41”.
So not only could every jot and tittle of the 116 pages of the 2017 regulations be changed or revoked, almost anything could be added under Clause 41 using the massively wide definitions of money laundering or terrorist financing.
Great things could be done with those powers. Paragraph 6 of Schedule 2 could be used to create the beneficial owner registers for property that David Cameron promised. Further headway could be made on transparency in overseas territories and Crown dependencies. Paragraph 8 could be used to consolidate the myriad money laundering supervisors—some 25 of them—to get something more effective. Under paragraph 15, which gives carte blanche to create new but unspecified criminal offences, a “failure to prevent” offence could be created. But it could also make it criminal to open a bank account on Tuesdays or to present the wrong kind of utility bill because there is no guidance. New criminal offences by regulation are also enabled in Clause 16(3) in the sanctions part of the Bill, in that case with far longer sentences.
If there is no policy constraint, alongside possibilities for good things, the opposite could happen: setting aside the absurd, everything could be weakened or revoked, depending on the Minister at the wheel. It has been suggested that regulations are needed to keep up with the regular updates to FATF standards and other matters. The far longer EU process manages to keep up, as the Minister has already explained, so surely this Parliament, which is much more nimble, can also keep up. Indeed, I thought that was part of taking back control, and it certainly does not justify rule by regulation.
The Minister will know from my contributions during the passage of the Criminal Finances Bill that I am not a shrinking violet about money laundering criminal offences. The issue is that they need definition in an Act, along with the relevant defence. Noble Lords may recall that due to the ongoing call for evidence about “failure to prevent” offences, I explored an arrangement where both the offence and defence were defined in the Bill but not activated until later by an individual and specific statutory instrument—one not buried in a sheaf of other regulatory adjustments—and not to sunrise it through a statutory instrument until the result of the call for evidence was known. Even then, several noble Lords were very uncomfortable with the idea of any new criminal offence by statutory instrument.
Given that new offence by regulation is enshrined in Schedule 2 to the Bill and in Clause 16(3), I ask the Minister to explain the Government’s policy on criminal offences introduced by secondary legislation. I shall be considering two strands for amendments: one to limit the perpetuation of legislation by regulation, and the other to add to the Bill the things I have mentioned—in particular, issues around transparency and beneficial ownership, which have been criticised frequently in the European Parliament and by the OECD.
There is some urgency over this. The House of Commons Home Affairs Committee Proceeds of Crime report put estimates of at least £100 billion being laundered in the UK every year. In addition, failure to be seen to address those known weaknesses—well known in the European forums—could jeopardise equivalence or other arrangements made for financial services with the EU if we are outside the EU.
Lord Hope of Craighead (CB)
My Lords, first, may I say what a pleasure it is to see the noble Baroness, Lady Anelay, here this afternoon enjoying a very well-earned rest from the Front Benches? I am sure we are all looking forward very much to hearing what she has to say when she speaks immediately after me.
The imposition of sanctions is a political act which the courts, when invited to do so, will always subject to anxious scrutiny. Nobody can doubt that there may be situations where measures of the kind that must be resorted to in the interests of national security or international peace, or for furthering the prevention of terrorism, have to be put in hand. However, there is always a risk that those who are given such powers may overreach themselves. Sanctions of the kind contemplated by this Bill do not in so many words involve depriving individuals of their liberty. To that extent, the human rights considerations that arise in such cases are not engaged by the Bill. But the effects of the financial and other restraints that are provided for here are likely to be severe. That indeed is what they are designed for. Individuals who are deprived of access to any kind of economic resources may end up being confined like prisoners in their own home. In the case of financial institutions, such as banks, the effect can be disproportionate to the risk that they pose. So a Bill of this kind must be approached with great caution, lest it invests the Government with extravagant powers, with powers that are not needed, or with powers that are not surrounded by appropriate safeguards.
Part 1 of the Bill deals with sanctions regulations. The scope of the power is described in the first subsection of Clause 1. I welcome the giving of power to the appropriate Minister to make regulations for the purpose of complying with a UN obligation or any other international obligation. There are good reasons why we need to make provision for meeting the obligations which rest on us internationally, but I am more cautious about the purposes described in the second subsection, which I can refer to as the “domestic” part. They extend to furthering the prevention of terrorism in the United Kingdom, the interests of national security, the interests of international peace and security and foreign policy objectives of the Government. It is here that we need to be satisfied that it is proper that the Government should have power to impose these sanctions in additional to those they already have, and that exercise of the power will be accompanied by appropriate safeguards.
I approach the question of the powers in the international part against the background of two cases that came my way in the UK Supreme Court. One was the case of HM Treasury v Ahmed in 2010, the other was Bank Mellat v HM Treasury in 2013. The Ahmed case was about the legality of powers exercised by the Treasury by Order in Council under Section 1 of the United Nations Act 1946, to give effect in the United Kingdom to decisions of the sanctions committee of the Security Council of the UN, which is responsible for deciding whether sanctions should be imposed, against whom and with what effect. The orders had the effect of freezing the assets of several named individuals, but they were made without any kind of parliamentary scrutiny.
We took the view in the Supreme Court that the consequences of the orders were so drastic and oppressive that we had to be alert to see that this coercive action really was within the powers of the Treasury. We must remember that, even in the fact of the threat of international terrorism, the safety of the people is not the supreme law. There must come a point, we said, when the intrusion on the right to enjoyment of one’s property is so great and so overwhelming that it can be brought about only under the express authority of Parliament. So the orders, which were made without parliamentary scrutiny, were set aside.
In the case of Bank Mellat, the complaint, which was also upheld by a majority, was that directions made by the Treasury under the Counter-Terrorism Act 2008 were flawed on procedural grounds and were disproportionate. So they, too, were set aside.
It is against the background of two failed attempts to deal with the issue that I welcome the international part of Clause 1. We need to have a sound and easily understood mechanism—or, as the Minister put it, a legal framework—for meeting our international obligations, which has the full authority of Parliament. I think that this Bill, which provides for parliamentary scrutiny, achieves that. So far as these obligations are concerned, it is necessary and appropriate.
The domestic part described in the second subsection of Clause 1 is more troublesome, and it will need to be scrutinised very carefully in Committee. I acknowledge that the parliamentary procedure in Clause 45 is for any such regulations under that subsection to be subject to the affirmative procedure. That, of course, is as it should be, given what was said in the case of Ahmed. I acknowledge, too, that provision is made in Chapter 2 of Part 1 for review by an appropriate Minister and in Chapter 4 for his decisions to be reviewed by the courts on the application of those affected by the decision. We will need to look at those chapters carefully too, but in doing that we should be under no illusions about the grave effects the imposition of sanctions may have. We must assume that where these powers are given they will be used, and may be used to the full extent that Parliament permits, given the relatively low threshold—the “reasonable grounds to suspect” threshold which the Minister mentioned—that Clause 1 sets for their exercise, compared to the existing one under the Terrorist Asset-Freezing etc. Act 2010.
So there is a heavy responsibility on us to see that these powers are not excessive and that the safeguards provided are as complete and effective as they can be. That said, I welcome the provision in Clause 36 requiring the Minister to issue guidance about regulations made under Clause 1.
There is one point of detail about the provisions for court review about which I seek reassurance from the Minister. Clause 32(2) provides that:
“The appropriate person may apply to the High Court or, in Scotland, the Court of Session, for the”,
Minister’s,
“decision to be set aside”.
Does this formulation allow for appeals to the UK Supreme Court? I think this is not really in doubt as far as the High Court is concerned. But it may be suggested that this is not so for Scotland on the ground that, where an Act refers to the Court of Session without more, the matter is to be decided in that court alone and no further. I hope that appeals to the Supreme Court will be open from the Court of Session too, subject, of course, to the provisions for permission in Section 40 of the Courts Reform (Scotland) Act 2014. However, I would like the Minister to reassure me on this point, if not this afternoon then at some later stage.
Lastly, I come to Part 2 of the Bill and Clause 41, on anti-money laundering. I entirely recognise the force of the point made by the Economic Secretary to the Treasury in his Written Ministerial Statement on this subject last Thursday. He said:
“As the threats from illicit finance and terrorist financing continue to evolve, so must our understanding of the risks and our response”.
Nevertheless, the scope of the power to make provision for this purpose by regulations, when read with the extensive list of things mentioned in Schedule 2, is surprisingly wide. I agree very much with the points made so forcefully by the noble Baroness, Lady Bowles of Berkhamsted.
There is another side to this issue: reaction to the spectre of money laundering is making itself increasingly felt in our daily lives. The requirements that must be satisfied if we need access to professional services that are anything whatever to do with money are just one example. At present, they are not much more than an irritating and time-wasting nuisance, but we surely must be careful not to box ourselves in with so many rules and regulations that the burden of having to comply with them becomes intolerable.
I am not really worried about the making of increased provision for detecting and investigating money laundering, but it is in the making of increased provision for its prevention that the risk lies. That could affect anybody and everybody, as the noble Baroness said. One only has to look at the titles of the regulations that are to be the subject of the regret Motion next Tuesday to get a sense of what lies in store for us if we are not careful. One of them is called the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations. I wonder what burdensome provisions would be made by that measure—and there are two more in the package.
I do hope that the Minister can assure us that proportionality will always be at the heart of these very wide-ranging powers.
Baroness Anelay of St Johns (Con)
My Lords, I thank my noble friend for setting out so clearly the objectives and content of the Bill before us today. I was the sanctions Minister at the Foreign and Commonwealth Office when the White Paper was published back in April, just squeaking in underneath the barrier that came down as a result of the purdah period. That meant that we were able to have a proper period of consultation. I am therefore delighted to be able to speak at Second Reading today and to support the Bill.
With the leave of the House, I will just take a moment to thank all those who have made such kind comments over the past day or two and, in particular, to thank all those with whom I have worked on the Front Bench, both opposite when I was there for 13 years and on the Government Benches for seven and a half years. I thank them for their kindness, co-operation and sheer hard work. Working as a team, even in opposition, is absolutely crucial. I want to put on record, in particular, my thanks to the officials so often referred to only when we get to Third Reading. I will mention now the sterling support provided by the private offices and departmental officials in the Government Whips Office, FCO, BIS, DfID and, more recently, DExEU, in all of which departments I have served.
I will not mention all the individuals—I will not test the patience of the House that long—but I would like to thank my private office at DExEU: Tim, Joe and Daniel and my ministerial colleagues there, David, Robin and Steve. They have all been a joy to work with and, from working so closely with them, I have confidence that we are going to achieve a successful negotiation with the EU as we leave—one that is good for us as well as good for the other EU 27. We will remain their next best friends.
It is also why I am doubly pleased to be able to support Second Reading today. Sanctions such as arms embargoes, asset freezes and travel bans are vital tools used by the international community to promote human rights and democracy, particularly in conflict and post-conflict situations. As my noble friend set out, the UK is active on the United Nations Security Council and within the EU in promoting “smarter sanctions” that are legally robust and effective in delivering on our human rights goals. Of course, the noble and learned Lord, Lord Hope, was right to point out that there must always be appropriate safeguards in these matters.
The UNSC and EU have established a number of sanctions regimes that include targeting human rights abuses or violations in countries such as the Democratic Republic of the Congo and South Sudan, both of which I have visited as a Minister, in particular because of my then role as the Prime Minister’s special representative on preventing sexual violence in conflict. I congratulate my noble friend Lord Ahmad as the Minister taking on that role.
As my noble friend said, most of the UK’s current powers flow from the European Communities Act 1972. We have some limited domestic powers to impose sanctions, but they simply would not be enough to cover the full range of sanctions that are currently in force through both the UN and EU. The ECA will be repealed by virtue of Clause 1 of the EU (Withdrawal) Bill and. if we do not have a domestic system in place by the time the ECA is repealed, we will very rapidly be in breach of international law. I know that every single Member of the House would wish to avoid that.
Clearly, some have asked why the Bill cannot be subsumed within the EU (Withdrawal) Bill itself. In practice, that would not work because that Bill takes a snapshot of applicable EU regulations and law at the time that we leave and transposes them into UK law. It freezes everything in aspic at that moment, subject to some of the correcting powers. So, in addition to having a functioning statute book as we leave the European Union, we need to ensure that, as we leave, we have the power not only to support the sanctions of our international colleagues in the UN and, nearer at hand, in the EU, but to impose other sanctions that may prove appropriate. The withdrawal Bill simply cannot enable us to do that. After all, events can be very fast moving and one needs to be able to take action quickly but proportionately; I believe that the Bill gives us that opportunity. We will have the chance to look at the details in Committee—I listened very carefully to what the noble Baroness, Lady Bowles, said.
The importance of being able to impose sanctions, and target them effectively and proportionately, was brought home to me when I visited South Sudan in May this year. It gave me the chance to meet people subject to sanctions—noble Lords can imagine that I was not particularly popular with them—and to see how sanctions can benefit the wider population.
The history of South Sudan’s internal conflict since 2013 is well known to this House. The country is poverty stricken, despite having vast oil reserves, and life is bleak for most of its population. There was a further deterioration in the human rights situation in South Sudan last summer. In July, violence broke out in the capital, Juba. Government and rebel forces both breached commitments to end hostilities, and fighting spread to areas of the country that previously had not been touched by such conflict. This led to serious human rights violations in the summer of 2016 by government forces, and breaches of international humanitarian law. Child soldiers continue to be recruited and, as on previous occasions, women bore the brunt of the violence. The term “brutality” covers so many sins. Talking to those who survived that violence puts everything else in this world into perspective. Some were attacked and raped outside a UN protection of civilians camp, in full view of UN peacekeepers who did not intervene to help them. Others were gang-raped in a hotel used by international NGOs, where a journalist was also executed.
So what have we done? The UK has worked tirelessly with the EU and UN to persuade the Government of South Sudan that those responsible for the atrocities should be held to account, and to achieve a cessation of hostilities that is real and is not put on just because it happens to be the rainy season. The imposition of sanctions has played an absolutely vital part in that work. At first the Government of South Sudan appeared to take no action against those responsible for the vile attacks in Juba. Then the EU made it clear on 13 December 2016 that it was ready to impose further sanctions—autonomous restrictive measures—against,
“any individual who obstructs the peace process … impedes UNMISS”—
the UN force there—
in the performance of its mandate … prevents actors from exercising their humanitarian duties … incites ethnic hatred or … commits atrocities against civilians”.
Words were translated into action when, on 7 March this year, the EU added four individuals to its list in relation to the sanctions on South Sudan. Have sanctions worked? There has been some progress, but much more needs to be done and we need to keep up the pressure. Finally, this summer, a case has been brought to court to prosecute those alleged to have raped a foreign national in the Juba outrage last summer. I pay tribute to the brave lady who travelled from Europe back to South Sudan to give evidence, as at first the court refused to take video evidence. Despite the threat to her life, she gave evidence in the courtroom and identified four persons.
A ceasefire was announced by President Kiir just before the rainy season started in May this year. We need to see that extended to the dry season, when it becomes more possible for armies to move around. While in South Sudan, I was able to travel to Malakal in Upper Nile State to visit the UK Armed Forces who are an integral part of the UN forces there. I mention this because of something that happened after my visit. Malakal had been the second city of South Sudan, with well over 100,000 people. Now there may be half a dozen, with 45,000 in the protection of civilians camp outside Malakal. Dozens of people in the camp told me about the reality of life there. I then experienced unreality as I travelled in a convoy through a deserted, ghost-like city that was no more. There was nothing left to loot. I then met the governor in his mansion beside the White Nile, who tried to persuade me that people in their thousands came into Malakal every day. No—I can see, as can others, that that did not represent anything near the truth.
When I returned to South Sudan’s capital, Juba, I met a senior representative of the Government who was in a very good mood. He told me, “When the UK leaves the European Union, there won’t be any sanctions against South Sudan any more because you won’t be able to impose them and you won’t choose to. You will have left that system and so we’ll be able to have trade with you—open, fair, free and to the benefit of both”. No—that is not what happens. I told him clearly and firmly that as the UK leaves the European Union, we will put in place legislation to ensure that we will continue to be able to work with both the UN and the EU to impose sanctions where it is right to do so and to think of the wider good of people such as those across South Sudan who deserve a better future than any of them face at the moment. I wish the Bill a fair wind.
Lord Hain (Lab)
My Lords, it is a real privilege to follow the noble Baroness. I have been in the House for less than two years, but she has always struck me as a real star. I have marvelled at the way in which she has managed to make the Government’s case on Europe vaguely plausible, which shows expertise and charm. I have also noticed that the noble Baroness has always spoken and answered questions from the Front Bench, including from myself, with great courtesy, even giving the impression in her answers that she has listened to the questions. Her colleagues may well want to bear that in mind. I note that the casualty rate in the post that she has just left seems to be quite high. I wish her all the best in the future, and I am sure that the whole House does as well.
The noble Baroness made the case for sanctions against South Sudan and elsewhere compellingly. I do not refer to her specifically, but I remember the way in which this House opposed sanctions against the apartheid regime. If she had been in the Conservative Government at the time, perhaps that might have changed.
There have been no criminal prosecutions for money laundering of financial institutions, and very few of other “enablers” such as lawyers and accountants. There have been regulatory fines, but it is not clear that these are enough to deter banks and other financial players from making their anti-money laundering compliance regimes a tick-box exercise rather than a meaningful one. This Sanctions and Anti-Money Laundering Bill enables the Government to introduce regulations that would create new civil penalties and criminal offences for money laundering, but the threshold for the latter is low—a maximum three-month sentence for a criminal conviction.
As the noble Baroness, Lady Bowles, mentioned, using such powers to enable the Government to introduce criminal offences by regulation is against parliamentary convention. The noble and learned Lord, Lord Hope, also referred to this matter with his expertise. Surely it would be better for the Government to accept or introduce an amendment to the Bill to introduce a “failure to prevent” money laundering offence, like that in the Bribery Act and as there now is for tax evasion, which would ensure that such an offence was introduced by primary legislation.
As I said, the noble Baroness, Lady Anelay, made moving points about South Sudan and elsewhere from her experience. However, my main focus today is whether the Bill will deal effectively with the massive money laundering organised from the very top of the Government in South Africa, the presidency itself—the subject of my Oral Question on 19 October in your Lordships’ House and my letter to the Chancellor of 25 September. I beg some indulgence in speaking at greater length than the noble Baroness on this to spell it out. It is serious.
Corruption within and money laundering from a monopoly capital elite around the President’s family in South Africa and their close associates the Gupta brothers—which is painful for me to witness, having been active along with my brave parents in the anti-apartheid struggle—show that winning the war against financial crime will require co-ordination, influence, action and accountability between multi-jurisdictional law enforcement agencies. Money laundering is a key enabler of organised crime, allowing criminals to transmit multi-billion pound illicit funds into the legitimate economy, undermining its integrity and public trust. However, confronting it is difficult, partly due to the fragmented information-sharing arrangements across borders and between banks and law enforcement agencies. It is all very well to develop better protection for our own country, as this Bill purports to do, but, without simultaneously enhancing cross-border co-operation, we will not win the war against financial crime.
On regular visits to South Africa—most recently last month—I have been stunned by the systemic transnational financial crime network facilitated by an Indian-South African family, the Guptas, and the presidential family, the Zumas. If there had been more proactive and genuine co-operation between the multi-jurisdictional law enforcement agencies, and within and between the banks, which have been moving money for the Gupta/Zuma laundering network, the devastation wrought on South Africa could have been significantly reduced, and perhaps the financial institutions involved would have been able to better mitigate their exposure.
I had delivered by hand last night to the Chancellor printouts of transactions and named the British bank concerned, and I asked that he again refer these to the Serious Fraud Office, the National Crime Agency and the Financial Conduct Authority for investigation. This information shows illegal transfers of funds from South Africa made by the Gupta family over the last few years from their South African accounts to accounts held in Dubai and Hong Kong. The last columns of each sheet, now in the Treasury, show the relevant banks involved, and the records show all account numbers used. Many of the transactions are legitimate, but many certainly are not.
The latter illicit transactions were flagged internally in the bank concerned as suspicious, but I am reliably informed that it was told by the UK headquarters to ignore it. That is an iniquitous breach of legal banking practice in the UK, which I trust Ministers would never countenance, and it is also an incitement to money laundering, which has self-evidently occurred in this case, sanctioned by a British bank, as part of the flagrant robbery from South African taxpayers of many millions of pounds and many billions of their local currency, the rand.
Each originating transaction would start with one bank account and then be split into a number of accounts a couple of times to disguise the origin. Undoubtedly, hard questions will need to be asked of the facilitating banks, because they have aided and abetted the Gupta money laundering activities. Can the Chancellor please ensure that such evident money laundering and illegality is not tolerated and that the bank is investigated for possible criminal complicity in this matter? Urgent action is needed to close down this network of corruption.
Then let us consider an example of the devastation caused to South Africa by cross-border money laundering. The Free State, one of nine provinces in the country, is marked by miles of flat, rolling grassland and crop fields, and it is the country’s granary, responsible for 70% of total maize production. Britain played a defining part in the history of this province, as it marked one of the most contested spaces during the late 19th century/early 20th century South African wars involving the British imperialists, the Afrikaner nationalists and the Basotho people.
Today, the Free State is one of the poorest provinces in South Africa. Nearly one in two of the people is unemployed and nearly two-thirds live below what is called the “upper bound poverty line”. More than half of the people in that province survive on one meal a day, tens of thousands of children go to school hungry, if they are fortunate enough to be in school, and over half of the province’s children drop out of school before obtaining their matric—roughly equivalent to our A-levels—primarily because their daily focus is on survival.
Therefore, when in February 2013 the Free State Government announced that they would spend £18 million —approximately 340 million South African rand —to build, in a small Free State town called Vrede, a dairy farm which would be part-owned by 80 impoverished beneficiaries, the local community felt a sense of hope. Indeed, this kind of public/private partnership is a commendable and deeply necessary model of economic empowerment to redress the profound racial inequalities generated by the apartheid state, which continue to reverberate throughout South Africa.
What the people of Vrede did not know was that this project, and therefore their village, would become the scene of a transnational money laundering crime committed by collaborators from within the Free State Government on the one side and the now notorious Guptas on the other. In essence, this criminal network used these 80 people and their families as pawns in a swirl of international money laundering, which involved some British and other financial institutions.
The laundering operation went like this. Step 1: in May 2013, three months after the Free State Government announced the dairy farm project, a company called Estina—ostensibly the vehicle for the 80 beneficiaries but which was actually linked to the Guptas—was handed a farm to begin building the dairy. Estina’s sole director was an IT salesman with no farming experience. The project was not put out to public tender. Step 2: the Government almost immediately transferred about £6 million to Estina. Step 3: instead of investing this in the farm, Estina transferred most of the money to a Gupta company in the United Arab Emirates called Gateway Ltd. Gateway is registered in Ras al-Khaimah, RAK, which is one of seven emirates making up the UAE and a highly secretive offshore company jurisdiction. At the time, Gateway held its account with the British bank Standard Chartered, which the bank has subsequently closed.
Step 4: once the funds were in Dubai, the Guptas engaged in a classic laundering cycle, transforming illicit money into ostensibly legitimate assets. In arguably the most eye-watering example, they transferred over £2 million of the Estina dairy money in two separate tranches through two shell companies, ultimately consolidating it in their Standard Chartered account for another of their UAE-based companies, called Accurate Investments. The bank has since closed this account too. Step 5: they then transmitted this money into an entity called Linkway Trading, banked with the State Bank of India, back into South Africa.
Step 6: once in Linkway, the Guptas used these funds to pay for a lavish four-day family wedding where, among other extravagances, over £1,000 was spent on chocolate truffles, £120,000 on scarves for guests and £20,000 on fireworks. At about the same time that the Guptas were celebrating at the wedding, veterinarians in the town of Vrede were called to the dairy farm because of the reeking stench of dead animals. According to their report, they found at least 30 cows that had been buried in a ditch having died from,
“an unknown condition that could be caused by malnutrition”.
I have detailed the Vrede dairy example because many of us do not appreciate the destitution caused by money laundering. It almost always requires the complicity, whether witting or unwitting, of financial institutions. In this case, some of those are headquartered in Britain, such as Standard Chartered. I am grateful that the bank is now being investigated, along with HSBC and the Bank of Baroda, by the Serious Fraud Office, the Financial Conduct Authority and the National Crime Agency following my Question in your Lordships’ House on 19 October and my request to the Chancellor.
The success of these criminal networks relies also on the action or inaction and co-operation or non-co-operation of the relevant law enforcement authorities. Always, it is the poorest who bear the brunt. In my letter to the Chancellor on 25 September requesting that he investigate UK bank exposure to the Gupta/Zuma network, I listed the 27 entities and individuals who were, among others, involved in the Vrede dairy farm tragedy. It is by no means the only example of the devastation wrought on South Africa by the Zuma/Gupta network.
The Vrede dairy criminal catastrophe proves that the laundering was effected through a transnational triangulation between South Africa, the UAE and British and other global banks. Therefore, the success of our law enforcement authorities in protecting our country from the proceeds of ill-gotten gains entering our financial system, as this Bill seeks to do, and by association protecting more vulnerable developing nations from falling victim to extractive criminal networks, depends on genuine and proactive co-operation and collaboration between the relevant law enforcement agencies in the concerned jurisdictions. Frankly, this Bill falls well short of what is required to do that.
Familiarising myself with the Vrede dairy farm tragedy—and taking some time in this House to explain it—what struck me time and again is why an internationally respected bank such as Standard Chartered would open bank accounts for shell entities registered in a free trade zone such as Ras al-Khaimah, whose primary attraction is as a highly secretive offshore jurisdiction. What was it doing this for? Shell companies, by virtue of their ownership anonymity, such as those used by the Guptas in the Vrede dairy tragedy, are generally classic vehicles for money laundering and other illicit financial activity. According to the Financial Crimes Enforcement Network, shell companies,
“typically have no physical presence other than a mailing address, employ no one, and produce little to no independent economic value”.
The Financial Action Task Force, established in July 1989 at the G7 Paris summit, has consistently warned that free zones could be used for illicit trade and money flows that fall below the radar of regulatory authorities. We know that free zones have become an increasingly popular mechanism for the UAE and other countries looking to lure international investment and boost foreign trade. However, the question for us is whether we are ensuring that our financial institutions are facilitating, inadvertently or not, misuse by those interests attempting to move their illicit funds from one part of the world to another in order to facilitate money laundering, mafia crime, terrorist activity and financing, as the Minister said, and robbery from taxpayers, as in the South African case.
There are disturbing questions around both the complicity, witting or unwitting, of UK global financial institutions in the Gupta/Zuma transnational criminal network, and these institutions’ wilful blindness to the reality that the laundering process most often necessitates financial systems with lax regulation and controls. Unless we urgently find ways to leverage our respective capabilities to co-ordinate and influence action between the law enforcement and banking sectors—domestically here in the UK and globally—we cannot win this battle.
I have received new information, which is still being corroborated, that the Gupta/Zuma network may be using the global metal recycling sector—some of the company names I have received have a UK presence—to launder the proceeds of their corruption. Indeed, this preliminary information suggests that, as South African banks, including British headquartered ones there, have shut down Gupta accounts in response to the financial crime risk they pose, so the family has simply shifted its laundering machine into the metal recycling sector, using intermediaries within these companies in South Africa, the Middle East, possibly the UK and Hong Kong to move their funds for them.
My question, therefore, to British-based financial institutions and to the Government is: are their compliance departments applying the necessary forensic eye to this secondary-layer threat—as primary accounts are shutdown, so the illicit funds must find alternative channels—and are law enforcement agencies and their regulators applying their minds, sharing information and, in so far as they can, acting on it?
My latest information, supplied as before by South African whistleblowers deep inside the system and disgusted by the corruption at the heart of the state, suggests metal recycling is the latest conduit. However, there may be other sectors these criminal networks are penetrating and I ask the Minister to investigate this.
Unless we use the opportunity before us to crack down meaningfully on these criminals, they will always be one step ahead. Over the past few months, several multinational companies have either fallen or been massively contaminated as a result of their complicity in the Gupta scandal, including Bell Pottinger, McKinsey, KPMG and SAP. The US Justice Department and the US Securities and Exchange Commission are now investigating German multinational SAP after it apologised the other week—“wholeheartedly and unreservedly”—to the people of South Africa for paying over £6 million in kick-backs to Gupta companies as part of their network of corruption headed by President Zuma and his family.
I believe that it is a matter of time before financial institutions in South Africa, in the Middle East, in Hong Kong, here in the UK and in the US will be forced to answer hard questions about their own complicity, and they must. I am today sending a copy of this speech, together with my letter of 25 September to the Chancellor, to the US Ambassador to London formally asking the US regulatory authorities to intervene, as the FBI has already begun to do. I am also asking the Government—I would be grateful if the Minister could respond on this point—to press the financial authorities in Hong Kong and Dubai to cut all links with the Guptas and Zumas. My Labour MEP colleague Neena Gill is raising the matter in the European Parliament, and Commissioner Pierre Moscovici has agreed to her request to investigate European banks which may be involved. In parallel, I wrote to the President of the European Commission, Jean-Claude Juncker, on 25 September asking him to act, but have not yet had a reply.
It is not only financial institutions and Governments which need to ensure that they are above reproach. A number of other global firms, whether legal, auditing, forensic or advisory in nature, have provided professional services to some of these complicit individuals, companies and institutions. These include UK-based firms such as Grant Thornton and Hogan Lovells, which have conducted forensic investigations at the South African Revenue Service under the brief of its Gupta-aligned head, Tom Moyane. Norton Rose Fulbright and Morrison & Foerster have assisted in the internal investigation at McKinsey into that company’s links to the Guptas. There are other examples. I am not suggesting that these firms are necessarily complicit in the corruption, because in most cases they have been employed by the complicit companies—for example, Norton Rose and Morrison & Foerster by McKinsey—to try to surface the corruption.
In conclusion, I am suggesting that it is absolutely critical that all professional firms cut their contacts entirely with any individuals or entities associated with the Gupta and Zuma families or their associates. At the very least, whatever pressure they may come under from their clients and whatever the cost is to their commission or fees, they must conduct themselves according to the highest professional standards, which most if not all have palpably failed to do so far, as we saw with KPMG, McKinsey and SAP. To its credit, the law firm Cliffe Dekker Hofmeyr recently upheld the highest professional values by boldly exposing corruption and dishonesty by senior executives at the country’s power utility, Eskom.
As I stand here today, the 80 individuals who were supposed to benefit from the Vrede dairy farm are destitute. The complicity of our financial institutions in this, as well as the responsibility of law enforcers and regulators in all the concerned jurisdictions, should make UK Government Ministers and UK parliamentarians hang their heads in shame. Just as they were complicit in sustaining apartheid, so today they are complicit in sustaining the corrupt power elite in South Africa which is now betraying the legacy of Nelson Mandela and the anti-apartheid struggle.
Lord Paddick (LD)
My Lords, the noble Baroness, Lady Williams of Trafford, said in her answer to a question earlier this week that Foreign Office issues are not her area of expertise. They are not mine either, but this Bill overlaps to some extent with my responsibilities on these Benches for home affairs. I have one question for the Minister on Clause 40 and the power to make provision relating to immigration appeals. If noble Lords will allow me, if we can deal with this matter today by means of a comment from the Minister in his summing-up, it will obviate the need for amendments later in the Bill’s passage.
As noble Lords will know, the Bill gives powers to Ministers to impose sanctions, and among those sanctions are immigration sanctions or the power to designate persons to be excluded persons for the purposes of Section 8B of the Immigration Act 1971. In essence, part of the sanctions package could be either to remove designated persons from the UK or to prevent their entering the UK. In addition, the Bill provides mechanisms for those affected to ask for the decision to impose sanctions to be reviewed, initially by a Minister and subsequently by the courts—as the noble and learned Lord, Lord Hope of Craighead, has said, the Court of Session in Scotland and the High Court in the rest of the UK—including a decision to designate them as an excluded person. This would in effect be an appeal against the decision to impose the sanction.
An excluded person could also claim that they have a right to claim asylum in the UK, or that their human rights would be infringed if they were returned to their country of origin or refused entry to the UK. These would be appeals against the consequences of the imposition of the sanction, rather than appeals against the decision to impose the sanction itself. It is clearly important that these two potential routes to challenge either the decision to designate or the consequences of being designated are kept separate. My understanding is that that is what Clause 40 would allow the Government to do by regulation.
Clause 40 is quite complex and I wonder whether the Minister can reassure the House when he sums up that, as the Explanatory Notes appear to suggest at paragraphs 115 and 116, claims of asylum and human rights will continue to be dealt with by the Home Secretary—the Minister with the knowledge, experience and expertise to decide these matters—not the Minister imposing the sanctions, and that any appeal against the Home Secretary’s decision would be to the Immigration and Asylum Chamber of the First-tier Tribunal, a specialist tribunal with expertise in deciding such claims, not the High Court or Court of Session, where an appeal against the imposition of the sanction would be heard. I appreciate that that is what is contained in the Explanatory Notes, but that does not have legal effect, whereas clarification from the Minister at the Dispatch Box would.
Lord Pannick (CB)
My Lords, the Minister said in his opening remarks that this is a “technical Bill”. However, it raises a number of constitutional issues and concerns which flow from the fact that the imposition of sanctions on an individual has a very adverse impact on the person designated, as the noble and learned Lord, Lord Hope of Craighead, rightly said. The noble and learned Lord mentioned the Supreme Court case of Ahmed, in which he was a member of the Appellate Committee. He rightly said in that case that an order freezing the assets of an individual makes such persons,
“effectively prisoners of the state”.
He added that these orders are,
“intrusive to a high degree”,
and have an adverse effect on not just the individual but members of their family.
My first concern is that the Bill states, at Clause 10(2)(b) and Clause 11(2)(b), that if there are “reasonable grounds to suspect”, then the question for the Minister is whether it is “appropriate” to designate. The current legal test applied by the courts here and in the Court of Justice in Luxembourg, in part by reference to the European Convention on Human Rights, is to ask whether designation is proportionate in all the circumstances, including the impact on the individual. Can the Minister say whether the Government accept that a proportionality test will continue to be applied under the Bill? If so, will the Government accept that it would be highly desirable for this to be stated in the Bill?
My second concern is that Clause 11 allows for designation of persons by description. Currently, EU law requires that persons or entities must be expressly named if sanctions are to be applied. That is for a very good, practical reason. For a person to be designated other than by reference to their name will inevitably cause uncertainty not just for the persons concerned but for those who have to apply these provisions-in particular, banks required to freeze the assets of persons who are designated. Will the Minister comment on these problems which will inevitably arise if persons are designated by description?
My third concern is that Clause 2(1) will allow for financial sanctions to be imposed not just on designated persons but also on persons,
“connected with a prescribed country”.
Clause 50(4) will allow the Minister to make regulations specifying the relevant connection. Can the Minister explain why sanctions should be imposed on a person simply because they are connected to a specified country as opposed to misconduct by that person or their personal responsibility for the decisions of a repressive regime or a regime which otherwise justifies a sanctions border?
My fourth concern is procedural fairness. I think the Minister accepted in his helpful opening remarks that one of the vital safeguards in this context is the right of the individual to know the case against them and to have the opportunity to answer it. The European Court of Justice has recognised that procedural rights are vital to the integrity of any sanctions regime. The Minister said that the Bill contains “robust” provisions to protect procedural rights. In fact, the Bill contains very little indeed on the subject of procedural fairness. I well understand that a person cannot be told anything before listing occurs, as there will be too great a risk that funds may be dissipated, but once listing has occurred, the individual must have a right to be told why listing is taking place and by reference to what evidence so that he or she has a fair opportunity to respond—subject, of course, as the Minister mentioned, to retention by the state of security-sensitive details, but even then the individual must be told the essence of the case against him or her, as the case law requires.
It is striking that this Bill does not include any provisions setting out such a basic requirement of fairness at the stage after a designation order is made—neither a detailed code nor even a statement of principle to be developed in secondary legislation. There is only a requirement of disclosure if and when a case comes to court; that is, Clause 34(1), which refers to Sections 66 to 68 of the Counter-Terrorism Act 2008 and which incorporates the special advocate procedure for sensitive material. Even then, there is no recognition that individuals must be told the essence of the case against them.
I would like to see a duty to disclose at the earlier stage; that is, when or soon after the designation is made. The reason why it is essential that the individual is told at least the essence of the case against them at the designation stage is that you cannot start court proceedings under Clause 32(1)(d), read with Clause 33(5), until you have sought a review by the Minister and received a decision on that review from the Minister. That may take months—one hopes that it will be speedier than that, but, being realistic, it is bound to take time. There are no requirements on Ministers as to the timetable for conducting reviews. Unless you know the case against you, it is impossible effectively to present your arguments on the review. It is important to have clarity in this area on the face of the Bill, otherwise there will inevitably be litigation—and that litigation will lead to the courts imposing a duty to follow a fair procedure, which is my fourth concern.
My fifth concern about the Bill is in relation to the periodic review provisions in Clause 20. The appropriate Minister is required to consider any designation of a person every three years. That is far too long a period given the gravity of the consequences of listing a person. In the EU system, the periodic review sometimes occurs every six months, but in all such cases it must occur at least every year. It is true that the listed person can themselves seek a review under Clause 19, but, under Clause 19(2), once such a request has been made,
“no further request may be made … unless … there is a significant matter … not previously … considered”.
There will be cases where although there is no significant new material, the very fact of the passage of time may justify looking again at whether a listing is really appropriate. The three-year period is especially troubling because, as I said, you cannot start court proceedings until you have sought a review by the Minister and received a decision on that review. Will the Minister say why the review period of one year at the most in Europe is being increased to three years, and will he please reconsider the point?
My sixth concern is that the Bill would remove effective remedies for persons listed in the UK in order to implement a UN designation. The current position under EU law is that it is contrary to the rule of law for a UN listing to be implemented without procedural safeguards—that is, supporting evidence, effective judicial review, and the European court has the power to quash an order if it is not proportionate. Under the Bill, Clause 21(2) and (4), the individual would only have a right to request the Secretary of State to use his or her best endeavours to take the matter up at the UN to remove the person’s name. There is a right under Clause 32(1)(c) to seek a court review of the Minister’s decision not to use best endeavours. Can the Minister confirm that I have correctly understood that the intention of the Bill is to deprive the individual on the UN list of the rights that he or she currently has under EU law to obtain from the court, in appropriate cases, a quashing of a listing that derives from the UN?
If that is so, the individual designated in this country as a result of being placed on a UN sanctions list will have much less legal protection than a person who is listed in France or Germany as a result of being placed on the same UN sanctions list. The Minister said in his opening remarks, and he is right, that this country has an international law obligation to implement a UN listing. But can he confirm that, nevertheless, the European Court of Justice in Luxembourg requires the rule of law to be satisfied and has a power to give effective judicial remedies in appropriate such cases?
My seventh and final concern is the very broad delegated powers conferred on Ministers under the Bill, for example under Clause 39. The noble and learned Lord, Lord Judge, will address this topic, and I share the views that I know he is going to express. I look forward to hearing the Minister’s response on these points.
Lord Freeman (Con)
My Lords, first, I pay tribute to the excellent service on the Front Bench of my noble friend Lady Anelay. Judging by the quality of her contribution this evening, I am sure she will replicate that distinguished service for many years to come.
I support the Bill. Unlike those with much legal background and training, I shall concentrate on some practical matters and principally on money laundering. I find myself in agreement with the noble Baroness, Lady Bowles, about the implications of the Bill—I hope they are positive—in terms of money laundering. I appreciate that the UK has recently transposed the fourth money laundering directive and I hope and trust that the UK will continue to be a member of the international Financial Action Task Force. I would be grateful if the Minister could confirm, either tonight or in due course, that that will be the case.
The power in the Bill enables the United Kingdom, after leaving the EU, to update UK anti-money laundering regimes. The changes to be made to UK legislation will be made under the affirmative procedure. I am delighted by this. Those noble Lords who have sometimes suffered in a more rapid process must welcome the fact that we will debate the regulations and the changes that are due to come under the affirmative procedure rather than the negative procedure. Parliament is better involved in detail if that is the case.
I understand that the Government’s review of the UK’s anti-money laundering legislation is planned to conclude in December 2018. I am not quarrelling with that timetable, although I am a little disappointed, but it is vital that the target is met. I am sure the Minister, who has the same degree of attention to detail that he had when serving with other ministerial responsibilities, will comment on my plea that we conclude that legislation properly.
One area it is vital to cover is the need for a mandatory register of house owners located abroad who are currently able to buy UK property anonymously. I have lived in London for most of my life, although I did not represent a London consistency in another place, and I am acutely conscious that there is a good deal of concern not just in central London—in Kensington and Chelsea and Mayfair—but throughout Greater London about the anonymous purchase of property and the implication—implication only; I make no charge—of improper sources of funds to buy the properties. The Government have promised to introduce legislation by April 2018 to bring transparency to the housing market so that overseas companies must publicly declare their beneficial ownership. That is a very important target to meet on legislation and government action. Transparency International has apparently identified more than £4 billion-worth of London property bought with wealth considered suspicious—these are not my statistics, and I am grateful to that organisation for briefing me—and 40,000 London properties that are owned anonymously.
Action is required. Companies House, I am sad to say, has far too few employees dealing with registration. I gather it is a handful—or less than a single handful—and therefore staffing should be increased dramatically. We need a register of beneficial owners of UK property, which should be open not only to your Lordships’ House but to the general public.
Baroness Ludford (LD)
My Lords, I start by also welcoming the contribution to the debate of the noble Baroness, Lady Anelay, whom we much miss from the Front Bench. I am sorry that she is lost from the team of Ministers in DExEU, and, like the noble Lord, Lord Hain, I fear that the balance of opinion in the ministerial team in that department has tipped for the worse. I hope she can continue to have input into government policy and towards the achievement of a sensible one from the Back Benches.
This Bill is necessary but inevitably, because of Brexit, it is not as good as what we have at the moment. Within the EU we operate through the common foreign and security policy framework, which serves as a vehicle for the UK to multilateralise its own sanctions policy and benefit from the support of EU partners. It is an example of where we punch above our weight and multiply our power through EU membership, which enhances our overall influence in the foreign policy arena.
The Government say the purpose of the Bill is to continue to work effectively and consistently with our European and international partners to tackle the shared challenges in foreign policy and security. However, part of the Brexit narrative is that we need flexibility to be able to do things differently. There is an obvious tension here, and the Bill represents the conundrum that is there in Brexit as a whole.
The first example of tension could be about how this greater flexibility outside the EU is used—to what purpose and with what potential loss. There will be a loss of voice and influence for the UK and potentially a loss in terms of a weakening of the global effort against rogue states and other actors, because the EU sanctions regime might be less efficient or effective, or if the strength of our own is diminished because of pressures that it will come under.
Secondly, “taking back control” means an increased administrative and bureaucratic burden—having to create and run a UK-only regime and taking up the time and energy of legislators on this Bill. We are not seeing less red tape with Brexit, but more. Compliance costs will increase. Businesses and individuals benefit from having to deal with only one regime, with uniformity and consistency. An authorisation for an exception from sanctions obtained in one member state is valid EU-wide at present. There is also a lot of litigation. Currently this all goes through the Court of Justice of the European Union. In future it will land on our courts, and I am sure they are welcoming the extra work. The sheer costs and upheaval being created in order to liberate ourselves—in the words of some—from an organisation that, despite some flaws, works well is amply demonstrated by the Bill.
Thirdly, as my noble friend Lady Bowles has well described, there is a reduction in transparency and democracy as scrutiny and joint legislative power for MEPs are replaced by a governmental power grab way beyond the correcting power in the repeal Bill. There is no taking back control for Westminster.
Fourthly, the UK risks a serious loss of influence. Will we become like Norway, not in the room when decisions are taken but having to align ourselves with the EU? How will the UK retain a position of leadership as opposed to accepting that it can be only a loyal follower of EU sanctions or choose to weaken that solidarity by departing from them? How will we influence EU sanctions policy from outside the EU?
We do not yet have the benefit of the EU External Affairs Select Committee’s report on sanctions policy as the inquiry is still in progress, but we have been able to dip into some of the evidence. A witness from RUSI said:
“We still have the biggest financial lever in the European Union”—
in the form of the City of London—
“that the EU can use”.
So the collective weight of the EU is greatly strengthened by UK participation in the sections regime. This also includes the institutional capacity of the EU, to which seconded British experts significantly contribute.
Another feature brought out in evidence to that inquiry is that the UK contributes considerably to the backbone—one witness described it as “the lead in the pencil”—of EU sanctions policy. We have a very important position in the development and promulgation of EU sanctions. When or if we are separated from the EU, the ability of the EU and UK to pursue common foreign policy objectives through sanctions will be reduced. Indeed, our pull-out could weaken the resolve and political will of the EU as well as its ability, since we are one of the strongest advocates of sanctions.
We would put at risk the so-called consensus bias in the EU—the way in which it creates an intention and willingness to work together in support of sanctions regimes, even when certain member states are suffering economically. A good example is the way the EU has coped with Russia’s divide-and-rule policy. The EU has managed to withstand the pressure because of its common institutional architecture, within which no doubt there can be compensation in other policies for unhappy member states that are feeling the pinch from Russian pressures. If that EU architecture is fragmented by UK exit, the outcome becomes less predictable and more vulnerable to such pressures.
On the Bill itself, I am glad to see the “reasonable grounds to suspect” standard of proof adopted, in line with the recommendation in the report from the EU Justice Sub-Committee, on which I sit. There has been some criticism in the past of due process failings in the EU sanctions regime, although there has been improvement in recent years. I was going to ask the Minister if he could highlight ways in which the Bill corrects those failings but the noble Lord, Lord Pannick, has answered the question: he says there are no ways in which the Bill improves the EU procedures. Indeed, he highlighted that in both remedy and review the Bill creates a worse situation. Could the Minister at least assure us that the administration and enforcement of UK sanctions will be well-resourced? We have seen that other enforcement areas, such as the police and trading standards, which are well away from sanctions, have been considerably weakened by cost-cutting. Will the enforcement of sanctions be protected from that?
It is asserted by some that if we get greater control we can better tailor compliance regimes to suit the needs of UK business and other affected sectors. The Minister mentioned licences for humanitarian NGOs, but there might be less laudable beneficiaries. What happens if the City of London tells the Government that it would like to see less pain than it currently gets under EU sanctions? How will the Government ensure that there is not inappropriate deregulation? At present the EU acts as a shield for national Governments who are reluctant to defend and justify their own decisions. “It was terrible; we got outvoted,” they say, when you know jolly well that the decision was taken by consensus. The UK Government running its own sanctions regime will not have that pretext and will be more exposed to lobbying at the national level. Can the Minister give us some idea of how the Government intend to exercise their new-found autonomy and flexibility and reassure those of us worried that this could mean a laxer regime?
A senior Treasury official told the EU Committee inquiry:
“We have the ambition of reducing burdens on business where we can with any additional flexibility we may have once we exit the EU”.
What did that remark specifically envisage? It could mean sensible reform or it could mean an ominous weakening.
The UK must not become a haven for those escaping validly applied sanctions elsewhere through British deviation from an EU sanctions listing. Britain must not become a refuge for the corrupt, the criminal and the corporate villains—or at least, no more than, sadly, we are now. Will the Government surprise us by exhibiting a resolve to use its new-found freedom from the alleged Brussels straitjacket to tackle money laundering as well as tax evasion in the British overseas and dependent territories? Will they now commit to introducing that register of true owners of overseas companies currently able to purchase UK property anonymously? That was highlighted by the noble Lord, Lord Freeman. As Transparency International, whose figures were cited by the noble Lord, said,
“this bill is a timely opportunity for ministers to confirm their determination to deliver on this promise”,
of introducing that register. It went on:
“Without doing so, there is little prospect of ending the UK’s role as a safe haven for corrupt money”.
Lord Judge (CB)
My Lords, the objectives of this Bill are admirable: we fulfil our international obligations; we also protect national security; we try to prevent terrorism; and as far as possible, we eradicate money laundering. So there is nothing wrong with the objectives. My concern is the way in which we are going about it.
This is a vast, great superstructure of secondary legislation being erected on virtually non-existent primary legislation. It is, in truth, a bonanza of regulations. It is not shy about it. The very first words refer to power to make regulations. The Bill actually says “Power to make sanctions regulations”, but it is about power to make regulations. That is the term in the first clause, which states:
“An appropriate Minister may make sanctions regulations where that Minister considers that it is appropriate to make the regulations”.
The regulations are then defined. The regulations that the Minister may make mean,
“regulations which do one or more of the following … impose financial sanctions … immigration sanctions … trade sanctions … aircraft sanctions … shipping sanctions … sanctions within section 7 (other sanctions for the purposes of UN obligations)”,
and regulations that may “make supplemental provision”.
Noble Lords will not be too pleased to hear me go through clause by clause of this Bill, but I assure them that in relation to the creation of powers, rather than any review that may take place, not a single clause does not depend on regulation-making powers being given to the Minister. For me, the comeuppance comes at Clause 16, which I think, with great respect, is a rather shocking proposal. Clause 16(2) states:
“Regulations may make provision … for the enforcement of any prohibitions”.
Fair enough. Subsection (3) states:
“The provision that may be made by virtue of subsection (2)”—
I shall read this slowly—
“includes … provision creating offences and dealing with matters relating to those offences, including defences and evidentiary matters”.
Then subsection (4)—this is very generous—states:
“Regulations may not create an offence punishable with imprisonment for a period exceeding … in the case of conviction on indictment, 10 years”.
This is really rather remarkable. We have criminal offences being created by regulation. I assume that there will be a trial before conviction—it does not say that there will not be, anyway. The reception of evidence to demonstrate that the case is proved depends on ministerial regulation. At the end of the trial, assuming that there is a conviction, the judge may impose a sentence of 10 years. This is not the stuff of secondary legislation; this is a very serious provision. I do not speak to any others—but I want to return to the story, because we then go to money laundering.
In Clause 41, we have regulations again, where it says:
“An appropriate Minister may by regulations”,
do this and the other. Then Schedule 2 makes further provisions about regulations under this section. Schedule 2 starts by saying that,
“regulations … may do any thing mentioned in paragraphs 2 to 17”,
and then there are a whole series of provisions, which include, as the noble Baroness, Lady Bowles, has already pointed out, making:
“provision creating criminal offences and dealing with matters relating to those offences, including defences and evidentiary matters”.
It then says:
“Regulations … may not provide for any such offence as is mentioned”,
but there punishment on indictment is up to two years. Phew, what a relief. Why money-laundering punishments should be less than the others is an interesting question, but there it is.
One might have thought that the regulation powers given in this Bill were of such vast amplitude that it might be enough—but it is not, and I ask the question whether this is really how we wish to legislate. I go back to Clauses 38 and 39. Clause 38 provides,
“a power, by further regulations”,
called,
“‘new regulations’ … to revoke any regulations”,
made under Section 1, or,
“to amend any regulations under that section”.
And so it goes on.
Clause 39 also includes a power to authorise additional sanctions, saying:
“An appropriate Minister may … amend this Part so as to authorise regulations … to impose prohibitions or requirements … additional to those for the time being authorised”.
So what you get in Clause 1, which I dashed through—noble Lords will all remember getting rather bored—about financial, immigration, trade and aircraft sanctions and so on, is not the story. There is a whole new additional power to add to that list.
Over and beyond that, we come to the heavy foot of King Henry VIII, in Clause 44. Stark as you like, it says:
“Regulations … may make supplemental, incidental, consequential, transitional or saving provision … in the case of regulations”,
to which I have referred—those arising under Section 1, and,
“provision amending, repealing or revoking enactments (whenever passed or made)”.
So the galumphing King Henry comes along, but to rescue who from what?
This is an extraordinary piece of legislation. I support the objectives of the Bill, but we are legislating in a most extraordinary way. I say this with great respect to all the parliamentarians who have come before me but, speaking for myself, I do not think that an affirmative resolution process does the business. The affirmative resolution is there and it is wonderful—but when was serious scrutiny made under the affirmative resolution powers that led to a statutory instrument being abandoned, either here or in the other place? Yet our main function is to scrutinise legislation and point out to the Executive that in the end we, the legislature, are in charge. This Bill gives too much power to the Executive.
Lord James of Blackheath (Con)
My Lords, my contribution to these proceedings will be to present my memories of two money-laundering activities that took place and see how they compare with what might happen today if they had to contend with the presence of this enacted Bill.
The first case emanates from the northern shores of Africa and the other one relates to our old friends the IRA. They are very different, and I shall take the Libyan incident first, which is astonishing in its own way. President Gaddafi had decided that he had to get rid of this terrible capitalist symbol known as Coca-Cola. Coca-Cola had to be driven from the shores of Libya, but he did not have another drink to replace it, and Libya is a very hot country and you have to have a drink.
He approached a company in Yorkshire which specialises in turnkey operations and said, “Please invent me a cola company”. Unfortunately, and unbeknown to them at that time, I was about to be made chairman of this company because the bankers were frightened about how much its borrowings were rising. I arrived on the day when the cola had apparently been created to replace Coca-Cola. Coca-Cola had been sent from the shores of Tripoli with the blasts of cannons echoing in their ears—he got planes to shoot at the ship as it went out to sea, carrying all the residual Coca-Cola of Libya—and the new cola was born.
Unfortunately, the headline in the national press the next morning, on the launch of this new cola—I am awfully sorry but I am going to use a very non-parliamentary word; apologies to Hansard and to the Chair—was, “Kitty Kola is Kitty Cat Piss”. I thought, “This is terrible—if this is what Mr Gaddafi thinks, he will never pay the invoice”. So I said, “How are we going to get paid for it? How much do they owe us?”. They said, “£27 million, sir”. I had only been there since Monday and this was the Tuesday. I said, “We’re not going to get paid, are we?”. They said, “Yes, we will—you wait and see”.
Later that day, they came to me and said, “We’ve been paid”. I said, “Let me see”, and they showed me a credit transfer for £29 million. I said, “That’s £2 million too much”. They said, “Yes”. I said, “Send it back immediately and just keep the £27 million”. “Don’t be a fool”, they said, “You’re a new chairman and you don’t know what’s going on”. I said, “I certainly don’t. What’s the £2 million for?”. They said, “You’ll be told later today”. I said, “I can hardly wait.”
Shortly after that, I got a communication from Libya saying, “Please take the £2 million and open a bank account for us in Rome, and provide us with all the bank details—and by the way, we’ve sent you a picture of the passport of the individual whose name we need to have on the account”. I said, “We’re not doing this, are we?”. They said, “If you don’t do it, we’ll never get another deal in Libya”. I said, “Have you done this before?”. They said, “Yes”. I said, “How many times?”. They said, “Seven times”. I said, “You’ve opened seven bank accounts? For how much?”. “Well, it’s usually about £2 million each time”. “And what’s that money being used for?”. They said, “We don’t know—it’s none of our business”. I said, “It jolly well is. We’re going to have to talk to the security staff about this, straight away”. They said, “You can’t—they’ll blow us away”.
So I got on to the security people and said, “Are you interested in this?”. They said, “Yes. Come and have breakfast and bring all the stuff with you”. So the next morning—they always do it nicely—I got breakfast at the Dorchester, which is never to be complained about, and I took all the files on this thing. They said, “This is wonderful! This is like gold dust.” I said, “I think it’s terrible”. “No, no, no—don’t stop doing it; just give us all the details and then we’ll have the whole thing completely under supervision”. I said, “This is going to be used for buying armaments to murder the Pope and everything else”. “We’ll look after that; you just do what they’re telling you, give us the details and we’ll all be happy”.
The present Bill makes everything that I have just told noble Lords very illegal. But I ask the Minister: how are we going to catch it, because I cannot see that there is any regulatory process or overview that will stop it happening again? And do we think it is not happening today? The company that I was chairman of for that brief period is not there today—but somebody is and they will be doing the same. How are you going to make this Bill work to stop that happening again? I bet it is happening today, and will happen tomorrow and the next day. I would not like to know how many private bank accounts are opened up which provide easy access for Islamic terrorist intervention across the shores of the southern Mediterranean.
I have a conundrum for your Lordships. I will mention five different types of company and I want noble Lords to tell me if they can see instantly why it was attractive to the IRA to acquire a controlling interest in five small listed companies trading individually on the London Stock Exchange. They were as follows: one, the world’s biggest library of photographs available for press utilisation; two, a spoil reclamation company, taking salvage spoil from mining tips; three, the building of a residential village on the shores of Portugal; four, a technical film services company; and five, an extremely upmarket and very posh limousine service working round the airports of Europe. What was the possible interest in having those five companies? I have asked around and only one Member of the Lords got the answer: my noble friend Lord Holmes of Richmond—it took him about seven seconds. I think that he should be put in charge of intellectual investigations of all suspicious work immediately.
The answer, quite clearly, is that every one of them performs a service abroad for which an invoice for payment can be provided from Ireland. It is an easy way of transferring money wherever you want it, in small or big sums, and having the money—criminally acquired funds by the IRA in Ireland—filtered away into little bits and pieces. The village in Portugal is funny, I think, because it was intended to be the holiday venue and retirement homes for retired successful IRA operatives. I did not know that it had such care for the welfare of its people. It makes one feel proud to know that the IRA was so responsible.
The film technical services company was the one that caused the greatest problem. There was in those days—this is the terribly important difference from what we have now—a hugely active corporate governance department in the Bank of England. It was run by a man called Jonathan Charkham who, among his many other great distinctions, was the father of my noble friend Lady Shackleton of Belgravia. Jonathan Charkham was the witchfinder general for the IRA’s activities in the 1980s and he was brilliant at it. He sadly died some years ago. The department in the Bank of England had ferreted away and had found a very strange set of circumstances. An American company that it could not identify had worked through Savory Milne, the broking arm of the Swiss Bank Corporation, to acquire the controlling interest of a company called Eagle Trust and had then used Eagle Trust to float a rights issue to acquire a tiny little film services company called the Samuelson Group for £55 million. The Bank of England decided that something was really wrong because the £55 million, which had been used for the rights issue, was stolen completely. The IRA took that as its up-front money.
Again, I was put in to sort this one out. Jonathan Charkham went in one day and called the board. He had the right—as the backbone of the Bank of England—to call a board meeting which he could attend, sitting beside the chairman of any public company. He sat with this lot, went through the whole thing and then fired the whole board on one day. He then put me in as chairman and I had the night to get together a new board for the next day. We looked at this and it was just a nightmare. Eventually, we found that money had indeed been stolen and, later on that same day, there arrived some very strange Americans from a company in New York who announced that they were the new owners of Eagle Trust. The IRA had been in collusion with Cosa Nostra—I do not how this Bill would cope with that if we get it again. The IRA was using foreign money to buy up a company that it wanted to steal some money from. I am not sure that this Bill gets anywhere near providing a regulatory network to get into that. The difference as I see it between then and now—I know I am talking about 25 or 30 years—is that, whereas then we had the regulatory people and professionals who could act on and work with this sort of thing, nowadays we rely upon the FCA and conventional police forces; the security arm will only act if there is a specific security leak recognised with it. We do not have anything like the old Bank of England corporate governance arm which did so much wonderful work to watch what was happening and move on it. Without that, I cannot see how the Bill will have teeth.
A funny thing about the acquisition of the Samuelson Group was that when we went through the accounts, we found that the IRA had ticked off items and had written down, “Four funerals, £500,000”. We wondered what the IRA wanted with four funerals for £500,000. It turned out that this was code for the film “Four Weddings and A Funeral”, which it had spent all the money producing. The IRA had worked for a year for no fees, which had caused it to go bust, in return for 65% of the revenue from the film, which was an enormous amount of money—so we turn from a £4 million a year loss to £14 million a year profit. The flotation raised nearly half a billion pounds and all the banks were paid back with all the money from that. The IRA lost the lot—which I have to say is one of the most satisfactory things I could ever record.
As I say, I cannot see that the Bill will have teeth. There are no foot soldiers to back it up, and we need them. If the Bill is to work, we need to get the Bank of England to decide whether it will reactivate corporate governance as one of its arms. Are we going to make the FCA do its proper job for once and get on with supervising these things, or will it be the security services more generally? At the moment, it is not there and it will not happen—and unless we get it, this well-meaning Bill will not work. It did work before—we cleared the decks and we do not want them to get cluttered with these dreadful people again. We need to make something to back this Bill.
Lord McNally (LD)
My Lords, that speech provided the Minister with an interesting dose of realism on the range of responsibilities and the size of the problem that this Bill seeks to cover. As the noble Lord, Lord James, said with some emphasis, these things are still going on and we should consider the Bill in that light.
I advise the Minister never to start a speech by assuring the House that a Bill is just technical, and that we should therefore move along as there is nothing to see. That only stirs us up. I remember that my mother was very fond of the saying, “The more she spoke of her honour, the more I counted the spoons”. Ministers who say that a Bill is technical provoke our learned friends in particular. As has been emphasised, we want to see the Bill pass into law, but we want to examine its wider context of setting high standards and taking global leadership in the fight against corruption.
I, too, am pleased to see the noble Baroness, Lady Anelay, in the Chamber. I spent some 11 years in tandem with her making this place run, when I was the leader of the Liberal Democrats and she was Chief Whip.
I take up the point made so forensically by the noble and learned Lord, Lord Judge, and warn against the overuse of secondary legislation and Henry VIII powers in this and other Bills. It is ironic that a Brexit campaign which called for the return of a supposedly lost parliamentary sovereignty has resulted in a power grab by the Executive which would have made Henry VIII blush.
I recommend to noble Lords the text of a speech given by the noble and learned Lord, Lord Judge, at King’s College London on 12 April 2016. In fact, I think that the Minister should get a copy, read it and show it to the Prime Minister, because it is a masterly analysis of the problem that we now face in abundance. In it he quotes from an earlier speech made at the Lord Mayor’s banquet for the judiciary in 2010, when he said that this increasing accretion of executive power via secondary legislation and Henry VIII powers,
“will have the inevitable consequence of yet further damaging the sovereignty of Parliament and increasing yet further the authority of the executive over the legislature … Henry VIII clauses should be confined to the dustbin of history”.
However, now Henry VIII clauses proliferate across Bill after Bill. Parliament will need to address the situation as a matter of urgency if it is not to be known as the jellyfish Parliament for lacking backbone in the face of such blatant usurping of its powers. I go back to the noble and learned Lord’s speech at King’s College. He did not give these quotes today, but this goes to the heart of it. He said:
“Since 1950, sixty-five years, some one hundred and seventy thousand statutory instruments, prepared not by Parliamentary Counsel but by government departments, exercising powers granted by legislation, have been laid before Parliament. In that time seventeen … have been rejected by one or other house”.
In essence, that is the answer to what we hear time after time from Ministers: “Of course it will come before Parliament!”. Some of it will be by the super-affirmative or affirmative procedures, but the truth is that the use of affirmative, negative and super-affirmative procedures is no check or balance. It is a sham, and one that works, as we found before. The Labour Opposition—the Official Opposition—always has the thought, “When it is our turn, if we unravel this rather nice idea that secondary legislation comes before proper parliamentary scrutiny, they’ll do it on us”. We have seen that in the past, with the Labour Front Bench backing off from confronting the Government.
I believe that, as we go into this period of legislation ahead of us, if the Government think that they can do this simply by Henry VIII clauses and secondary legislation, we will drive into a constitutional car crash. It would be wise if the Lord Speaker and the Speaker of the House of Commons could consider bringing together a committee of both Houses to look at this to devise ways to provide some parliamentary machinery to scrutinise these powers that the noble and learned Lord, Lord Judge, so eloquently warned us against.
Much of this Bill is anchored by the work of the European Parliament. For 40 years, British politicians and the British media liked to treat that organisation as one of those funny foreign assemblies—not like the real thing. In the Bill—and in the Data Protection Bill, which I am also working on—we have evidence of just how thorough the European process of lawmaking really was. We are fortunate to have on our Benches two outstanding examples of European lawmakers in my noble friends Lady Bowles and Lady Ludford. In the Bill we will have the immense benefit of their experience. As a Minister I saw at first hand their skills in making EU legislation better, more effective and—yes, of course—in our national interest. That is real sovereignty in action—being there and being able to influence. I hope that the Minister will listen carefully to what is said as the Bill progresses.
One of my proudest moments as a Minister was when, in 2011, Ken Clarke and I were able to bring into force the previous Labour Government’s Bribery Act 2010. That was by no means a done deal. There were the usual complaints that this would lose us vast orders—it was usually implied that the French would get them if we did not. But it was a significant turning point in taking a legislative stand against the corruption of free and fair trade. It is equally important in keeping Britain at the forefront in delivering sanctions against regimes and individuals whose behaviour undermines human rights and violates established international law.
My noble friends Lady Northover and Lady Sheehan will be casting their expert eyes over the sanctions part of the Bill as regards national security and our ability to contribute fully to humanitarian and peacebuilding works. Yesterday we were briefed on the Bill by NGOs. I think that in Committee we will have to reflect on some of their concerns about the unintended consequences of the regulations on their operations.
On the brighter side, we were told by the NGOs that one of the better outcomes of tougher laws on money laundering was that international banks, particularly in Africa, were pulling out, or threatening to pull out, of countries where a laxity of controls might cause those banks to fall foul of EU or United States sanctions. The result is that many of these countries are beginning to put their own houses in order. Therefore, sanctions and anti-money laundering legislation are good for our own economic and political health, but they can have a positive impact on others, too.
However, it would be very complacent of us to imagine that everything in our own garden is rosy. We still hear voices arguing that the real Brexit will come only when Britain cuts itself loose to be a free-trading buccaneer, roving the seven seas, taking booty where it can and operating a lightly regulated, small-government regime here at home. That goes back of course to my earlier concerns. It is all very well the cuddly, lovable noble Lord, Lord Ahmad, saying, “Give me these powers and I will use them wisely for the common good”, but what happens when we find ourselves in the post-Brexit wonderland, with Jacob Rees-Mogg at the helm and John Redwood in place of the noble Lord, Lord Ahmad?
That is why the Government must seize the opportunity to couple this Bill with some announcements that would provide reputational mood music demonstrating our firm commitment to fighting corruption and the money laundering that provides its lubrication. This is the front line against organised crime, terrorism, modern-day slavery, people trafficking and the abuse of state power by elites. He is not in his place now, but the contribution of the noble Lord, Lord Hain, was a very sobering and rather depressing account of how that can happen. It would, for example, be useful if, in parallel with the legislation before us, the Government could publish their cross-government anti-corruption strategy, which is now nearly a year overdue.
We need to make it clear that the UK is not a safe haven for corrupt capital and that there will be no race to the bottom when it comes to money laundering and offering a safe haven for the wealth of the world’s corrupt elite. In that respect, a key indicator of intent would be the delivery of the UK’s commitment to introduce a register of beneficial ownership of UK property. I was very pleased to hear what the noble Lord, Lord Freeman, said on that and the quotations that he gave from Transparency International’s briefing material, which I will not repeat.
Again taking up a point made by the noble Lord, Lord Freeman, there is also a need to beef up the number of those with responsibility for oversight in Companies House in order to tackle these issues in the countries that have been cited. All the evidence shows that Companies House is understaffed and, on occasion, overwhelmed. Surely what is needed is an elite squad of investigators, headed by an individual who will make his or her name by cracking down on the money launderers.
As I said, we want to help the Government use this Bill to send the right messages both at home and abroad. We need to look at the money laundering provisions for weaknesses and loopholes, as so ably analysed by my noble friend Lady Bowles. We need to give clear and unambiguous guidance to our banking system which will give them comfort and confidence in operating both sanctions and money laundering regimes. We have to examine the concerns of NGOs and humanitarian agencies about unintended consequences that might make them vulnerable to falling foul of international sanctions or the law. We agree with the Minister that we need to give the legislation flexibility and adaptability so that we can respond quickly to new emergencies and circumstances, but that must not be at the expense of parliamentary scrutiny.
Those are the tasks we will face in Committee over the next few weeks. I am glad to see that the Minister is back in his place because I want to reassure him, as he sets out on these tasks, that as he well knows, “We’re the Liberal Democrats and we’re here to help him”.
Viscount Waverley (CB)
My Lords, I offer my support to government objectives at this stage of the Bill, because continuity of current arrangements is clearly an imperative. I have, however, listened carefully to the concerns of noble Lords, and I hope that the Government are on message. We have heard from the Minister that flexibility would allow Ministers to add differing components. That is helpful. He mentioned transport, trade and immigration. However, any mechanism to specifically place more emphasis on removing corruption from the world stage, alongside that on money laundering, would be propitious for inclusion in future sanctionable objectives. The noble Lord, Lord McNally, touched on that point twice in his remarks.
Defining corruption can be a nebulous challenge, but it often extends to poor governance. It is essential to exert pressure to improve governance where needed, particularly in relation to the recipients of UK aid funds.
The use of sanctions for economic or regime change purposes, or targeted sanctions on individuals for human rights abuses—a mechanism short of more drastic measures—is on the increase. Understanding how best to measure those sanctions against their intended purpose and ensure that the unintended do not suffer disproportionally, and when expedient how to allow leaders on the receiving end to save face, are all challenges. The need is sometimes to allow or provide an assured exit route for those facing international justice or a route back to a state of peace and reconciliation for conflicted peoples.
I would welcome a global review of sanction processes at a convenient time in the future. Knowing when and how to instigate sanctions as a tool of policy does not require multilateral-level consideration by a body such as the United Nations. More effectively, it should be introduced by smaller and more coherent regional or economic groupings, such as the G7 and European Union members. Regional fora to discuss and implement sanctions have the benefit of speedier action without as much compromise on principles compared with the UN. Many crises require more timely responses while UN bodies conduct their reviews and investigations. On another note, regional groupings carry more weight in terms of “who is in the right”, as typically those in regional groupings are neighbours. For example, African Union sanctions on African states could carry more moral weight, as it is not seen as a group of western nations punishing a poor African state. I took note of this general theme when listening to the vehement remarks made recently in your Lordships’ House by his excellency the President of Namibia.
The underpinning of sanctions as a transatlantic set of initiatives is fundamental. This might serve also as a brake on occasional future excesses by the United States.
We must all be in step. If in step, what should be done about the effects of extraterritorial components unilaterally instigated by others—for example, the US Helms-Burton legislation, a United States federal law which strengthens the United States embargo against Cuba? Whether it be Cuba or elsewhere, it is often western banks and companies—notwithstanding the desperate tale outlined by the noble Lord, Lord Hain, who is not in his place—which, against their individual corporate interests and without consultation, shoulder the burden.
However, the overall balance must be got right. We are headed possibly towards a differing geopolitical and geo-economic world. Care needs to be exercised for sanctions not to become a “them and us” circumstance. Some suggest possible future axes of those to the East standing between themselves and the ideals of the West are in the making.
While a clear set of objectives exist we should be mindful of states not being boxed into a corner or blind alley with little or no exit strategy. Any possible reciprocal sanctions programmes might have dramatic and untoward long-term adverse repercussions. If sanctions become a wedge between differing ideals, certain eastern economic powers might decide they are more in kilter with those in the East than the West. Presumed groupings and informal alliances are much more variable than we might think. So, sanctions achieving their end, and not beyond, are crucial.
I was struck recently by a comment from a UK Foreign Minister that encapsulates one aspect of the challenges. He noted that we live,
“not in a world where isolation works”.
Lord Gold (Con)
My Lords, the Bill is to be welcomed. That said, I hope the Government reflect on the powerful and eloquent comments of the noble and learned Lord, Lord Judge, echoed afterwards by the noble Lord, Lord McNally.
As we have heard, the immediate necessity in relation to the Bill is the Brexit vote and our departure from the EU in 2019. I hope that anyone who doubts the need for our own sanctions law is persuaded by the sobering comments of my noble friend Lady Anelay when speaking about Sudan. Most current powers to implement sanctions flow from the European Communities Act 1972. However, when this Act is repealed and we leave the EU, we must have our own domestic powers to impose sanctions. The Bill introduces considerable flexibility, for both sanctions and licensing, and simplifies the process of imposing non-UN sanctions. At a time when terrorists appear to move with ease across borders and do the same with their assets, the Government must be in a position to move quickly and impose effective sanctions. The Bill allows that to happen.
After discussion across relevant departments co-ordinated by the Foreign and Commonwealth Office, an appropriate statutory instrument can be laid before Parliament without delay. This contrasts greatly with the present system in Europe, where proposals for sanctions emanate from the EU, then—inevitably and understandably—there must be consultation and negotiation across member states before any new EU regulations can be issued. Only after that can we proceed by way of statutory instrument here.
Although this streamlining is to be applauded, there is a risk ahead against which we will have to safeguard. There could easily be an additional compliance burden if there are divergences between the UK and the EU in substantive sanction prohibitions. To achieve efficiency and be effective we will have to find a way of working with the EU to co-ordinate our approach. This may be difficult if, as I have indicated, we are able to impose sanctions more quickly as our processes are simpler.
If these sanctions are not later supported in the EU, I can see problems of enforcement and maybe legal conflicts. The need to move quickly and efficiently is recognised by a proposed change to the evidential requirement for the imposition of a sanction. It will be sufficient to show that there exist “reasonable grounds to believe” that an individual should be added to the sanctions list and that the proposed sanction is appropriate. There will no longer be the need to demonstrate that the sanction is “necessary” to protect the public, which has proved to be a high evidential burden. This is an important change as terrorists are now causing significant damage with little money or resource as, regrettably, recent terrorist outrages in Manchester and London have demonstrated.
I want to say a little more about the flexibility that this Bill introduces for government. In addition to traditional-style sanctions such as freezing assets or imposing restrictions on investments, the Government will have the flexibility to introduce measures that take account of the ownership or control of entities or funds. The Bill also supports a flexible approach to the imposition of trade, aircraft and shipping sanctions.
In relation to money laundering, Ministers are given a wide power of investigation and can introduce regulations to prevent money laundering and terrorist funding. Ministers may require “prescribed persons”, as defined in the regulations that are to be issued, to put in place policies, controls and procedures to prevent money laundering and terrorist funding; take prescribed measures in relation to their customers; provide or disclose information; and produce and retain registers and records, including information on beneficial ownership. I would hope that these powers, sensitively thought through and applied, would be flexible enough to prevent the abuse that was so clearly set out earlier by the noble Lord, Lord Hain.
Although these powers are similar to powers already found in EU law, I hope that when finalising the regulations, Ministers will be sensitive to the administrative burden that measures of this kind impose on businesses. Many noble Lords have mentioned on other occasions some of the difficulties already being experienced by some individuals simply in opening bank accounts. By increasing the reporting and policing obligations of our institutions and possibly imposing financial and penal penalties for failure, we must be wary of the considerable inconvenience that could be caused to customers.
I end by saying that I am pleased that provision is made for regular review by Ministers of the sanctions regime to ensure that it is still warranted and fit for purpose. I am also very pleased that provision is made for those affected by any sanctions to be able to challenge them by seeking a review by the Minister—and if not satisfied, to challenge the review by applying to the High Court, the principles for applying being similar to or the same as the judicial review provisions. But I share the view of the noble Lord, Lord Pannick, that sufficient information must be forthcoming so that people affected by sanctions understand the reasons for them, ensuring that they are at least on a level playing field if they want to challenge them.
Baroness Sheehan (LD)
My Lords, my opening remarks will echo those of my noble friend Lord McNally and the noble and learned Lord, Lord Judge—but much less eloquently, I fear. Two years ago last week was an eventful time in your Lordships’ House. The day of 26 October 2015 was remarkable not just because it saw the introduction into your Lordships’ House of the first lady Bishop in history, which caused the House very unusually to erupt in applause, but because it was marked by the controversial vote to delay tax credit cuts in order to protect the poor, which the Government lost. I should also say that the day is indelibly ingrained in my memory because it was when I, too, was introduced into your Lordships’ House. I had not expected such excitement here.
Upon losing the vote on tax credit cuts, the Prime Minister accused Peers of breaking a constitutional convention. Noble Lords will recall that a rapid review was set up to find ways to ensure that financial measures cannot be overturned by the House of Lords. Those who voted against the Government argued that that viewpoint was nonsensical because the tax credits were being introduced through a statutory instrument and had not been declared a formal financial measure. The review was asked to look at ways of guaranteeing that statutory instruments cannot be overturned by Peers, who have done so on only five occasions.
We were told that this presented no less than a constitutional crisis—all caused by controversy over one statutory instrument. I fear that we are in for many such crises, as many similar controversial measures are coming down the line.
We have before us a Bill that threatens to overturn certainly my admittedly meagre understanding of how we, in this mother of all Parliaments, have operated for centuries. It drives a coach and horses through previous practice and risks reducing our elected representatives and noble Lords to mere spectators. We are told that it is an enabling Bill. My fear is that it will enable precedents that will diminish democracy and hand over too great a power to the Executive. It begs the question: who is taking back control and what relationship does that control bear to parliamentary sovereignty?
The Bill in this respect is deeply flawed. As we have heard, many safeguards that should appear in it are missing. Nevertheless, it is before us. My focus on it will primarily reflect my role as my party’s spokesperson for international development. I will restrict my remarks accordingly.
The case for ensuring that the sanctions regime is replicated meaningfully and strengthened was well made by the noble Baroness, Lady Anelay, and the noble Lord, Lord Hain. I would like to see a Bill that explicitly gives the Government flexibility and legal powers to permit NGOs and charities to deliver humanitarian, development and peacebuilding activities through general exemptions, permissions and licences so that they are not prevented from doing their work. Essentially, we want them to be able to buy petrol and mobile phones, access banks et cetera, and to ensure that their work is not hindered.
I will add my voice on the issue of how we can use the anti-money laundering part of the Bill at the outset to deliver on the UK’s commitment to introduce a register of the beneficial owners of UK property. I, too, have benefited from the very useful briefing from Transparency International. At the 2016 anti-corruption summit in London, led by the then Prime Minister David Cameron, the UK Government committed to introducing legislation by April 2018 that would bring greater transparency to the housing market by requiring overseas companies owning property here to declare publicly their beneficial owners. This has wide support and the Government should take the opportunity to deliver on that commitment.
Developing countries are often accused of corruption—the noble Lord, Lord Hain, gave us a graphic example—but we must acknowledge that corrupt leaders would soon be out of business if they did not have laundry facilities. We have been a laundry and facilitated those options for long enough. Let us use this Bill to end corrupt practices that divert billions of pounds from the poorest people on the planet. The Bill presents an opportunity that will not come again any time soon.
Baroness Northover (LD)
My Lords, I thank the noble Lord, Lord Ahmad, for introducing this Bill and pay tribute to all those who have spoken. I pay tribute in particular to the noble Baroness, Lady Anelay, and thank her for everything that she did in her long service as a much-respected Minister. It was a great pleasure working with her.
This is the first Bill to reach the House of Lords which seeks to set into UK law the law and regulations under which we have been operating in the EU. I am not sure how auspicious it is. Clearly, if we leave the EU, this is an area of law that we must have in place. We cannot have a hiatus in this or other areas. The Bill will therefore be followed by many others. That poses an enormous challenge to us as we can see from simply looking at this area. It is an area which per se—enabling us to have a sanctions regime and to prevent money laundering—should be non-controversial, which is no doubt why this Bill is starting here in the Lords.
The Minister has explained that the Bill would enable the UK to continue to implement United Nations sanctions regimes, to use sanctions to meet national security and foreign policy objectives and to enable anti-money laundering and counterterrorist financing measures to be kept up to date. If we leave the EU, we fully support the proposal that the UK must have the ability to maintain its sanctions and anti-money laundering regimes.
Like other UN charter states, the UK is obliged under international law to implement UN sanctions. The UK has also taken action where there are no UN sanctions, through the EU and often with the US, Canada, Norway and others. Thus we have had sanctions in relation to Syria, Iran, North Korea, Sudan and Zimbabwe, and would wish to have the ability to continue to use them as part of our foreign affairs armoury. The noble Baroness, Lady Anelay, made the clear and incontrovertible case for the use of sanctions, although she will be aware that the UK has often led the EU in this field and our leaving may have a negative impact—my noble friend Lady Ludford also made this very clear, as have witnesses to the House of Lords EU Sub-Committee on External Affairs.
The Bill also creates the power to amend the money laundering regulations of 2017 should the UK withdraw from the EU and to pass new regulations making provision against money laundering and terrorist financing. Part 1 of that legislation, which deals with terrorist asset-freezing, will be replaced by the Bill. It also enables the Government to update UK provisions to reflect international standards set by the Financial Action Task Force, of which the UK is a member.
Our task in this House is to scrutinise closely whether the legislation brought before us does what is required, does nothing detrimental—either by design or inadvertently—and puts in place a framework that will work for the future. The Minister and his team will be in no doubt that we will take very seriously our responsibilities to scrutinise. There are areas in which we may wish to improve things, as there always are in Bills. We hear, for example, of the way that sanctions may make life difficult for NGOs working in the humanitarian sphere in places such as Syria and we will have to see whether the Bill adequately addresses their concerns. I welcome what the Minister has indicated in that regard. Is he in contact with DfID over how best to frame exemptions and licences for such organisations? I note that his noble friend Lord Bates was next to him at the beginning of this debate. Will such issues be addressed in the Bill, rather than buried in secondary legislation and possibly moved to the back of the queue? The NGOs especially request the power to provide for exemptions and general licences in respect of humanitarian responses, international development and peacebuilding activities, and for these to be administered flexibly.
As we have heard, Transparency International has made a very cogent case on the money laundering section; no doubt the Minister has heard that as well. I look forward to hearing how the case to which the noble Lord, Lord Hain, referred now progresses. As my noble friend Lord McNally said, I have seen the very useful effect on African regimes of foreign banks pulling out for fear of US courts and fines.
This is an important opportunity to see whether what the Government propose could be strengthened. They have always argued that while no protections that the EU afforded would be lost in the process of leaving the EU, improvements could also be made. My noble friends Lady Ludford and Lord McNally have warned that things could of course move in the other direction, and he also made it clear that this must be an opportunity to put into UK law what the Government have long promised on fighting corruption. I recall during the coalition, for example, the moves made to ensure that property ownership in the UK was placed on a public register and the promises to extend that further. My noble friend Lady Sheehan referred to this. Yet we see that this provision is only in secondary legislation here. This means that there is a possibility of it being implemented; it may also mean that no one acts and nothing is done.
However, as noble Lords have made extremely clear, there are much more fundamental concerns about the Bill. Noble Lords have heard devastating critiques in this Second Reading, in particular from my noble friends Lady Bowles and Lady Ludford, the noble Lord, Lord Pannick, and the noble and learned Lords, Lord Judge and Lord Hope. These concerns stem largely from the wide use of secondary legislation. The Government are clearly constrained, as they have no idea what the likely future relationship with the EU will be. Their capacity is stretched to breaking point with all that they need to cover. We thus do not even know whether we are trying to have a sanctions and anti-money laundering regime that is so close to the EU as to be indistinguishable, as Norway argues is in its economic and other interests. What a piece of homework to set our civil servants. Much is therefore being put into secondary legislation, suggesting that the Government might do this or that. The extent of powers afforded to Ministers in the Bill raises huge concerns, as we have heard.
We have also heard that the anti-money laundering measures were added at a late stage—people have mentioned that to us. Given how short the part of the Bill is in this regard, it certainly looks likely. The very fact that there was earlier scrutiny of the sanctions section rather bears that out. It would also explain why so much of this part is being put into secondary legislation, even to the extent of allowing Ministers to create new criminal offences, as noble Lords have pointed out. It seems as if this part of the Bill was particularly rushed: lest the Bill enshrine in primary legislation elements that the Government were not quite sure about, they resort to secondary legislation to allow them to set things in place later. But the risk must be that if we put overarching frameworks in secondary legislation, exactly when would primary legislation setting out the parameters ever come back to Parliament?
My noble friend Lady Bowles, with her long experience as a former MEP—even more so as a former chair of the EU Parliament’s Committee on Economic and Monetary Affairs from 2009 to 2014, which was a rather crucial time in the world’s financial history—is right to point out the severe challenges in this part of the Bill. When she makes it plain that there is a whole democratic layer missing here, we should listen. Here are offences decided by Ministers without safeguards, and without the safeguards that exist in their EU counterparts, as the noble Lord, Lord Pannick, explained.
Secondary legislation is a very blunt instrument. As my noble friend Lady Sheehan pointed out, we know that it is very much a “take it or leave it” affair in the UK Parliament and that the Government became extremely heated when in this House we decided that we would not accept their tax credit changes as proposed in secondary legislation. When they were voted down, there was, as my noble friend pointed out, almost a constitutional crisis. The Government risk the same here by setting in place an arrangement by which such important decisions are made. That is why it is important that a democratic and sound framework is put in the Bill and we do not have important areas simply left to secondary legislation. For that reason, it will be important to see what the Delegated Powers Committee has to say about the Bill, and I note what my noble friend Lord McNally proposed as a way through.
I am sure the Bill is meant to be a non-controversial start to the Brexit legislation we will need to have in place should we leave the EU in March 2019. I also picked up on the Minister’s reference to this Bill being simply technical. This is an area where there is much cross-party agreement, but it is very clear from the Bill how challenging it will be to do what the Government are doing in such a short time. As my noble friend Lord McNally indicated, it may well be that nobody would doubt the intentions of the current Minister, but he will know, as I do, that Governments and Ministers come and go. What we need here is a far more robust—to use his word—piece of legislation which does not push all the decisions down the track to be opted into or out of according to the whim of another Minister or Government, even to the extent of creating new criminal offences.
I look forward to the scrutiny of the Bill, to the extent to which the Minister can reassure the House that the powers taken here are appropriate and to his willingness to think again where he and we find that the Bill as drafted simply cannot stand. Only then will the ultimate aims of enabling the UK to have effective sanctions and anti-money laundering regimes be achieved.
Lord Collins of Highbury (Lab)
My Lords, I, too, start by thanking the noble Baroness, Lady Anelay, for her contribution. Laying down that evidence has been really important and will govern a lot of what we will consider in relation to the Bill. I am sad that she has left the Government. It is not often that opposition and government parties can work together, but we have because we have a common interest in defending democracy and supporting human rights, and in particular I welcomed her work on LGBT rights. She will be sorely missed from the Government, but I know that she will continue to work from the Back Benches on those important issues, and I welcome the opportunity to work with her.
I also thank my noble friend Lord Hain for his contribution, again because he has enabled us to consider what we are trying to deal with in this legislation. His example and his evidence will be at the forefront of our minds when we consider the specific points in the Bill. It was an excellent contribution.
If we take any of the most pressing foreign policy challenges of our time, from North Korea’s nuclear weapons programme to ethnic cleansing in Myanmar, the likelihood is that sanctions will feature heavily in discussions about how we should respond. But if those examples demonstrate the importance of sanctions as a foreign policy tool, they also point to some of the limitations of relying too heavily on sanctions alone. The case of Iran, on the other hand, shows that sanctions can be made to work if there is strong enough political commitment. Thanks to a combination of carefully targeted sanctions and a sustained commitment to diplomacy over 12 painstaking years, EU negotiators, led by the noble Baroness, Lady Ashton, ultimately achieved a breakthrough with Iran which led to a comprehensive nuclear deal that many had previously dismissed as unthinkable. Recent history shows above all how important it is to make careful use of sanctions as part of a clear, overarching diplomatic strategy. This is just one reason why the Bill is so important.
It is also important because passing new legislation is a legal necessity, as sanctions currently take effect in the UK almost exclusively via EU regulations, and we need a new domestic legal framework to be in place before we leave. Without this, we would not be able to fulfil even our most basic international obligations as a member of the United Nations. On that basis, Labour fully recognises the need for new sanctions legislation, and we will not obstruct the Bill unnecessarily. At the same time, we believe there are areas that will need to be improved, and to that end we will put forward a number of amendments to address some of our particular concerns.
In his introduction, the Minister emphasised the need for co-operation to ensure that sanctions are effective—and the examples given by the noble Baroness, Lady Anelay, amplified this. We cannot work in isolation. In relation to non-UN sanctions, how will the Government ensure not just that UK-EU co-operation on sanctions continues after we leave the EU but that we maintain the ability to shape decisions on EU sanctions when they are imposed? The Lords EU Committee has warned that the UK must continue to co-ordinate sanctions policy with the EU after Brexit. I know it is a lot to ask of the noble Lord, and he may be unable to respond today, but will he set out at some stage of the Bill as it progresses the detailed plans for future co-operation and effective co-ordination between the UK and the EU?
As we have heard in the debate tonight, one concern about the Bill is that there is no requirement for Ministers to set out an overarching strategy for achieving any specified goals. We will seek to amend the Bill in order to address this omission. We will also seek to require robust impact assessments, setting out any potential humanitarian consequences of sanctions and what steps will be taken to mitigate this risk. We will certainly back the calls for a streamlined process for granting any necessary exemptions to sanctions on humanitarian grounds.
We hosted a round table with NGOs and, although I appreciate what the noble Lord said in relation to the powers within the Bill to grant exceptions, there are concerns about how these will operate in practice, and they will need to be addressed when we scrutinise the Bill clause by clause. In particular, as the NGO sanctions and counterterrorism working group said, is the Minister aware of how important it is for licences to be of the duration of an NGO’s programme and to be relatively open-ended, and subject to change only in negotiation with the NGO? If we do not have that, we will be putting the staff and the assets of the NGOs at risk. I hope the Minister will be able to assure us that the scope and application of Clause 14 will meet the expectations of NGOs.
We will seek to improve transparency by requiring the Government to publish an annual report on sanctions implementation. Ministers would have to continually reassess whether sanctions were working, whether enough was being done to meet the relevant objectives via the diplomatic track and whether adequate safeguards were in place to prevent any unintended consequences, humanitarian or otherwise. Only by requiring such information to be made public can the Government truly be held to account.
The next item of concern that Labour will seek assurances on is the need for ongoing parliamentary oversight of sanctions policy. Currently, the only review mechanisms that the Bill provides for are ministerial, and the Government’s implementation of sanctions will therefore essentially be self-policing, setting aside the individual rights for judicial review. This is clearly unacceptable. We will table amendments to guarantee greater parliamentary scrutiny throughout the process, including on decisions to lift sanctions as well as decisions to impose them in the first place. I hope, bearing in mind the comments that have been made across the Chamber today, that we can have that on a cross-party basis.
As the noble and learned Lord, Lord Judge, said, the Bill contains a number of Henry VIII powers. We look forward to the DPRRC’s report on this with great interest. Looking at the committee’s timetable, I hope we will have that in plenty of time for Committee stage. In Clause 39, the Bill creates a power for new types of sanctions to be introduced by regulation. This is said to “future-proof” the Bill. It will be subject to the affirmative process, but there is no scope for amending SIs. The idea that there are new challenges and therefore we need new laws, which will simply be done by these means, just does not seem accessible.
With regard to these powers, I always admire the ability of the noble Lord, Lord McNally, to be relatively selective in his memory. The Lib Dems were of course in government, and he presided over some of the things that concerned me most about the coalition Government regarding the reduction in access to justice, which will remain at the forefront of my memory. I recognise that often opposition parties will say something in opposition but, when they feel the full weight of responsibility in government, they say something else. So I accept what the noble Lord says, but the job of this House is to scrutinise. In our parliamentary democracy, I am proud that we have the appropriate checks and balances, and the role of the courts is certainly important in that. That is why I look forward to working with noble and learned Lords, and others, to ensure that there are those proper checks and balances.
As noble Lords have said, is it really appropriate for the whole of the new anti-money laundering legal framework to be produced almost entirely by delegated legislation? This House cannot amend regulations. If they are not subject to proper parliamentary review and scrutiny, it may be that it will be much more difficult to prevent future backsliding in anti-money laundering provisions, particularly as London begins to compete with Frankfurt. There may be other pressures on the Government in relation to these issues. Exactly how does the Minister intend to ensure that Parliament has a major role in scrutinising future changes to the AML regime?
The noble and learned Lord, Lord Judge, referred to several provisions in the Bill, including Schedule 2. I particularly want to raise the issue of Schedule 2 and the powers to create new criminal offences in relation to money laundering via delegated legislation. Is that really appropriate? In the Delegated Powers and Regulatory Reform Committee’s report of 2014, Special Report: Quality of Delegated Powers Memoranda, it stated:
“Where the ingredients of a criminal offence are to be set by delegated legislation, the Committee would expect a compelling justification”.
I do not think that the Government’s memo on this gives us a real compelling justification, and I hope that the Minister will be able to address that firmly. We will certainly be looking at that very carefully as we go through the Committee stage.
Finally, and for me perhaps most importantly, bearing in mind the comments in the contribution of the noble Baroness, Lady Anelay, we will seek to expand the criteria for imposing sanctions in the future, including a strong and unequivocal commitment to promoting human rights as part of British foreign policy. The absence of such a commitment in the Bill is, for me, disappointing. I hope we will have the opportunity to address that. The next Labour Government will be fully committed to observing these principles regardless of whether our amendments succeed. I hope that, nevertheless, we will be able to address these issues.
One of the things that will be uppermost in our minds, and which we must not forget, is that the decision of the people in the referendum to leave the EU will have consequences. A major consequence will be our ability to influence a collective and co-operative approach to some of the most oppressive regimes and oppressed people in the world.
Lord Ahmad of Wimbledon
My Lords, first, I thank all noble Lords for their very thoughtful speeches today. Again, they reflect the experience and expertise in your Lordships’ House not only in the matter before us, but in all discussions and debates we have. I cannot agree more with the final point made by the noble Lord, Lord Collins, on the issue of co-operation and working constructively. I hope that I have done so thus far, in terms of engagement and taking on the chin, as a Minister often does, the criticisms levelled at the Government. That will certainly be the basis on which I hope to continue the engagement we have had so far, and as we go forward.
Getting this Bill right, as I said at the start, is very important and our ability to impose sanctions and anti-money laundering measures is central to our vision of a rules-based international system. While, shall we say, differing opinions were expressed during the debate, the principle that I have just articulated is something that we all very much subscribe to. I thank the noble Lord, Lord Collins, the noble Baroness, Lady Northover, and the noble and learned Lord, Lord Hope, for the constructive discussions we have had with the respective Front Benches, and that will continue to be the case.
Again, all noble Lords have agreed on the importance of flexibility and the ability to impose sanctions against the most undesirable regimes—and not just the most undesirable. We find regimes across the world that commit inexplicable horrors against their own populations. When we leave the EU—I say “when”, correcting the noble Baroness, Lady Northover; I am sure that it was a mistake when she used the word “if”—it is right that we have the same ability to continue not to have any flights of assets.
At this juncture, I acknowledge the contribution of my noble friend Lady Anelay, who so aptly spoke of the principles, but also the sentiments and emotions of why we are doing this. This is about human beings, after all; it is about the human element that sanctions are imposed for. If we were living in a perfect world, we would not be having this debate but, unfortunately, that is not the case.
As I said in the opening speech—I hesitate to use the word “technical”, after listening to the noble Lord, Lord McNally—it is a Bill based on principle. Perhaps that is a better way to put it. Of course, I worked very closely with the noble Lord, Lord McNally, and we have had many discussions on this, although those discussions remain as part of the coalition agreement of that time. I listened carefully to his contribution and, in particular, to that of the noble and learned Lord, Lord Judge. I heard what he said about the powers of the Executive through secondary legislation. I was aware of his previous articles and the speeches that he has given, particularly on the Henry VIII powers. But let me assure all noble Lords that our intent here is not to take powers for the sake of the Executive; it is about ensuring that we have flexibility and sustainability in a sanctions regime.
As I am sure the noble and learned Lord will acknowledge, there are precedents for the use of secondary legislation, although I am sure that it will not change his opinion in any way. One example, of course, is the export control orders under the Export Control Act 2002. I fully acknowledge the difference in the views of noble Lords in this regard, but the Government are certainly of the view that we must balance the need to act swiftly with the importance of parliamentary oversight, which I alluded to earlier.
While the principle is clear, we must, as noble Lords have acknowledged, get the detail right, and the expertise of noble Lords in this Chamber will be vital to ensure that we get progress in this regard. While there are differences, as we have said already, I believe that we can agree on the broad principles of why this Bill is necessary.
I am conscious of limits on time, and I shall seek to get through as many of the issues raised as I can, with the caveat that, if I am unable to answer specific questions that noble Lords have raised, I shall write to them. To take an issue on process, I should say that the Delegated Powers Committee was supposed to meet earlier, but I believe that the revised date is 15 November. I look over to the Box and get a thumbs up, which is always good; it happens rarely from the Box, but I got that one right. Working through the usual channels, we will ensure that the Committee sittings reflect the ability to have that detailed scrutiny.
I turn to some of the questions asked, first by the noble Baroness, Lady Bowles. I welcome her expertise in this area—and I look forward to working with her, particularly on the aspects of money laundering that she raised. The noble and learned Lord, Lord Hope, spoke about the definition and powers being too broad. The definition of money laundering in the Bill replicates that currently used in UK law. It is necessarily broad to ensure that the full range of illicit activity criminalised through the Proceeds of Crime Act 2002 is similarly captured by the Bill. Where a person’s rights under the European Convention on Human Rights are affected by any regulations made under Clause 41, the Minister responsible will still be under the existing legal obligation to act with proportionality, as per Section 6 of the Human Rights Act.
The noble Baroness raised the issue of failure to prevent offences, and the noble Lord, Lord Hain, mentioned that in his contribution. When bringing forward secondary legislation of this type, we will consult and act in view of the responses, ensuring that there is a proportionate approach taken in this regard.
The noble Lord, along with the noble Baroness, Lady Ludford, and my noble friend Lord Freeman also raised the issue of beneficial ownership information and overseas territories. As the Minister responsible for OTs—it has been a rather busy brief in recent times—I can assure them that this issue is not lost on the Government. On the contrary, Crown dependencies and overseas territories have agreed to hold company beneficial ownership information in a central register and to share it with UK law enforcement on request. As noble Lords know, we have legislated through the Criminal Finances Act 2017 to review the effectiveness of the first 18 months of these arrangements, which will be before us on 1 July 2019. The Government’s focus right now is also on supporting the Crown dependencies and OTs in fully meeting their obligations in this regard.
The noble Baroness, Lady Bowles, referred to her regret Motion regarding the 2017 regulations. This is a happy place, and when we hear the word “regret”, that is always regrettable. As the noble Baroness notes, it will be debated on 6 November and the Government will respond more fully at that time. The transposition deadline by which the UK was legally required to implement the directive was 26 June 2017. This allowed very little time for the Government to publish the regulations after the general election, due to purdah restrictions. We regret that, as she acknowledged, there was a breach of the 21-day rule connected with the transposition of this directive. However, we had consulted extensively with stakeholders on our policy intention. That is all I will say right now; I am sure we will return to this issue when we debate the regret Motion.
The noble Baroness and the noble Lord, Lord Hain, raised the issue of the Government’s approach to criminal offences in secondary legislation. The 2017 money laundering regulations deal with both civil and criminal penalties, and the primary money laundering criminal offences are set out in the Proceeds of Crime Act 2002. The offences established through the money laundering regulations provide a necessary backstop to penalise the most serious sustained breaches of the regulations. Criminal sentences for sanction offences are set out in Clause 16(4), which refers to a statutory maximum of 10 years. I will write to the noble Baroness and the noble Lord about the other details.
The noble and learned Lord, Lord Hope, and the noble Lord, Lord Pannick, raised the exercise of power with appropriate safeguards. Yes, in our view there are sufficient safeguards. First, Parliament must authorise every type of sanction that can be imposed. Secondly, all designations are supported by evidence. Thirdly, those affected can ask for a reassessment and challenge through the courts. Fourthly, the Minister must act in accordance with human rights, as per Section 6 of the Human Rights Act 1998. Let me assure noble Lords that we intend to write this week to the newly constituted Joint Committee on Human Rights, setting out the detailed analysis of what I have just described.
The noble and learned Lord, Lord Hope, also talked about explicit authority for Parliament for non-UN sanctions. The Bill sets out in detail in Clauses 2 to 6 what Parliament is authorising. As I said in my opening remarks, any new sanction can take effect only after a vote in both Houses authorising that regulation.
The noble and learned Lord also raised the issue of appeals to the Supreme Court being available for the Court of Session in Scotland. Yes, the intention is very much that appeals to both the High Court and the Court of Session will be available.
The noble Lord, Lord Pannick, among others, raised proportionality, seeking assurance that it will always be part of the decision regarding non-UN sanctions. Yes, I can assure noble Lords that where human rights are affected, a Minister will always need to comply with the European Convention on Human Rights and Strasbourg case law, and that will include an assessment of proportionality.
Concern was expressed by several noble Lords about taking powers to prevent money laundering. The UK’s appeal as a financial centre makes it necessary that we prevent money laundering effectively—a point acknowledged by several noble Lords. The 2017 regulations and the EU funds transfer regulation both require that the transfer of funds be accompanied by specified information, enabling effective monitoring and transfer of funds. This will be vital in enabling enforcement authorities to understand and disrupt illicit financial flows.
The noble Lord, Lord Pannick, also raised designation by personal description. We anticipate that we will have sufficient information to identify a person and, where it is the case, we will do so by name. Designation of persons by description is necessary to deal with members of proscribed terrorist organisations who, for example, conceal their identities. We will also provide as much detail as we can so that businesses and banks can carry on their business.
The noble Lord went further and asked about the imposition of financial sanctions on persons connected with a prescribed country. This is necessary to ensure that broad sectoral measures can be imposed which restrict general access to financial persons and markets. There are other elements within this and exemptions that may be applied, so I will write to the noble Lord and place the letter in the Library as well.
The issue of thresholds was also raised by the noble Lord. Where relevant convention rights are engaged, proportionality will, as I have said, be part of the decision-making. Under Section 6 of the Human Rights Act 1998, the appropriate Minister must act in compliance with those convention rights and Strasbourg case law. We accept that this includes the need for the Minister to satisfy himself or herself that the designation is proportionate and includes consideration of the impact of the individual.
The noble Lord also raised issues of procedural fairness and several other matters. In the interests of time and covering other aspects, I will, with his kind permission, write to him and copy other noble Lords into that response.
The noble Baroness, Lady Ludford, who speaks from great experience of the European Parliament, talked about resourcing enforcement of sanctions. We have increased the maximum criminal sentences for breaches of financial sanctions in the Policing and Crime Act to seven years, which we are enabling in this Bill. This means that a breach of financial sanctions is a serious crime, which allows the National Crime Agency to dedicate significant resources to investigations and prosecutions.
She also asked about our having no influence on sanctions as we leave the EU. A question on our relationship was also asked by the noble Lord, Lord Collins. It would be great if I could say, “Right, here’s the page and here’s the answer”, but all this is under negotiation and the exact nature of our future relationship with the EU on sanctions, like much else, still needs to be determined. However, we need to look at this from a global context, with our relationship, our permanent seat on the Security Council at the UN and our other international engagement. The UK has led on many issues within the European Union and I certainly believe, reflecting the optimism across government, that pragmatism will prevail in many areas. I am sure we will see greater detail emerge on this relationship.
Periodic reviews were raised by the noble Lord, Lord Pannick, and my noble friend Lord Gold. These provisions are to ensure that designations are kept under regular review and do not simply lie on the shelf. It is important to remember that a number of things can happen within the period that we have set. First, the designated person can request a review and have the decision looked at again; secondly, they can challenge in court; thirdly, if new evidence arises or there is a new matter that has not been considered, they can request a further review; fourthly, the appropriate Minister can instigate a review on their own initiative in response to changing events; and fifthly, the appropriate Minister can bring the deadline forward and complete the review before the end of the three-year period. Given all this, and that the matter of designation is clearly a live matter throughout the period, we do not consider the period to be excessive.
Turning to other questions from several noble Lords, the issue of transparency associated with Scottish limited partnerships was raised by the noble Baroness, Lady Bowles. As of June this year, Scottish limited partnerships have been brought into the scope of the public register of beneficial ownership maintained by Companies House. They are also required to submit an annual confirmation statement that the information held on this register is accurate and to keep the information up to date.
My noble friend Lord Freeman asked whether the UK would remain a member of the Financial Action Task Force. The short answer is yes; the UK is the leading member of the Financial Action Task Force and has been since its establishment. We will continue to fulfil this leadership role after leaving the European Union, so as to continue to influence international standards.
The noble Baroness, Lady Bowles, raised the FATF. Given her expertise and experience, she will be aware that the standards set by the Financial Action Task Force form the basis for both the fourth money laundering directive and anti-money laundering legislation in FATF member states outside the EU. This reflects the international nature of how financial crime can be targeted and dealt with.
Beneficial ownership of property was raised by the noble Baroness and my noble friend Lord Freeman. We sought views earlier this year on the proposed ownership register of overseas companies that own UK property. The responses are being reviewed by the Department for Business, Energy and Industrial Strategy, which will make an announcement in due course.
Among other things in his contribution, my noble friend Lord James gave some practical examples of the Bill’s operation and asked whether it would stop money laundering in Libya. The short answer is yes; the powers in the Bill will enable us to locate and prohibit that type of criminal activity. We can also put sanctions in place against terrorist groups.
I turn to some of the other questions, to demonstrate that we were listening. The noble Lord, Lord Hain, raised a specific issue in relation to Dubai and Hong Kong having ties with the Gupta family. I am grateful to the noble Lord for bringing this information to our attention. As he acknowledged, he has already written to my right honourable friend the Chancellor of the Exchequer, and I will, of course, bring his contribution to my right honourable friend’s attention.
The noble Viscount, Lord Waverley, referred to international collaboration. I thank him for his wise words on the importance of linking sanctions to strategy agreed with international allies. The global impact of sanctions can work only if there is consensus across like-minded states.
My noble friend Lord Gold referred to anti-money laundering regulations being risk-based and proportionate. I agree with him. He is right to highlight the importance of firms taking a proportionate approach to implementing anti-money laundering systems and controls, and ensuring that they properly target the highest risks in this regard.
The noble Baroness, Lady Sheehan, asked about the Bill’s provision for general licences for humanitarian needs. I suggest to her that there are specific clauses on this issue. I will write to her in this respect but Clause 14(3)(a) allows the Government to issue specific and general licences. However, I am keen to hear her views on that, and those of the noble Baroness, Lady Northover, who was formerly a Minister with responsibility for this area, so it would be useful to hear from her. The noble Baroness, Lady Northover, asked whether we were talking. Yes, we are. My noble friend was sitting right next to me and we are working very closely with the Department for International Development in this regard.
The noble Baroness, Lady Northover, also referred to the anti-money laundering clause that was included at the last minute. That was always the plan, and she will have noticed that we have been transparent about this since the start. Our plans were set out in the FCO, HMT and DIT joint consultation, which was published in April, and confirmed in the government responses.
I apologise to the noble Lord, Lord Paddick: I will write to him on his specific questions as I had to leave the Chamber momentarily during his intervention. However, I thank him for it as we have talked about some of his concerns outside the Chamber. I hope that they have been addressed.
The noble Lord, Lord Collins, referred to licences for NGOs and said that they should be open-ended and last the duration of the regime. The Bill, as drafted, can deliver this.
I will write to noble Lords on any issues that I have not had time to cover today. Once again, I emphasise that the Bill is about powers rather than policy. It is not about punishing specific individuals, groups or Governments, but about enabling this Government, and every future UK Government, to act to keep this country safe and continue to play a responsible role in international peace and security once we leave the European Union.
It would be remiss of me not to conclude, entirely appropriately, by putting on record, if I may, the thanks of the whole House to my noble friend Lady Anelay. I embarrass her somewhat, but that is not my purpose. She has served both government and this House—and, indeed, our country—in an exemplary fashion. On a personal level, she was my first boss in government. She was the guiding hand of the Chief Whip when I first joined the Front Bench and acted not only as a guide, a mentor and a colleague but, most importantly, as a friend. She leaves the Front Bench with many fond memories, as she herself acknowledged in her contribution. Equally, however, the Front Bench has lost a great exponent of government policy who carries the full respect of this House. If I can emulate perhaps a portion of what my noble friend has achieved in her career, I will be a happy Peer. On that positive note, I thank all noble Lords again for their extremely valuable contributions and look forward to working with all across the Chamber on this important Bill.
Sanctions and Anti-Money Laundering Bill [HL]
Tuesday 21st November 2017
(7 years ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 69-I(a) Amendments for Committee, supplementary to the marshalled list (PDF, 69KB) - (20 Nov 2017)
Lord Judge
Lord Judge (CB)
My Lords, the noble Lord, Lord Pannick, and I are bringing forward Amendments 1 and 23 in relation to Clauses 1 and 7. I will get this out of the way. We are both members of the Constitution Committee. We do not speak for the committee, but we do highlight its recent report on the Bill and we shall rely heavily on it; perhaps we should invite the Committee to spend some time studying it closely.
The second preliminary matter is this. I acknowledge the letter sent by the Minister to the noble Lord, Lord Pannick, which was copied to me. I acknowledge his kind invitation to see if we could organise a meeting. Unfortunately, for personal family reasons I could not manage those dates, but I will begin by thanking him for his customary courtesy.
At Second Reading I described the Bill as a “bonanza of regulations”. In truth, on reading it again I can still find nothing of true substance in it except regulation-making powers. Clause 1 deals with regulations—and then on and on we go. Let me throw in, just casually, Clauses 14, 35 and 44. Good old Henry VIII comes stumbling in crush all the regulations that have been made and to make any others he wishes. We really should rechristen this Bill the “Sanctions and Anti-Money Laundering (Regulation Bulk Buy) Bill”.
Everyone who spoke in the Second Reading debate acknowledged that the asserted objectives were desirable. Compliance with our treaty obligations with the United Nations and other countries is admirable. Arrangements currently exist in this field which at the moment are governed on the basis of EU law; they are part of our law but they have come through to us on the basis of the 1972 Act. No one has yet said that those powers are inadequate, yet the Bill is not simply bringing what I shall describe as EU law into domestic law and preserving it—rather, it goes much further. It vests more far-reaching powers in the Minister to rule by regulation on these issues and, beyond fulfilling our treaty obligations, it throws in powers to deal with terrorism. Terrorism is criminal activity that is already subject to vast tranches of primary legislation, so we are producing a Bill that is bung-full of regulations and nothing else in order to enable our international obligations to be fulfilled—but more so—while at the same time extending these powers to criminal activity that is already governed by statute.
I recognise that legislation by regulation is unavoidable, and that some regulation is inevitable and justifiable. However, in the context I have endeavoured to paint—I could have gone on for hours, but I will not—I remind your Lordships that the Constitution Committee said on this issue:
“Given that the purpose of the Bill is to address the need for domestic powers to impose, amend and revoke sanctions after Brexit, it is important to ensure that there are sufficient safeguards and there is adequate parliamentary scrutiny to make the delegated powers constitutionally acceptable”.
While I have page 4 open, I will draw attention to some of the phrases in different paragraphs, such as “constitutionally inappropriate for Ministers”. The committee recommends,
“this important limitation on ministers’ powers”.
It states:
“Clause 11 raises constitutional concerns”.
Then, on page 5, the committee says that it is,
“concerned about the breadth of the power conferred”,
and,
“deeply concerned that the power in … may be used”.
This is not an emotional reaction by the Constitution Committee; it is simply an examination of the reality of the legislation and a short summary of where it leads us.
In that context, I will make a short point in relation to the proposed amendment: throughout the Bill, should we not proceed on the basis that the greater the apparent imperative to proceed by unconstrained regulation, the greater the corresponding imperative to provide for the fullest possible parliamentary scrutiny, always achieved by careful primary legislation?
Clauses 1 and 7 go to the heart of the Bill. In the remarkable context that I endeavoured to summarise a few minutes ago, I hope to identify the purpose of the amendment. It is utterly simple: I hope it will make these two clauses more attractive. The relevant word in these clauses is “appropriate”. I think we can assume that no Minister would try to make regulations that he or she did not think were appropriate; I think we can also agree that any regulations made consequent on the Act should be an exercise in what is appropriate. However, in this context in the Bill, “appropriate” is far too vague, easily dependent on ministerial discretion and subjective.
If we are to allow powers such as these to be exercised by regulation, the exercise should always be both appropriate and necessary. If it is necessary, it will almost always be simultaneously appropriate; however, if it is only appropriate, it will not always be necessary. Hence the amendment: by strengthening the language of a single word, we will impose a greater responsibility on the Minister—not our present Minister but the Minister to come and Ministers to follow for years yet—and he or she will be less likely to make an ill-judged, mistaken decision about the exercise of these extravagant powers, when simultaneously the opportunity to correct errors is significantly diminished. I beg to move.
Lord Pannick (CB)
My Lords, I want to add some footnotes to the powerful speech of the noble and learned Lord, Lord Judge. As your Lordships know, this is the first substantive Bill to be brought forward in this House to address the consequences of Brexit. As the Minister explained at Second Reading, domestic powers are needed to impose sanctions to replace the powers currently enjoyed under EU law. In relation to these amendments, it is important to say—as is repeatedly pointed out—that there is a disturbing irony when a Brexit that is said to be justified by a desire to restore to Parliament powers currently enjoyed in Brussels results in Ministers seeking to confer extensive powers on themselves.
That is a topic to which the House will no doubt return when the European Union (Withdrawal) Bill reaches us, but for today, these amendments seek to identify the unjustifiable breadth of the powers that Ministers seek to confer on themselves in the context of the Bill. I pose this question to the Minister: why should the Committee be satisfied that Ministers should take powers that are unnecessary? That is the question. It is not sufficient that the powers are appropriate; they need to be necessary, because a Minister in this context should not have a power that is unnecessary.
The noble and learned Lord mentioned the report of the Constitution Committee. I also draw attention to the report on the Bill published last Friday by the Delegated Powers and Regulatory Reform Committee. I draw the Committee’s attention to paragraph 18, which I will quote because it is so powerful. It says:
“As drafted, clause 1(1) allows the Minister to make sanctions regulations where the Minister considers that doing so is ‘appropriate’ to achieve one of the purposes listed in that clause. In the light of the width and significance of the powers, we take the view that the Minister should only have power to make sanctions regulations if doing so is considered ‘necessary’ to achieve the purpose for which they are made”.
I hope the Minister will reflect on that advice from that committee, as well as that of the Constitution Committee.
I expect the Minister will respond by seeking to placate the Committee—he is very good at that sort of thing—with reassurances about the Government’s benign intentions in this context. If I may get my retaliation in first, the answer to that contention is given again by the Delegated Powers and Regulatory Reform Committee. It is in its report published on 28 September this year on the European Union (Withdrawal) Bill, but it is a general point. At paragraph 10, the report says that the committee judges,
“powers on how they might be used and not just on how the Government indicate that they intend to use them”.
That must be right. That is the approach we should adopt in this Committee.
The noble Lord is, if I may say so, the acceptable face of ministerialism, but who knows the identity of the Minister who will perform this role in a year’s time or five years’ time? I say respectfully to those on the Government Benches that they ought to bear in mind that it may not be a Minister from their party performing this role in a year or five years’ time. It is important to adopt a non-partisan approach to this issue. It is not good enough that the Minister has benign intentions, as I know he has; we have to look at the extent of the powers being given. I strongly support the noble and learned Lord’s amendments.
Baroness Northover (LD)
My Lords, I too will speak to Amendments 1, 23 and 1A, which is in my name and that of my noble friend Lady Sheehan. As the Constitution Committee and the Delegated Powers Committee have made clear, and as we have just heard, the Bill, though described by the Minister at Second Reading as simply “technical”, proposes to give wide powers to Ministers—I see the Minister’s rueful smile; I suspect he regrets using that phrase—in the event that the UK decides to leave the EU and sanctions and money laundering arrangements have to be set in place. I was struck as he used that expression that, when he heard from the noble and learned Lords, Lord Judge and Hope, and the noble Lord, Lord Pannick, this might sum up how he now feels.
The case for Amendment 1 has already been cogently made by the noble and learned Lords and the noble Lord. I also want to quote the Delegated Powers Committee, because it is worth the Minister being aware that there is, I am sure, cross-party support for its very sombre conclusions about this first Brexit Bill we are considering in the Lords. The committee states that,
“clause 1(1) allows the Minister to make sanctions regulations where the Minister considers that doing so is ‘appropriate’ to achieve one of the purposes listed in that clause … we take the view that the Minister should only have power to make sanctions regulations if doing so is considered ‘necessary’ to achieve the purpose for which they are made”.
That theme runs right the way through the reports of both the Delegated Powers Committee and the Constitution Committee. I am sure the Minister will take note of this advice and the widespread agreement with those committees across the House. I hope he will not only accept the amendment but apply the same logic through the rest of the Bill.
The noble and learned Lord, Lord Judge, made it clear that the Constitution Committee and the Delegated Powers Committee are concerned about parliamentary involvement right the way through the Bill. The Delegated Powers Committee has also noted various other areas about which it is concerned, and that is the subject of our Amendment 1A. It states:
“In our view, an appropriate Minister should only be allowed to make sanctions regulations for a purpose other than compliance with an international obligation, where there are compelling reasons for the Minister’s belief that carrying out the purpose will achieve one of the objectives listed in clause 1(2)”.
One would almost think that one did not have to state this, but it is very clear from this legislation that we do.
The committees request that we fully scrutinise this Bill and insist on full parliamentary involvement. In other areas, the Delegated Powers Committee seeks the affirmative procedure; in another, the Constitution Committee states that we should consider,
“whether the consent of the devolved legislatures should be required when this power is used to amend or repeal legislation enacted by them”.
All these issues need to be considered.
In sum, the Constitution Committee states that,
“given that the purpose of the Bill is to address the need for domestic powers to impose, amend and revoke sanctions after Brexit”—
assuming Brexit happens—
“it is important to ensure that there are sufficient safeguards and there is adequate parliamentary scrutiny to make the delegated powers constitutionally acceptable”.
That point has been made by the noble and learned Lord and the noble Lord from the Cross Benches. I am sure it will be repeated throughout the Committee stage. That is what we need to hold on to as we see this Bill through.
Lord Lennie (Lab)
My Lords, I say for the record and from the outset, and for the avoidance of any doubt in the mind of the Minister, that we on this side of the House recognise the importance of such a Bill coming into being. We are leaving the EU. The Government’s position is that EU jurisprudence will no longer apply and therefore the Bill becomes an imperative. That is not the same thing as saying that everything in the Bill is rosy and we support it all, and that is why we are here. We strongly support the case made by the noble and learned Lord, Lord Judge, the noble Lord, Lord Pannick, and the noble Baroness, Lady Northover.
This amendment is the starting point of the Bill: it concerns the power for a Minister to act. Should it be when the Minister considers it appropriate or should it be when it is provably necessary to do so? One is an opinion, the other an evidential absolute. Does it weaken the Government’s position? No, it makes it more robust to have “necessary” replacing “appropriate”. Will it inhibit the Government? No, it will make for greater certainty as other clauses in the Bill are debated. Does it strengthen the Bill? We believe that it does: it will become more bullet-proof and less able to be challenged.
On Friday, as the noble Lord, Lord Pannick, said, the Delegated Powers Committee considered this and concluded:
“In the light of the width and significance of the powers, we take the view that the Minister should only have power to make sanctions regulations if doing so is considered ‘necessary’ to achieve the purpose”.
That is where this amendment ends. Does the Minister accept this? Will he reflect on this and come back on this point?
Lord Faulks (Con)
My Lords, the noble Lord, Lord Lennie, was very quick off the mark: the noble Lord, Lord McNally, and I wanted to make brief interventions. It seems that the case made for these amendments is a pretty strong one, but of course I will listen with great interest to what the Minister has to say. It might be said, I suppose, that the amendment put forward by the noble Baroness, Lady Northover, is more or less understood by the other two amendments. I simply say to the Minister that it might be helpful if he could give some example, prospectively, of where a Minister might think this action “appropriate” but not “necessary”. That would help to clarify the Committee’s thinking.
Lord McNally (LD)
My Lords, I agree that the noble Lord, Lord Lennie, was a bit quick off the mark. Just have a glance behind you occasionally—you might find that somebody wants to come in.
I was rather diffident about putting my name to such illustriously signed amendments. My noble friend Lady Northover spoke about the noble Lord, Lord Pannick, and the noble and learned Lord, Lord Judge. I am not sure that I would trust the country solicitors “Judge and Pannick” or “Pannick and Judge”; I am not sure whether it is best to panic after you have judged or judge before you panic. Nevertheless, any sensible Minister who sees those names on an amendment thinks very hard about it. Of course, as the noble Lord, Lord Lennie, said, this will be a very necessary Bill if the Government succeed in their Brexit aims, but that does not mean that every Bill that comes before us has to be given a nod through because of the pressures of the Government’s own making. There is a real danger.
I can almost imagine the discussions in the Cabinet Office: “How on earth do we get this shedload of legislation through?”. Then somebody says, “The only way you can do it, Ministers, is by lots of Henry VIII clauses and lots of powers by secondary legislation”. “Okay, we will do it that way.” The irony of that, as I have said before from these Benches, is that an exercise that was intended to return sovereignty to this Parliament is becoming an exercise in returning power on an unprecedented scale to the Executive. I fear that, unless the Government come up with some new and ingenious proposals for dealing with this flood of legislation short of these broad powers, they will run into trouble time and again.
Of course, we want to get the bad guys, and there is always a temptation, especially if you are the Minister, to go for the Eliot Ness solution—how do we kick down the door and get at the bad guys?—but we cannot ignore a report such as that referred to by the noble and learned Lord, Lord Judge. Go through every page of it. There is reference to the Henry VIII powers, but then:
“We do not consider it appropriate for ministers to have powers … We are concerned about the breadth of the power … We are deeply concerned that the power in clause 16”,
et cetera. It goes on right through the report. This is a really serious warning to Ministers and to Parliament from a very well-respected committee.
Of course, Whitehall does not have a pure record on this. Even in the days when we were simply transferring European law into our own law, there was a well-established practice in Whitehall to do a bit of gold-plating on the way and dig in a few regulations that people had wanted to get anyway. We have to resist this gold-plating. As I say, when someone such as the noble Lord, Lord Pannick, talks about “unjustifiable breadth”, and someone such as the noble and learned Lord, Lord Judge, talks about “a bonanza of regulations” and “extravagant powers”, it is not only the Committee that would be wise to take note; the Minister should as well.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, I had been waiting for the noble Lord, Lord McNally, to speak, so have come in rather later than perhaps I should have. The arguments advanced by the noble Lord, Lord Pannick, and the noble and learned Lord, Lord Judge, are compelling. I would throw one other word into the mix: “expedience”. Under the Bill as drafted, it might be thought appropriate because it is expedient to make a provision, but that is not good enough here. These powers are so draconian that nothing short of necessity alone could justify their exercise. Therefore, I echo what the noble Lord, Lord Faulks, said: unless the Minister can give a convincing illustration of a regulation which is justifiably expedient but short of necessity, we cannot possibly allow the Bill to go forward in its present form.
Baroness Sheehan (LD)
My Lords, my name is attached to Amendment 1A. I wish to reinforce what has been said by my noble friend Lady Northover. The regulations that the Minister will have powers to impose through Clause 1 will have far-reaching consequences on “designated persons”, “prescribed persons” and “involved persons”, as affected individuals or entities are variously referred to throughout the Bill. Therefore, it is only right that the power to create a regulation should entail a more onerous thought process than consideration by the “appropriate Minister”. I agree that “compelling reasons” would be a more fitting foundation for making such momentous decisions.
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, first, I thank all noble Lords who have spoken in the debate. A small point was made about what I said in my opening remarks at Second Reading about the Bill being technical. Maybe I should defend that by saying that every Bill is technical in some way and perhaps that was what I was alluding to. But I thank the noble Lord, Lord McNally, for whom I have great affection, for highlighting that point, and we live and learn through our experiences at the Dispatch Box and in the House.
As I said at Second Reading, this is a Bill that we need to get right—a point that was acknowledged by all noble Lords who have spoken. I stated that right from the outset, as I do again today, at the start of Committee. That is why I will put on record my immense thanks to noble Lords from all sides of the House who have engaged very constructively on this important Bill. I assure noble Lords that that will continue to be the case as the Bill progresses through your Lordships’ House. I thank all noble Lords—in particular the noble Lord, Lord Lennie—for recognising why we require this legislation.
After we leave the European Union we will need the Bill to ensure that we can continue to impose, amend and lift sanctions, and change our anti-money laundering framework. As noble Lords know, sanctions form part of the range of foreign policy tools that we can use in response to threats such as terrorism to the UK and UK interests. The Government fully recognise that sanctions are not to be used lightly—I assure noble Lords of that fact—and impose significant restrictions on individuals and entities. They should be imposed only after careful consideration of the political context, the desired impact and, of course, the potential risks. The Government also believe strongly that sanctions are a tool for changing unacceptable or threatening behaviour. They should not be used punitively as a substitute for criminal justice measures. A good recent example of the value of sanctions is the way that they encouraged Iran to accept constraints on its nuclear programme.
Baroness Kramer (LD)
Perhaps I may ask the Minister a question to address a lack of clarity. A moment ago, he basically said that one of the checks would be that either or both Houses of Parliament could vote against the SI brought forward by the affirmative procedure. The last time I was in this House and we on these Benches sought to do so with an SI, the consequence was a review on removing the powers of the House of Lords to act under such circumstances. Indeed, I have frequently heard language suggesting that to vote against an SI is a complete overreach of powers. Is this a change in the Government’s position? Is there any way in which this could be enshrined? It is rather fundamental to the discussions we will have not just today but on future occasions.
Lord Ahmad of Wimbledon
As the noble Baroness will know, I have stated the position as it is. Of course it is within the powers of both Houses to vote against—that is the whole point of having statutory instruments that are presented to both Houses. This is not just about the House of Lords; I mentioned the House of Commons as well.
Baroness Kramer
Can I just confirm that the Government’s response to any such move would be exactly as we saw before? That is an important piece of information for this House to know. I believe that that is what the Minister has just confirmed.
Lord Ahmad of Wimbledon
I have stated that the position is as it is now. I know the noble Baroness is seeking to develop arguments that we have had on a previous occasion, but what I have stated is the position as it exists. The noble Baroness talked about it being enshrined in law. Currently, that is how affirmative instruments and statutory instruments work. I am sure she is fully cognisant of that fact.
The noble Lord, Lord Lennie, said that the amendment would not inhibit the Government in any way. But as I was saying—to give further explanation and clarity, if I may—changing “appropriate” to “necessary” would effectively force the Government to use sanctions only as a last resort. Let me assure noble Lords that by saying that I do not mean that sanctions are never our first option. It is important that the Government of the day have some flexibility in deciding when and how sanctions should be deployed. We would not want to find ourselves in a situation where we could not use sanctions in the early stages of a crisis and instead had to allow it to escalate until the necessity of sanctions could be demonstrated.
Moreover, sanctions work best when agreed multilaterally. To be required to demonstrate that other options have been exhausted and sanctions are therefore necessary would leave the UK more constrained than our allies and international partners in our ability to agree and deploy sanctions. It would be a high bar to meet, especially in cases where we may wish to impose sanctions as part of a multilateral agreement with allies in areas where there is no direct risk to UK citizens or direct impact on UK interests. Too high a bar could prevent the UK acting in these areas. This could not only reduce the ability of the UK to continue to play a central role in international affairs but reduce the effectiveness of the sanctions measures themselves. For example, financial sanctions against Russia—
Lord Pannick
I am puzzled by this point. The amendment is concerned, under Clause 1(1), with the circumstances in which regulations may be made, but it does not affect the broad discretion embodied in Clause 1(2), which defines purposes. Clause 1(2) states:
“A purpose is within this subsection if the appropriate Minister … considers”—
so it is a matter entirely for the Minister—
“that carrying out that purpose would”,
for example,
“further a foreign policy objective of the government of the United Kingdom”.
So, as I understand it, my noble and learned friend Lord Judge’s amendment would in no way inhibit the complete discretion of the Minister to decide matters of purpose and to decide what is or is not in the foreign policy objectives of the Government; for example, that sanctions should be imposed, in general terms. All the amendment does is to say that the Minister has to be satisfied that it is necessary to impose these regulations once the foreign policy objective has been determined—and it is to be determined by the Government. With great respect, I do not understand the point that the Minister is making.
Lord Ahmad of Wimbledon
The point I was making was about the implication in the current wording of “appropriate”. This is not an open invitation for a Minister to impose sanctions, and the appropriateness of imposing sanctions is qualified in the context in which they must be applied. That was why I referred to the specific section that I did.
I think I have made the point already that the concern would remain. Several noble Lords have referred to the Constitution Committee and the Delegated Powers Committee. We have received those reports as well, and I assure noble Lords that I am not dismissing them. We are reflecting very carefully on the representations made by both committees because it is important that we respond carefully and after detailed consideration of what is being put forward. As I said right at the start of my remarks, I will reflect very carefully and will very much bear in mind the voices and experience of those who have tabled these amendments. We certainly remain of the thinking that the current wording, with the balances and the qualifications in the context of the legislation as presented, means that this is not an open invitation for a Minister to apply a sanction. However, in the context of the two reports, I will of course look again at the basis on which perhaps we can look to qualify, and provide greater certainty in respect of, the language used.
Amendment 1A, tabled by the noble Baronesses, Lady Sheehan and Lady Northover, would require there to be a “compelling” reason why sanctions are appropriate for the purposes set out under subsection (2), which relates to non-UN sanctions. I agree with the sentiment behind this amendment and note that it reflects a specific recommendation of the Delegated Powers Committee. However, adding the requirement for a “compelling” reason might also give rise to some of the difficulties I have already highlighted in respect of the previous amendment.
As I said, we think that in matters of foreign affairs and security policy the Government should have discretion about when it is appropriate to act. This amendment would effectively remove some of that discretion. We also believe that it could restrict our ability to work with international partners to ensure that sanctions are effective. In some cases, sanctions may be more compelling for our international partners than for the UK, but it would undermine the effect of sanctions if we were not able to participate or agree to them being applied multilaterally. I am sure that all noble Lords will recognise that perspective. If the UK was unable to act, this could in turn undermine the UK’s relationships with our international partners.
Amendment 23 deals with a similar issue, but in relation to UN sanctions only. I think there is agreement on all sides of the Committee that it is appropriate that the UK can continue to comply with its international obligations, so I doubt there is much between us on this issue. We think “necessary” would in many cases be acceptable in that place in the Bill. However, we also think it is important that where the UN provides some flexibility about how to implement obligations, the Government should have the flexibility to decide how best to do so. The word “appropriate” provides that flexibility.
It should be noted that the power here is broadly consistent with the equivalent provision in Section 1 of the United Nations Act 1946, which enables Ministers to,
“make such provision as appears to”,
them,
“necessary or expedient for enabling”,
measures in UN Security Council resolutions “to be effectively applied”. It should also be noted that the word “appropriate” does not enable Ministers to do whatever they want. The noble and learned Lord, Lord Hope, referred to the Ahmed case, which I know he knows well. That demonstrated that the courts will take a robust approach to scrutinising the exercise of the Executive’s powers.
I have already alluded to the fact that we have received the reports of both the Constitution Committee and the Delegated Powers Committee. I put it on record that we will consider both committees’ recommendations very carefully. I have also listened carefully to the contributions during the course of this short debate, and I am sure we will explore the issues further as we scrutinise the Bill in Committee.
It says here, “I hope I have been able to convince noble Lords”, but, from looking around the Chamber, I think that would be a rather hopeful word to use at this juncture. Perhaps I have provided noble Lords with a degree of reassurance with some of the explanations that I have given about the context in which the sanctions would apply, but I respect and understand that there would be a need for continued parliamentary scrutiny and for ensuring, as I am sure all noble Lords appreciate, that the UK continues to comply with international law and maintains a leading role in international affairs after the UK’s exit from the EU.
As I said, we will continue to consider very carefully the recommendations of the two committees, and I am sure we will return to this issue in discussion with noble Lords. Again, there are important issues of discussion here. Both in the course of the Committee stage of the Bill and in the meetings that we are having beyond the Chamber, I am sure we will reach a means of moving forward constructively on this basis. The ultimate purpose and objectives of the sanctions regime are something that I know all noble Lords respect. Based on that, I hope the noble Lords will be minded at this juncture to withdraw the amendment.
Lord Thomas of Gresford (LD)
My Lords, I am pleased to hear the Minister confirm that this House has the power to vote down statutory instruments. Indeed, if the Government continued to pursue policy goals through secondary legislation, that procedure would become much more widely used than it has been in the past without the suggestion that the British constitution was being undermined.
The Minister has said that these powers have been taken in the pursuit of Foreign Office goals. A memorandum from the Foreign and Commonwealth Office, dated 19 October last, was sent to the Delegated Powers and Regulatory Reform Committee. Paragraph 52 says, under the heading “Justification for taking the powers”:
“The Government therefore considers it necessary and appropriate to provide framework powers that enable detailed sanctions regimes to be set out in secondary legislation”.
If the justification for taking the powers must be necessary and appropriate, why is the same test not to be applied to the exercise of those powers?
Lord Ahmad of Wimbledon
I thank the noble Lord for his late but important contribution. As I said to the noble Baroness, Lady Kramer, I was stating the position as is, regarding the context in which both Houses of Parliament can vote on statutory instruments. In the case of your Lordships’ House, it is clearly laid out in the Companion as well. Let us also put this into context: if a sanctions regime were being proposed and it were voted down in both Houses, the sanction itself would fall and would not apply. The context is not something that can be ignored. In the context of the second question, the noble Lord—
Baroness Kramer
May I ask for a clarification? The Minister just said the context could not be ignored. Is his conclusion that it is inappropriate for a statutory instrument related to sanctions ever to be voted down by either House? Is that the conclusion that we are to draw from his comment?
Lord Ahmad of Wimbledon
Perhaps I can read into what the noble Baroness seeks on this occasion. This is not an issue about both Houses or affirmative instruments. The position I have given is not the Government’s position; it is the position as it stands now. If she needs further elaboration, I respectfully refer her to the House of Lords Companion.
To return to the noble Lord’s final question, if I may, I will write on the specific issue that he raised for the purpose of clarity for all Members of your Lordships’ House.
Lord Thomas of Gresford
The noble Lord said that my intervention was late. This is Committee, and the advantage of Committee is that Members may reply to the Minister after he has made his contribution.
Lord Ahmad of Wimbledon
As ever, as I said, we live and learn. The noble Lord is of course right in this context: during Committee, any noble Lord can speak and intervene as appropriate.
Lord Judge
If I am allowed to speak, the reality is that neither House rejects subordinate legislation, even if it includes a provision which everybody thinks is lousy, because if you try to do that, the whole instrument falls, and there may be 77 regulations within it with which you agree. Our processes do not in reality admit of proper challenge to secondary legislation. But that is a battle for another occasion, perhaps when we come to Henry VIII.
I respectfully suggest to the Minister that the word “necessary” does not mean the same as “last resort”. If, when deciding whether to exercise these powers, he believed that he was acting in order to implement a treaty obligation or in accordance with a necessary stage in our foreign policy, that would be amply covered by the word “necessary”.
I was going to say that I will allow the Minister to reflect—that is very generous of me; the Minister is allowed as much time as he likes. What I meant was that when he has had time to reflect, I shall reflect on his reflections and return to the issue on Report. I beg leave to withdraw the amendment.
Baroness Northover
Baroness Northover
I shall speak also to Amendments 3 and 4 in my name and the other amendments in the group. Amendment 2 once again addresses the wide and poorly defined powers in the Bill. The amendment, which is also in the name of my noble friend Lady Sheehan, would delete Clause 1(2)(d). It is to seek clarification from the Minister how a purpose which includes to,
“further a foreign policy objective of the government of the United Kingdom”,
might be applied. This is something to which the noble Lord, Lord Pannick, and my noble friend Lord Thomas just referred. Remember that we need to read the Bill in the light of it being, as the noble and learned Lord, Lord Judge, said, a bulk buy of regulations.
For example, the Government of the United Kingdom have had a number of foreign policy objectives with which one would not want disagreement to result in sanctions. Thus, for example, might someone risk being sanctioned because they opposed the invasion of Iraq or objected to selling arms to some dubious regime? That might be ridiculed as of course not intended here, but we need to probe the unintended consequences, given the wide scope of the Bill. Given that we know that the Human Rights Act cannot be counted on for protection, as this Government have at times wished to repeal it, and that members of the party opposite have also made it clear that they do not wish to be bound by the European Convention on Human Rights, despite the UK playing a leading role in drafting it, what protection can the Minister offer?
In addressing Amendments 2 and 4 in my name, and that of my noble friend Lady Sheehan, I pay tribute to the work of Amnesty International in briefing us, and for its work around the world. This returns us to seeking to improve the Bill, as we normally do in this House—and the concern here is to include human rights breaches in the definition of purpose in this clause and ensure that the Government have the means to prevent the violation of sanctions regulations. I note that the noble Lord, Lord Collins, has further proposals in this regard. I make it clear that we also feel that they would strengthen the Bill—for example, the amendments that would ensure that sanctions were in compliance with international humanitarian and human rights law and would provide for a humanitarian impact assessment before sanctions were introduced so that their impact can be properly gauged. I am well aware, as a former DfID Minister, of the impact on NGOs working in Syria, for example, in the restrictions on them due to the sanctions regime that was in place.
I look forward to hearing what the Minister says, and I beg to move.
Baroness Sheehan
My Lords, I rise to speak to Amendment 3 which, as my noble friend Lady Northover said, adds to the list of purposes for making regulations under Clause 1 to include human rights breaches, as well as prevention of acts contravening the international law on armed conflict and prevention of internal repression in any country. That those purposes are not mentioned is a grave omission and cannot be encompassed in subsection (2)(d), which says that the purpose would,
“further a foreign policy objective of the government of the United Kingdom”.
To give our amendments the force that we as a civilised country intend, they must be spelled out in the Bill. That is the basic thrust of my argument as to why I hope that the Minister will give serious consideration to Amendment 3.
However, on a more technical note, can the Minister give consideration to the fact that there is an unexplained gap between this Bill and the Export Control Act 2002? That Act has a specific section called “Relevant Consequences”, which sets the conditions whereby the Government can act. Clause 1 of the Bill and the relevant consequences of the 2002 Act are aligned with the exception of human rights and international humanitarian law provisions, which are in the 2002 Act but do not feature in the Bill before us. That is a serious omission; trade sanctions and, specifically, arms embargos, are largely triggered because of the humanitarian concerns over the provision of weapons in these cases, and the very serious and grave violations of international humanitarian law that arise as a consequence. The amendments would give powers to the Government to impose sanctions on these grounds and ensure direct consistency on the two Acts when dealing with issues around trade and arms embargos.
Amendment 4, also in my name, would add the provision,
“prevent the violation of sanctions regulations made under this Act”.
That addition may seem unnecessary, but it would give consistency with the corresponding sanctions mechanisms agreed at UN and EU level and would require the Government to take action to prevent breaches of sanctions.
I have another passing point. On the front page of the House of Lords Library briefing to the Bill, a sentence reads:
“The Government agrees that there is a mutual interest in continued collaboration with European partners in this area, and has suggested that the UK and EU could cooperate on sanctions listings and align policy in future where appropriate”.
I have not spotted many government concessions in the Bill to demonstrate the importance of aligning sanctions regimes with those of international partners, so this small amendment would go a little way to meeting the Government’s own stated position of working collaboratively going forward, should Brexit take place.
Lord Faulks
My Lords, I regard this amendment with considerable interest and look forward to hearing what the Minister says about it. The noble Baroness, Lady Northover, said that one of the reasons for inserting the words,
“the prevention of acts breaching human rights”,
was because the Government might in due course consider repealing the Human Rights Act or even departing from the convention. The Minister may confirm that it has always been the Government’s policy to protect human rights through a huge number of treaty obligations, whatever might be the position vis-à-vis the European convention. I am a little concerned that these amendments appear to constrain foreign policy objectives, which necessarily have to vary from time to time according to the particular objective that is sought. For the most part, they will comprehend and include the matters included in the amendment but it would be unwise to constrain foreign policy through these sorts of amendments.
Lord Collins of Highbury (Lab)
I did not want to tempt myself to get up too soon. I appreciate what the noble Lord has just said but I was struck by what the noble and learned Lord, Lord Judge, said—namely, that when using these powers the Government should proceed only with the fullest scrutiny. The amendments in this group, particularly those in my name and that of my noble friend, are designed not to limit the Government’s powers but to ensure that we scrutinise the Government’s actions. We want clarity on our commitment to humanitarian law and that we are implementing the international treaties to which we are signed up.
I am sure that the Minister will again ask whether these amendments are necessary, as he did on the first group of amendments. It could be argued that they are not. However, I argue that it is important that we state our beliefs in fundamental values, particularly human rights, democracy, the rule of law and good governance. A number of our allies and friends do not comply with those principles and we should be seen to be doing so. That is why we have tabled these amendments. We do not seek to limit but rather to empower Parliament and others to be able properly to scrutinise the powers that are used and measure them against the principles set out.
Amendment 7 asserts that when these powers are used the appropriate Minister must set out how sanctions are consistent with the UK’s objectives. Again, this is to enable effective scrutiny. The problem with executive powers is that often Governments simply assert them; they do not allow for proper scrutiny to measure their actions against the principles we set out. I hope that the Minister will put up a cogent argument. If he simply says, as the noble Lord did, that these amendments might be restrictive and are not necessary, I ask him to look carefully at Amendment 7 and ask what mechanisms can help improve scrutiny of the exercise of these powers and how we ensure that we can scrutinise them.
We heard in the previous debate that everything is going to be hunky dory because the House of Commons and the House of Lords will have a vote on statutory instruments, but we know that is a case of take it or leave it. As the noble and learned Lord, Lord Judge, said, you can agree with 90% of something but how do you measure the other 10%? I want the reasoning to be set out more fully, not just in terms of having a vote on statutory instruments. I hope noble Lords will understand that we do not seek to include these words simply to make us feel better and that we are not doing so unnecessarily. We seek to include them to aid proper scrutiny of the powers exercised by the Executive.
Lord Judd (Lab)
Before my noble friend sits down, does he agree that one of the reasons that British standing in the world is diminishing is that there is the growing feeling that we use all the right words about human rights and the rule of law but are pretty slow to add muscle to ensure that something is done? I believe the time has come when our credibility rests on making sure that we not only make the right statements in principle but have the arrangements in place for proper scrutiny and ensuring that action is taken.
I pick up the liberal position. Speaking as a former defence Minister, overseas development Minister and Foreign Office Minister, I have in my more senior years come to the firm conclusion that sooner or later we have to change our ruling culture on the export of arms. Arms have become lethal, highly dangerous and destabilising. As you get older, you can become a bit more irresponsible in the best sense in terms of holding inconvenient beliefs. I believe that the only people to whom you should export arms are those with whom you are in a close, specified alliance—NATO, for example —or where there is an identifiable, specific reason for doing so to increase stability in a particular place. Anything else is a liability, given all the problems with end-use. I do not doubt the current Minister’s commitment to human rights but we need to be able to demonstrate that this is not just a case of wishful thinking but an issue about which we are serious.
Lord Collins of Highbury
I thank my noble friend for his intervention and wholeheartedly agree that actions speak louder than words. However, at this stage, we are discussing how we can ensure the effective scrutiny of these powers. What are we measuring them against? That is important. Earlier, noble Lords said that we could not just rely on the words used. We all admire the Minister’s good intentions but this issue concerns the future. I place on record that the next Labour Government will put human rights centre stage in all their actions. We will certainly take up my noble friend’s point but that is not what we debating. I do not want to make an election manifesto call just yet but I want the Minister to consider the mechanisms that can be included in the Bill to enable us properly to measure the use of executive power.
Lord Ahmad of Wimbledon
My Lords, in response to the noble Lord, Lord Collins, I was allowing for any noble Lords to speak, but of course we will continue to debate these issues. To pick up on the point made by the noble Lord, Lord Judd, to whom I listened carefully, it is fair to say that sometimes we can be critical within the Chamber, whoever is in power or in opposition. One thing I have seen in my short time as a Foreign Office Minister but also as a Minister for Human Rights, whether at the UN, in Geneva or travelling around the world—irrespective of which Government of whatever colour has led our great country—is that not only do we see respect for human rights as being at the heart and centre of what we do but many around the world respect the UK for it and hold it up as a beacon. I assure the Committee that the Government do not take their human rights responsibilities lightly. My noble friend Lord Faulks alluded to the fact that not just here but in other places, in different parts of legislation, we ensure adherence to that. In this regard I am proud that, whether at the Human Rights Council, as we have recently seen, through various universal periodical reviews that are taking place with countries, or on quite specific issues, whether human rights on freedom of religion or belief, the protection of LGBT communities, or on gender equality and ensuring that women’s rights are represented, throughout my life the UK has been a bastion and a beacon for human rights. That should and will remain a cornerstone of British foreign policy in years to come.
I thank noble Lords for their amendments. It is right that we again emphasise that we should look carefully at the purposes for which sanction regulations may be created. It may be helpful if I say something about the purposes set out in Clause 1(2). These are designed to cover situations and purposes where the UK is not implementing a UN or other international obligation. The list of purposes has been designed to ensure that we can continue to implement sanctions for the full range of purposes for which we use them now as part of the European Union. The EU is able to adopt sanctions for any purposes of its common foreign and security policy. The reference to “foreign policy objectives” in Clause 1(2) seeks to provide the same type of scope when the UK has left the European Union. This is why the amendment tabled by the noble Baronesses, Lady Northover and Lady Sheehan, would, as my noble friend Lord Faulks highlighted, potentially restrict our options. It seeks to remove the ability to impose sanctions to,
“further a foreign policy objective of”,
the UK.
I appreciate and accept that Amendments 3, 4, 5 and 6 aim to define UK national security and foreign policy objectives in more specific terms. I have little difficulty with the language as such. However, we may risk missing important objectives of UK national and foreign policy that might justify the use of sanctions in the future. For example, this may limit our ability to act with our international partners in the future to tackle serious threats to the national interest.
Noble Lords may recall that in 2015 the Government published a national security strategy, which provides a clear overview of Her Majesty’s Government’s objectives in the national security sphere. The practice has been to update this strategy every five years, as this can act as an indication of some of the purposes of sanctions as set out in the Bill. I assure noble Lords that the Government will not have unlimited discretion. As I set out in the previous debate, the Bill contains a number of checks and balances on the Government’s action, including scrutiny by Parliament and court challenges.
On the additional purposes that have been suggested, I note that these reflect our current practice. For example, preventing grave breaches of human rights and international humanitarian law are already among the purposes of UN sanctions against the Democratic Republic of the Congo and EU sanctions against Iran. I am satisfied that we would continue to impose such sanctions based on the purposes of the Bill as drafted, and that is certainly our intention.
Baroness Northover
My Lords, I am grateful to everyone who has contributed to this mini debate. In some ways, I was surprisingly unreassured by what the Minister said; I was expecting to be much more reassured than I am. I was struck by the difference in his language. He mentioned that the EU uses sanctions for “foreign and security policy”, but the Bill talks only about “foreign policy”, which is a much more restricted meaning. He mentioned Iran, but it was the nuclear programme and the threat of it that led to sanctions, which is about security rather than foreign policy per se.
Lord Ahmad of Wimbledon
I suggest to the noble Baroness that foreign policy and security are the primary responsibility of any Government. Of course, security is a key feature of foreign policy, and I also referred to the Government’s national security strategy.
Baroness Northover
Indeed, security, and not just foreign policy, is a first aim of the whole of government. However, I find myself concerned about the language here and about the scope in the Bill for using this provision. I shall certainly think about this but, in the meantime, I beg leave to withdraw.
Lord Collins of Highbury
“( ) Regulations under this section must be accompanied by the publication of a humanitarian impact assessment, and such an assessment must be conducted—(a) according to the methodology set out in Chapter 5 of the UN Inter-Agency Standing Committee’s Sanctions Assessment Handbook: Assessing the Humanitarian Implications of Sanctions, published in 2004,(b) in advance of the relevant sanctions regulations being made,(c) again within six months of the date on which the relevant sanctions regulations come into force, and(d) at any time thereafter when the relevant sanctions regulations are subject to any substantial revisions or alterations.”
Lord Collins of Highbury
The purpose of this amendment is to reflect on the discussions that we have had with many NGOs actively engaged in humanitarian support. I had not fully appreciated the difficult circumstances that can arise when they operate in countries affected by sanctions. This is not just a technical matter; people’s lives are put at risk and the ability to travel across certain countries can be impeded. Therefore, it is very important that the impact of any proposed sanction is fully understood by the NGOs.
We also fully support the amendment in the names of the noble Baronesses, Lady Northover and Lady Sheehan, which would ensure the provision of impact assessments. We are very keen to ensure the provision of impact assessments to cut down the time between sanctions coming into effect and licences being granted. I have no doubt that the Minister will say that there is a process and that the Government are dealing with the NGOs’ concerns, but this is a mechanism that can better help the planning and implementation of their humanitarian projects. I beg to move.
Baroness Northover
My Lords, I shall speak to Amendment 9, which stands in my name and that of my noble friend Lady Sheehan, and I support the amendment in the names of the noble Lords, Lord Collins and Lord Lennie.
The Minister made clear at Second Reading and in our discussions—I welcome this—that he is open to the possibility of trying to ensure that NGOs working in humanitarian disaster areas and very challenging situations have greater assistance in doing their work when sanctions get in their way. As I just mentioned, I recall from my work as a DfID Minister that sanctions could have a significant impact on the work of NGOs when they sought to assist in Syria.
As the noble Lord, Lord, Collins, pointed out, it is essential that we review current and future sanctions so that we can identify any disproportionate impacts. I know that was the case in Syria, where there were different arrangements for our NGOs compared with those for American NGOs, for example. We need to be able to assess the impact of sanctions and make adjustments accordingly. Therefore, our Amendment 9 speaks of consultation with stakeholders, who are obviously in a very good position to inform the Government of any unintended consequences, so that those consequences can be addressed.
Our amendment is a probing one. As I said, the Minister has said that he is open to ensuring that licences for NGOs are more fit for purpose than has been the case in the past. We are seeking to move the Minister further along that line so that that is not just a possibility but is put in a more concrete form and more specifically, so that we can see the changes that the noble Lord, Lord Collins, and I have outlined.
Baroness Sheehan
My Lords, Amendment 9 is broad enough to cover a range of activities—not just humanitarian assistance but peacebuilding, reconstruction and development assistance. It would also enable a range of stakeholders—for example, banks, businesses that supply goods or services in sanctioned countries and other experts—to be included in any discussions.
Consultation is very important as it will reduce unintended consequences for diplomats, aid workers and others. For example, a British diplomat was prevented from getting a mortgage because his bank found out that he lived in Sudan. Sanctions that are badly applied or inappropriate can give banks and international companies a reason to be risk-averse, reducing the availability of services to poor and vulnerable people or countries. For example, in 2011 Standard Chartered Bank received a large fine for breaching Iranian sanctions. That led to all banks becoming more risk-averse to the point where they now overimplement the sanction where the value of the market is not worth the risk. Therefore, even if the activity they are carrying out is excluded, they will often choose to avoid the market altogether. Another example is Somalia, where Barclays closed the accounts of small money transfer companies used by the Somali diaspora to send money home. We all know how important these remittances are these days. Perhaps with consultation those problems could be avoided.
It is very important that any potential impact of a new sanctions regime is properly understood and documented. As well as the other factors that I have mentioned, this would also reduce the lag time between sanctions coming into effect and licences or exemptions being provided to mitigate their impact.
Lord Hylton (CB)
My Lords, I follow on very much from what the noble Baroness, Lady Sheehan, has just said. I am old enough to remember the sanctions against Southern Rhodesia. More recently, there were atrocious humanitarian consequences when sanctions were imposed against Saddam Hussein’s regime in Iraq. I think Sudan and South Sudan were mentioned. If they were not, I do so now. There are also the current sanctions against Syria. Therefore, these amendments are very practical; they are not just theoretical. On those grounds, I urge the Government to take them very seriously.
Lord McNally
My Lords, en passant, the noble Lord, Lord Hylton, mentioned sanctions against Southern Rhodesia. As I am sure that at some stage a comment will be made about these Benches being overrepresented, it is worth remembering that one of the five times when this House defied the Government of the day was in relation to sanctions against Southern Rhodesia. On that occasion, a grotesquely overrepresented Conservative Party in the House of Lords voted down those sanctions. It is always useful to have a historical perspective on these matters.
I want to speak to these amendments because, like the noble Lord, Lord Collins, I attended the briefing by NGOs. It was quite surprising and shocking to find that unintended consequences were putting lives in peril. People who are in these countries for humanitarian reasons—and doing a terrific job—might suddenly find themselves hit by sanctions for using an airline connected to a regime under sanctions, even though it was the safest airline to use. Lots of other examples were given to us. Therefore, I hope the Minister will take up the invitation of the noble Lord, Lord Collins, and explain to the House whether he is aware of these unintended consequences that hit the NGOs and, if he is, how he intends to mitigate the impact of sanctions on individuals and organisations who are in these places not to bust sanctions but to carry out humanitarian work.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords who have spoken on this group of amendments. The noble Lord, Lord McNally, talked about Rhodesia, and historical context is one of the great values of your Lordships’ House—it always puts things into context.
The specific issue of banks and sanctions against Iraq in 1991 came up. As someone who spent 20 years in that sector and started his career at that time, I remember being acutely aware of those who were opposing the Saddam Hussein regime. It was perhaps used to having more liberal purses and was suddenly subjected to stringent rules based on those that were being applied in-country. Noble Lords have spoken quite rightly about the unintended consequences that lie behind sanctions. However, there are necessary occasions for them in the banking sector. As we have seen, certain banks in certain parts of the world will take a de-risking attitude, which then prevents essential services being performed. However, I will turn to the issue in front of us.
Amendments 8 and 9 make substantially the same points so I will address them together, if I may. First, let me stress again on record that I fully understand the reasoning behind these amendments. As the noble Baroness, Lady Northover, said, we have spoken about this during Second Reading and outside your Lordships’ Chamber.
It is important that, in imposing and maintaining sanctions, the Government do so with a clear understanding of what the impacts may be, and that there is a focus on minimising potential humanitarian impacts and other unintended consequences. I assure noble Lords that the Government work closely with humanitarian actors and NGOs and take their concerns into account when designing and implementing sanctions.
Last year, it was the United Kingdom that secured amendments to the EU’s Syria sanctions regime to provide an exemption for fuel purchases made in Syria by humanitarian organisations, which is exactly what the noble Lord, Lord Collins, talked about. Noble Lords may also be aware that, in October, after listening to NGOs, Her Majesty’s Treasury’s Office of Financial Sanctions Implementation published specific guidance for the charitable sector on sanctions compliance.
I assure noble Lords that the Bill provides the Government with relevant powers, such as issuing licences to help mitigate any potential impact on the operations of humanitarian organisations. EU case law currently restricts our ability to issue so-called general licences for the humanitarian sector, but the Bill would give us greater flexibility after our exit from the EU. When making and amending future sanctions regulations, the Government would incorporate humanitarian exemptions where appropriate, and these would be subject to parliamentary scrutiny.
As the amendment makes clear, there are already methodologies for assessing the humanitarian impact of sanctions, which are agreed internationally. These would continue to be applied. To require a humanitarian impact assessment to be published at the domestic level each time sanctions were imposed is something that I remain to be convinced about. It would duplicate the work already done at an international level before sanctions are agreed. It also carries the risk of causing delay, potentially undermining the effectiveness of sanctions.
The amendment tabled by the noble Baronesses, Lady Northover and Lady Sheehan, would require the impact assessment to be worked up in consultation with stakeholders each time. I fear that that might risk tipping off potential sanctions targets, who could then take evasive action. Again, this could undermine the effectiveness of sanctions.
I assure noble Lords that we will continue to work closely with our NGO partners. The noble Lord, Lord McNally, asked how we were taking that further. We are already working closely with colleagues in DfID on working with NGOs on how we can take the matter forward. The noble Lords, Lord Collins and Lord McNally, and the noble Baroness, Lady Northover, talked also about the NGOs themselves. I think it might be appropriate if, during the course of Committee and before Report, I make myself available to meet the NGOs to see how we may be able to further tighten up the language in this regard. I hope that following what I have presented to the House about the measures already in place, the noble Lord will be minded to withdraw his amendment.
Lord Collins of Highbury
I thank the noble Lord for his response and very much welcome his commitment to meet NGOs so that we can discuss their concerns before we come back to this at Report. In the light of those comments, I beg leave to withdraw the amendment.
Lord Judge
Lord Judge
My Lords, this amendment and the others in my name in the group arise in the context of the imposition of financial sanctions, and so on, on designated individuals. The process of designation is subject to regulation and is another part of the bulky regulation power that is being sought. I simply want to highlight how Amendments 10, 11, 12, 13, 14, 16, 17 and 81 relate to Clause 2(1)(b)(ii) and (iii),
“persons connected with a prescribed country, or … a prescribed description of persons connected with a prescribed country”.
My argument in this debate is that we do not need this to be dealt with by regulation; we can deal with it by way of primary legislation.
I have no difficulty with making specific identified individuals subject to the sanctions regime when that is justified, including where the individual is identified in the context of the United Nations having information to give us or in accordance with our treaty obligations. My concern arises because of the way in which the Minister is empowered to prescribe a country and include in the sanctions regime anyone—here is the magic word—“connected” with it. I respectfully argue that “connected” in this context is a weasel word: it is very wide and all-embracing.
My mother was Maltese and my father was English. I was born in Malta in the middle of the war, the hospital being bombed as my poor mother gave birth to me. I accept and am proud to claim my connection with Malta—I would not mind being included on a connection list such as that. My children are one-quarter Maltese but have never lived there, and my grandchildren are one-eighth Maltese but have never lived there. Is this a connection for the purposes of this legislation? Which one? Is it the blood or the residence? For how many generations does such a connection endure? For how long must residence be? Is it for so many years or for a certain proportion of an individual’s life? How recent must it be? In business, is it one transaction or many; one huge transaction or a lot of small transactions of little value?
What I am driving at is that, in the end, the Minister will choose by regulation to define what this connection shall be. Surely this should be done by primary legislation, with parliamentary scrutiny of the definition which the Minister decides that he wishes to ask Parliament to consider. I should add that a specific designated person does not have to be a British citizen, so given the regulation-making power in Clause 2(1)(b)(i), which we are not challenging, for identifying specific individuals whose conduct brings them within the sanctions regime, such persons are not going to escape from this. We have no objection to provisions that would not prevent a foreigner with such habits falling within the definition.
I turn now to Clause 50(4), which we suggest should no longer be part of this Bill. It is a classic regulation:
“Regulations under section 1 may make provision as to the connection that is required between—
(a) a person, or a person of a prescribed description, and
(b) a country,
in order for the person to be regarded as ‘connected with’ that country for the purposes of any provision of the regulations”.
Surely we do not need to wait for regulations at some future unspecified date and surely it is open to the Government to decide what definition should now be applied; in other words, to prepare the regulations now, but, rather than proceed by way of regulation, proceed by primary legislation and deal with the matter in that way. I beg to move.
Lord McNally
My Lords, I have added my name to these amendments, again with all due humility. I speak not as a distinguished and learned lawyer like the noble and learned Lord, Lord Judge, but as a parliamentarian now of some years. One can say this only so many times: in the face of the difficulties and sometimes tempting siren words of officials saying how simple this is all going to be, I warn again that the noble and learned Lord is giving the right advice to the Government. Primary legislation is always a bind for Ministers because it is almost always much more complex—but we are talking about the sovereignty of Parliament. The more crisp and focused we can make legislation by taking out wide-ranging powers based on subjective judgments, the better the legislation will be, and I suspect the less trouble the Minister will have.
Lord Judge
If noble Lords will allow me, I forgot to draw attention to what the Constitution Committee had to say about this clause at paragraph 18, where it expresses concern about the,
“breadth of the power conferred on ministers”.
I thank noble Lords for letting me have a second go.
Baroness Sheehan
I will speak to Amendments 19, 22 and 30 tabled in my name and that of my noble friend Lady Northover. Amendments 19 and 22 are probing amendments in relation to disqualified aircraft and shipping sanctions to learn what,
“persons connected with a prescribed country”,
means in both cases. As it stands, the phrasing will cause a great deal of uncertainty about who is connected with a prescribed country. I was born in Pakistan. If Pakistan falls foul of a sanctions regime, I would be uncertain as to what my status might be. The description is too wide and will cause much confusion that will not benefit anyone. It could well stop vulnerable people who may be in danger of violence from getting to safety.
Lord Lennie
My Lords, I reassure the noble and learned Lord, Lord Judge, that his grandchildren will probably be safe for some years because I do not think that sanctions on Malta are likely. However, were they ever to be so, his grandchildren would be at some risk. That is the point he is making in the amendment.
I do not know whether it is by intention, but the provision is very wide-ranging indeed in its application. Such a catch-all approach can be helpful in some circumstances. While it can gather in all that needs to be gathered in for sanction, it is extremely rough justice for those who are unknowingly, unwittingly and unfairly caught by it. I shall complete the quotation from the Constitution Committee report referred to by the noble and learned Lord, Lord Judge. The report stated:
“The House may wish to consider whether it is appropriate for ministers to enjoy such a broad power, which is not confined to persons who have committed acts of misconduct or who have a personal responsibility for the policy of a repressive state or who have a particular status in that state”.
It would be everyone connected with that state—even the grandchildren of the noble and learned Lord. We support the amendment.
Lord Ahmad of Wimbledon
My Lords, these amendments seek to remove the ability of the Government to create sectoral financial sanctions measures by removing the power to apply certain sanction measures to, as we have heard,
“persons connected with a prescribed country”.
Amendments 10 to 14, 16 and 17 would make this change in Clause 2 while Amendment 19 speaks to Clause 5, Amendment 22 to Clause 6 and Amendment 81 to Clause 50. Amendment 30 to Clause 10 would make a slightly different change in that it would restrict the Government from being able to designate a person on the basis of their involvement with other designated persons. However, the amendments all have a common theme as they deal with the application of sanctions to persons other than those directly designated.
The Government are clear that sectoral financial sanctions remain a vital foreign policy and national security tool to enable us to meet our UN obligations. It is worth emphasising that we already implement these sanctions under both the United Nations and the European Union regimes. For example, sanctions against North Korea restrict that country’s access to certain financial markets in order to restrict its ability to generate funds for its nuclear and ballistic missile programmes. To do this and to make it work, we have had to impose sanctions on groups of persons—or in extreme cases, on all people—connected in a specified way with the prescribed country. This ensures that the sanctions measures are robust and effective.
We accept that this creates the potential for far-reaching sanctions that bite upon people who themselves have done no wrong, but it remains the case that it is a necessary part of some sanctions regimes. The more broadly sanctions can be drawn, the greater the impact they will have. I accept that it is a sad but necessary side-effect that at times this can affect persons who may not be directly involved with the activities of the target regime. For example, the current restrictions on the transfer of funds to and from North Korea—noble Lords will be aware that there have previously been restrictions on the transfer of funds to and from Iran—will affect people who do not directly support Kim Jong-un’s regime.
The UK, EU and Strasbourg courts have all considered and accepted that the harsh effects on individuals are justified due to the importance of sanctions and the need for them to have broad and deep effects. It was summarised by the European Court of Justice, which stated that,
“any measure imposing sanctions has, by definition, consequences which affect the right to property and the freedom to pursue a trade or business, thereby causing harm to persons who are in no way responsible for the situation which led to the adoption of the sanctions. Moreover, the importance of the aims pursued by the regulation at issue is such as to justify negative consequences, even of a substantial nature, for some operators”.
This was the Bosphorus case decided in 1996 in relation to sanctions that were placed on the former Federal Republic of Yugoslavia. It has been a settled principle of law for more than 20 years.
If the amendments were accepted, we would be unable to impose these measures. In some cases, they are mandated by resolutions of the UN Security Council, such as the obligations imposed in 2013 to cease business with North Korean banks and financial institutions. We would then be in breach of international law. Another example of a sanctions regime that we would be unable to maintain is the Ukraine sovereignty regime, which aims to restrict Russia from accessing certain financial services. Similar to the North Korea examples I have already given, we would be unable to maintain those financial sanctions if we were unable to impose sanctions on persons connected with Russia, or with persons of a certain description connected with Russia, such as state-owned banks. The clauses must remain if we are to be able to meet our international obligations and work with allies to use sanctions as an effective foreign policy and national security tool.
Clause 10 currently permits us to determine that a person is an “involved person” on the basis of their relationships with other “involved persons”. The noble and learned Lord, Lord Judge, raised this issue; I hope I can briefly explain the significance of it. A person can be designated only when the appropriate Minister has sufficient evidence to have reasonable grounds to suspect that they are involved in the activities targeted by sanctions. For example, if a senior member of a regime is controlling a public body that is developing weapons of mass destruction, they are involved in that activity and can be classified as an “involved person”. Assuming that the appropriate Minister deems it appropriate—and proportionate—to designate them, they can do so.
Clause 10 also enables a person to be an “involved person” if they are owned or controlled by, or acting on behalf of, an “involved person”—for example, as an agent. It goes further and enables a person to be an “involved person” on the basis of their association with other involved people. The key point is that this is often required of us by our international obligations. It is common for a UNSCR to require states to designate not just those involved in a particular activity, but those acting on their behalf or at their direction. Accordingly, we must be able to do that to meet our UN obligations, but it also has three other advantages. First, it enables us to apply sanctions more widely to affect the people around those directly involved, which would further restrict the regime’s ability to act and place further pressure on the regime to change its ways. Secondly, it allows us to designate those people who enable these activities by providing funds and financial services to the regime without direct involvement in the targeted activities. Thirdly, it enables us to apply sanctions across a whole group who share the same aims but are using different methods to achieve them. For example, it would enable us to designate all members of a terrorist group: not only those who are engaging directly in terrorist activity, but those providing funds and logistical support.
A current example of that would be the EU designation of Bashar al-Assad under the EU’s Syria sanctions regime, which has frozen the assets of Assad in the EU —including the UK—and banned him from entering the EU. However, people associated with him are also designated: leading businesspersons operating in Syria; members of the Syrian armed forces of the rank of colonel, or the equivalent or higher, in post after May 2011; members of the Syrian security and intelligence services in post after May 2011; and members of the regime-affiliated militias. Removing the ability to designate these as “associated persons”, as proposed in Amendment 30, would remove the ability to designate those who have a significant role in threats to peace and security.
The noble and learned Lord, Lord Judge, gave a personal example of being connected and made the pertinent point of the definition being very wide: it encompasses many people, even those whose connections are arguably tenuous. As I have already explained, it is necessary to ensure that sanctions are broad and effective. To say that somebody is connected because of a remote family relationship is tenuous. I doubt it would be lawful or stand up to scrutiny in a court, nor would it advance the purpose of the sanctions. However, it is almost impossible to foresee what type of connections will be required in future sanctions regimes, but I do not believe that this one, in terms of the detailed nature of what the noble and learned Lord expressed, would apply.
I have heard and listened very carefully to the concerns, but at the same time I have stated that there are good reasons for casting these powers in the way we have. There will be real difficulties in applying sanctions if they are too restricted. We believe that we have the balance right. With the practical examples I have given, and my interpretation of the Bosphorus case—especially when we bear in mind that power can be exercised only when proportionate and compliant with human rights; any other use would be forbidden by Section 6 of the Human Rights Act 1998—I hope that the noble and learned Lord will be minded to withdraw the amendment.
Lord Judge
My Lords, I shall withdraw the amendment for now; I may come back to it on Report. However, I do not want the Minister to misunderstand the purpose of my amendment. He has produced a very convincing argument for the need for sanctions to be available and used, and there are compelling cases where they have been used out of absolute necessity. The amendments we are proposing are nothing to do with that. The amendment we are driving at is that, in reality, there is no reason why the word “connection” cannot be defined now, as opposed to leaving it for few months down the road until a Minister gets round to making a definition. I look forward to his reflections on that, and I will reflect on it too.
Baroness Sheehan
“( ) striking off from the register of companies a designated person, or a person (other than an individual) owned or controlled by a designated person;( ) closing down a designated person, or a person (other than an individual) owned or controlled by a designated person.”
Baroness Sheehan
My Lords, I will also speak to Amendments 46 and 78.
There is a lack of specific instruction that the Government can dissolve or close down companies in cases of violations or sanctions regulations made under the Bill. The amendments would rectify that omission. It must be made clear that the Government have the power to prevent trading or any other business activity by company structures. That is key to ensuring, for example, that action against shell companies brokering arms is captured in the Bill.
Consider a recent case: S-Profit Ltd v South Sudan. The UK-registered shell company, set up by a Ukrainian, was used to broker arms, in violation of sanctions, in a deal worth $44 million. A company can be set up in the UK in a matter of hours for just £12. HMRC has acknowledged—there are numerous other examples—that it cannot prosecute such brass-plate and shell companies under existing law where the burden of proof is criminal standards of evidence. That is impossible to get because such companies have a limited physical presence in the UK and little hard evidence can be gathered.
That case, highlighted by Amnesty International, starkly illustrates the current loophole and legal vacuum that allows companies posing as reputable UK corporate entities to supply arms to some of the most dangerous places and actors in the world. The lower burden of proof suggested in the Bill before us—a reasonable knowledge test—would give the means to use sanction powers to take action against such shell companies and crack down on illicit arms brokering. The amendments would give enforcers powers to wind up such companies and disqualify their directors.
Furthermore, reasonable knowledge is the threshold used in existing sanctions regimes in both the EU and UN. That is why it has been replicated in the UK, so that we can have legal powers to mirror and enforce our international obligations in this area. However, there must be at least a due process mechanism to allow a right of reply, or an appeal process to challenge decisions and overturn them. This amendment would add additional tools to improve controls over the arms trade and arms-brokering activities, which would be welcome.
I will speak briefly to Amendment 78. Currently, companies can be wound up by the Insolvency Service relatively easily for corporate abuses such as non-reporting, but they can also be wound up on the ground of public interest under Section 124A of the Insolvency Act 1986. However, the sanctions regime and these powers are not used together. It would make sense for brass-plate companies known to the Government to be in breach of sanctions to be wound up using these powers. Now that BEIS’s criminal enforcement team has been transferred into the Insolvency Service it also has the ability to prosecute. It would therefore make sense for the two to be linked for enforcement purposes. This amendment would have that effect.
Baroness Northover
I echo what my noble friend said and I commend the amendments to noble Lords, especially the Minister. He has been arguing that he needs wide scope in the Bill to ensure that those who might seek to evade sanctions can be brought within their scope. This is an area where we seek to help him to draw that wider scope based on what the world has discovered about the ingenuity of those who use bogus companies to, for example, evade sanctions. I hope he will look kindly on these amendments.
Lord Lennie
My Lords, to echo what has been said, the amendment would strengthen the Minister’s hand to act and seeks to address the problem of companies registered in this country with no connection to, business with or purpose in this country other than to evade detection and supply arms to those we regard as rather evil. There is a great difficulty with detection. I am not underestimating problems, particularly evidential ones, but I suspect that the wider the hand of the Minister in this regard, the greater the power of success. There has been some progress in this area recently under other Acts, such as the Bribery Act, but our chance of success in closing down what is simply a hosting arrangement would be greatly enhanced by the amendment.
Lord Ahmad of Wimbledon
My Lords, I am grateful for noble Lords seeking to strengthen the hand of the Minister at the Dispatch Box. I made specific note of that. I understand the reasons for wanting to go down the route of closing down designated companies and companies belonging to a designated person. However, the proposal contained in Amendments 15 and 46, and the supporting proposals in Amendments 78, 79 and 80, raise some concerns and illustrate why it may not be appropriate to accept them.
I remind noble Lords that the Bill aims to put in place the necessary powers to replicate the sanctions regimes that we currently implement as a member state of the European Union and, of course, those we are obligated to implement internationally through the UN. These amendments would go over and above the regimes and the type of sanction that the EU has put in place. It is essentially a new type of sanction and, as such, I urge a degree of caution in approaching this.
Clause 2 is about freezing assets of designated persons and preventing access to the UK’s financial markets. It is not about causing companies to cease to exist. Sanctions are intended to be temporary. That is why we have various reviews of sanction regimes set up and why they are reviewed periodically: their whole essence is to ensure that the target has changed behaviour in the desired manner. Once this change in behaviour has been achieved, sanctions may well be lifted. We do not intend to impose permanent measures that cannot be reversed. I suggest that shutting down a company is pretty irreversible.
This would be a unique power that does not exist at the United Nations or with EU sanctions. Sanctions have always been and will continue to be most effective when implemented multilaterally and with maximum consistency. Before implementing a new type of sanction, we would usually discuss with our partners whether it is effective and whether there is any appetite for it to be taken forward multilaterally. Only in very rare cases would we unilaterally introduce a new type of sanction that has effect within the UK’s jurisdiction only. Unilateral sanctions provisions such as this could also have an uncertain effect and could create difficulties for industry in general.
Dissolving a corporate entity is a permanent measure with far-reaching effects. It would also have an impact on the human rights of the people involved. Dissolving a company owned by a designated person would remove their property. Doing so without compensation would leave the Government open to a potential action for damages by a person alleging breach of their human right to ownership of their property. It is also uncertain where the property owned by the company would go and what effect this would have on the property rights of anybody involved. Accordingly, to do so may be in breach of the human rights convention.
When a company is designated under financial sanctions they will not be able to trade—that is clear—with any person connected to the UK or to any other countries that have joined us in the multilateral sanctions. We therefore feel that these measures are sufficient to ensure that the effects of the financial sanctions are maximised.
The noble Baroness, Lady Sheehan, gave a specific example about actions we can take against shell companies that, in her words, may be involved in illicit arms trading. If the arms trade is a breach of trade sanctions we will of course prosecute these companies and their directors for criminal offences using powers in the Bill and the export control order 2000, which she referred to previously.
Given my explanation, the importance of the intent, the fact that we would be creating a totally new type of sanction here and in the context of this not being something that either the UN or the EU currently designate, I hope the noble Baroness will be minded to withdraw the amendment.
Baroness Sheehan
I thank the Minister for his reply. He said quite a lot about how we may diverge from the EU, but as I thought Brexit was about diverging from the EU and taking back control, I thought he might have welcomed the powers these amendments would confer on him.
Lord Ahmad of Wimbledon
Am I to take it that the Liberal Benches are now suggesting that that is exactly what the Government should be doing?
Baroness Sheehan
I am suggesting that the Liberal Benches might wish to take advantage of what the Government have been proposing when it suits our ends. This is such an important issue. We are presented with an opportunity in the Bill to do something about the illicit arms trade and arms brokering. It is a real stain on the UK that so much of that trade is facilitated here. Although I will withdraw the amendment for now, I reserve the right to come back to this issue at a later stage.
Baroness Northover
Baroness Northover
My Lords, I extremely glad that the Minister wishes to align so closely with the EU. I can think of very simple ways he might achieve that. In the meantime, in moving Amendment 18 I will speak to Amendments 20 and 21 in my name and that of my noble friend Lady Sheehan. I am sure the Minister will be relieved to know that we are returning to our main theme: whether the scope of the Bill is too wide in giving him extra powers. Our concerns here are about unintended consequences of the sanctions, so I am afraid we are seeking to restrict the Minister again.
If these bans on aircraft and ships prove detrimental to those fleeing persecution, what exceptions might there be? We understand why the Government would wish to have such sanctions, but we are once again scrutinising for wide powers with unintended consequences. Clearly, we would not wish to include traffickers in any exception, but one can envisage, for example, a plane leaving North Korea and seeking asylum for all those on board or, more commonly, those commandeering a boat wishing to escape a terrible regime. What is emerging from the Minister’s account is that the Bill is drawn widely to allow sanctions in unusual and ingenious cases. We need to see what the protections might be where wide powers are sought.
Lord Collins of Highbury
My Lords, I do not have much more to add. Obviously, the amendments in this group are probing. I hope the Minister can respond in terms of what the current arrangements are in respect of the circumstances outlined in the amendments and how they may not be necessary. As the noble Baroness said, it is important that we consider all the unintended consequences, as well as our objective of imposing sanctions that are effective.
Lord Ahmad of Wimbledon
My Lords, I thank the noble Baroness for raising this important issue. As we discussed earlier, the Government take seriously the impact that sanctions can have on the civilian population of a country and acknowledge the important work of NGOs and other humanitarian organisations in difficult situations.
The amendments would exempt ships or aeroplanes from sanctions if they are being used to transport refugees. While I agree with the principle of the amendments, which I know are well intentioned and seek to assist those who require international protection, in my opinion this is not the right way to achieve the desired effect.
I cited earlier the example of NGOs operating in Syria, where exemptions were granted on fuel access. We need to ensure that NGOs can operate in countries that are subject to sanctions by providing licences and exceptions. The Bill makes it easier—it is not just about having wide powers—by allowing government to draft exceptions and grant general licences aimed specifically at assisting humanitarian activities, including those assisting refugees or displaced persons, which is the intent behind the noble Baroness’s amendment. Of course, these are currently not permitted by EU law.
There are good reasons why broad prohibitions are applied to a country with licences, then used to provide targeted exceptions. That is the right way to move forward on this. If we were to provide a general exception for ships and aeroplanes in these circumstances, it could be subject to abuse and would be impossible to enforce. In extremis, it could help organisations circumvent sanctions. It would also be very difficult to apply in practice. If a person on a ship or aircraft claimed to be a refugee, such a circumstance would seem to engage the exemption proposed by the amendment. However, if it was later determined by the proper authorities and the courts that they were not a refugee, the ship or aircraft would have breached sanctions, as well as that person having circumvented immigration controls.
In many cases, it is impossible to tell whether a person is a refugee until after their claim has been examined and determined. I totally understand the intent behind the amendment, but I am sure the noble Baroness can also understand the difficulty it would pose in respect of a person on a ship or aircraft making such a claim.
I assure the noble Baroness and the Committee that the system of licences and exceptions currently in the Bill offers the best way to maintain the integrity of sanctions while ensuring that NGOs can provide humanitarian support to refugees and displaced persons. I committed during a previous debate to join the noble Baroness and the noble Lord, Lord Collins, in meeting NGOs perhaps to strengthen the narrative behind the exceptions—on how they work and how the current rules would be applied—but I am still minded to ask the noble Baroness to withdraw her amendment. I feel that looking to strengthen the communication and availability of current processes to NGOs, as well as their knowledge of them, would be a better way forward.
Lord Hylton
My Lords, following on from what the Minister has just said, perhaps I may be allowed to put a drafting point to the noble Baroness, Lady Northover. Her amendments state, “recognised as a refugee”. Might it not be better to say, “claiming to be a refugee”? That is because the process of obtaining recognition can often take a very long time and, in certain circumstances, it is just not obtainable. I would favour a wider wording.
Baroness Northover
I thank the noble Lord for his suggestion. This was my thought when reading the Bill —it did not come at the request of any of the NGOs, so they might be slightly surprised that discussion of this is included in what we are covering, which indeed came from them.
I was thinking not about the general exceptions that the Minister talked about, or of NGOs’ work, but about the example of a group fleeing Syria. What protection would they have if there was a sanctions regime that would otherwise have included the means by which they escaped from that regime? That is what I was probing for. Perhaps the Minister could go away and consider a more thorough answer on how that is dealt with. I would appreciate that. In the meantime, I beg leave to withdraw the amendment.
Baroness Northover
My Lords, I found reading this Bill enormously instructive. I am no lawyer, but I nevertheless found myself wondering at many points about the possible unintended consequences of what was in it. Clause 8, along with various other clauses, seemed to me rather full of such potential unintended consequences, so I want to know from the Minister what protections are being put around the mass of regulations to which the noble and learned Lord, Lord Judge, referred in the first group of amendments. Here the Bill specifies,
“persons designated under any power contained in the regulations”,
which we know are very widely drawn. That causes me concern. It goes on to talk about,
“any organisation and any association or combination of persons”.
It struck me as I read this provision that it was enormously widely drawn. If we are seeking to check the abuse of power, how does this wide definition fit in?
I also support the amendments of the noble Lords, Lord Collins and Lord Lennie, in this group. They have rightly picked up on the point that regulation “must” make provision in certain areas, as opposed to simply “may”, which again is very widely drawn. I am seeking from the Minister an explanation of what protections there are in relation to Clause 8.
Baroness Sheehan
I have only a short sentence to say on this. Clause 8, on “Designated persons” is so widely drawn that it occurs to me that in a prescribed country anyone who is not a designated person will doubtless be a refugee.
Lord Lennie
Amendments 33 and 34 concern Clause 10. Where Clause 10(6) says:
“The regulations may make provision, for the purposes of the regulations, as to the meaning of a person’s”,
we want to replace the word “may” with “must”. We also want to add a final subsection to the end of the clause, as follows:
“( ) The regulations must make provision for the notification of persons designated under subsection (3)(b) to (d), and such notifications must state, to the fullest possible extent consistent with the purpose of the regulations … which person or persons the designation has been made in connection with, and … the nature of the connection identified for the purposes of the designation”.
It is a question, if you are going to designate, of identifying who the person is associated with and what are the reasons for associating with them.
The regulations must make provision for the notification of persons designated on the grounds of indirect involvement in prohibited activities, including the requirement to inform such persons of the specific nature of any activities or other persons they have been designated in connection with. I am not sure how they are to know unless they are advised as to what it is and who it is they have been designated for associating with.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords who have spoken in this very brief debate thus far. This clause introduces the power to include designated persons under sanctions regulations and defines the meaning of this term as used in the Bill. It sets out the designated persons, which can include individuals, companies and other entities which have a legal personality, as well as groups and associations. The noble Baroness, Lady Sheehan, said that it is so wide that anyone in a particular country who was not designated would be a refugee. That is not the case. In conflict situations—Syria is a prime example—there are members of the opposition, for example. When I was qualifying the status of those who may or may not be “influenced by” or “under the control or direction of”, in a previous debate, that point was made quite clear. The clause will ensure that Governments can, for example, designate particular organisations, and terrorist organisations come to mind in this respect.
The decision to designate an individual or organisation would be made by an appropriate Minister and the Minister would be informed by strategic, tactical and evidentiary advice; so the evidence would need to be there. A decision to designate would also be made where a designation advanced the purposes of a specific sanctions regime, taking into account the political picture and the evidence available. This approach is consistent with EU practice and the practices of our key sanctions partners-for example, the United States and Canada, where the power to designate rests with the Executive. It is for the Executive to use the powers then provided by Parliament as the situation demands.
I fully accept the point that there is a need for appropriate safeguards, and the Bill gives designated persons the right to ask for an administrative reassessment and then bring a challenge in the courts. It also requires annual political and triennial evidentiary reviews. These are, of course, in addition to the Government’s day-to-day accountability to Parliament.
Amendment 33 in the names of the noble Lords, Lord Collins and Lord Lennie, would make it necessary to set out what was meant by being,
“owned or controlled directly or indirectly”,
by another person and of being “associated with” another person. I agree that there should be restrictions on designation powers. That is why the Bill allows designation only where there are reasonable grounds to suspect that a person is involved with or connected to an activity set out in the regulations, and that it is appropriate to designate them on that basis. I hope that, with the explanation I have given, the noble Baroness will feel able to withdraw her opposition to Clause 8 standing part of the Bill.
Baroness Northover
My Lords, I thank noble Lords for their contributions. This clause does indeed seem to be challenging, and I look forward to the noble and learned Lord, Lord Judge, perhaps coming up with some overarching set of protections for the whole Bill which would apply to this as well. The Minister mentioned reviews: we will be coming to reviews later in the Bill, and there are questions around those, so that is not tremendously reassuring. He also mentioned answerability to Parliament. That has the problems that my noble friend Lady Kramer referred to earlier in our initial debates.
Lord Judge
Lord Judge
My Lords, I am beginning to have the awful feeling that I am punching jelly. There are so many regulations. As we go through this line by line—or nearly line by line—it re-emphasises how much we are looking at a regulation Bill. It is the bulk buy again. So we will have the same argument, but let us go about it.
I am looking at deleting Clause 9(2)(b) and Clause 11 not standing part of the Bill, and essentially my argument is the same. We are dealing with issues through regulation which should be dealt with in primary legislation. I shall not repeat what I said about Clause 9, because I can take it in in Clause 11. This is designation by description rather than by name. This is, as we discussed earlier, connection plus. It is, if I may say so, and I think I am right about this, a much wider power than the existing powers available to us under our own current regulations, based as they are on EU law—that is to say, the 1972 Act.
This provides me with the opportunity to underline what I said at the very beginning of this debate-that we are not, in truth, just replacing like with like, just preserving the existing position. We are, in fact, extending it here without any explanation as to why the current arrangements are not working properly. In EU law an express name is needed, so why is an express name not needed here? If we have not needed provisions such as this before, we surely do not need them now. Besides which, the language is vague. It is the parties that have to apply the sanctions that need to know what they are doing in this context. To use the example that the noble Lord, Lord Pannick, gave at Second Reading, how is the bank to know that the person it is dealing with falls within the description the Minister has given?
I tried to illustrate the absurdity of the situation in relation to “connected” by reference to my grandchildren, but what on earth will the regulations say? A tall man? A woman with a foreign accent? Somebody with a funny name, such as Igor? Or even someone who looks like a terrorist? Surely we can do better than this, and surely we can do better than this in primary legislation, not just issuing power—letting the Minister have the powers that will follow under the regulation system to do whatever the Minister thinks appropriate, without the safeguards that we would have if this were being dealt with by primary legislation.
I am not a voice crying in the wilderness. The Constitution Committee says:
“Clause 11 raises constitutional concerns”.
That is something of a battle cry. It is not something that can be brushed aside, and it invites the Committee to consider whether the Minister should have the power to designate by description as well as by name. Here I am not quoting from the Constitution Committee: why do we need it? If the EU, with all 28 of us—still—does not need description, why do we need it now? The Constitution Committee goes on to say:
“We further invite the House to consider whether, if ministers are to have the power to designate by description, the Bill should include additional safeguards”,
and then a description is given.
There is nothing more to say about this. We can go round the houses but the issue is there, stark and simple. I beg to move.
Lord McNally
My Lords, I am pleased to see the Chief Whip in his place because we are getting to a point now where it is quite unfair for the Minister—and a whole succession of Ministers, I suspect, over the next few months—to come to this House, and to Parliament in general, to sell the unsellable. The Chief Whip should report back to the Cabinet that it has to come up with a better idea for handling this legislation. My noble friend Lady Northover said that surely with the noble and learned Lord, Lord Judge, in the Committee, he will come up with some brilliant overarching principle—such is the confidence we have in our former Lords Chief Justice.
I was on the Cunningham committee when it was the Labour Government who were getting impatient with the way that this House and Parliament in general could slow down the progress of a great and reforming Government. It was clear then that the principle that the House of Lords has the right to say no is very important—it may well be tested in the months ahead. But we have also acknowledged that ours is mainly a revising and advisory House, so we have to get the right machinery to handle that. What the noble and learned Lord, Lord Judge, said, from his experience, has to be taken into account.
The present way of doing this just will not work. We have to look at some of the suggestions made by the Cunningham committee for progressing legislation. One was a Joint Committee of both Houses—as with the Congress and the Senate—to resolve difficulties. Another was to allow amendments to certain pieces of secondary legislation. There are ideas around and there are fertile minds that could address this. But if we are going to continue to have Bills with massive amounts of secondary legislation, with massive discretionary powers given to Ministers, and Henry VIII clauses scattered through them, we will have a constitutional car crash. It is the responsibility of the Chief Whip to go and tell No. 10 that that is the truth.
Lord Falconer of Thoroton (Lab)
My Lords, I apologise for intervening in the debate at this late stage. I support what the noble and learned Lord, Lord Judge, has said. Reading the Bill, it would appear, despite what the Minister has said, that it would allow regulations to be passed which would allow a Minister to designate any group of people that the Minister considered, by designating them, would further a foreign policy objective of the United Kingdom. For example, if a Minister thought it would further the foreign policy of the United Kingdom to treat everybody from one particular country as a designated person, the Bill would give that Minister the power to do that.
I am absolutely sure that that is not what the Government intend by this, because I have heard the Minister say this evening that the purpose of the Bill is only to allow the Government—the Executive—to join in with sanctions that are imposed by another international organisation, such as the United Nations. It is not intended to give the wide powers that I have just identified. Can the Minister confirm that I am right that it is not intended to give such wide powers? Assuming that I am right, I sound a very loud clarion warning that whatever Ministers say, in either the Commons or the Lords, ultimately the Executive always reaches for the Act of Parliament and sees what the Act of Parliament allows. While I completely respect the good intentions of this Minister—indeed, of the Executive—in relation to this, the only answer, constitutionally, is to limit the powers to precisely what the Government intend. Anything wider, in the months and years to come, could be used by another Government when it was never intended for that to be the case.
Lord Lennie
My Lords, we are having a bit of a Groundhog Day. Following on from the noble and learned Lords, Lord Judge and Lord Falconer, where did this idea come from? Where has this authority been dreamed up? It clearly risks overzealous action or a meaningless designation. If it is seen to designate the citizens of an entire nation, it is entirely meaningless. That is a real fear and possibility.
If a person is to be designated, they should be designated by name. I think that is common cause. There may be an occasional circumstance when it is simply not possible to identify or get hold of their name through all kinds of investigative methods, but it would be a rarity-it will not be the generality of the application of this law. The difficulty with enforcement for the banks—the noble and learned Lord, Lord Judge, mentioned this—is real and serious and has been referred to before. The Government should identify the source and purpose of this and then rewrite the Bill in line with what is intended rather than what the unintended consequence would be.
Lord Ahmad of Wimbledon
My Lords, I thank the noble and learned Lord for moving his amendment. I know that he has spoken before about the powers that are being given to Ministers in this respect. The amendment seeks to remove the ability of the Government to make designations by description which cover groups of people. It would mean that we could designate individual persons only when we knew their names.
Picking up a point made by the noble and learned Lord, Lord Falconer—I hear what he said—I assure the Committee that we will always seek to designate by name wherever possible. We anticipate that the power to designate by description will be rarely used, for reasons that I will set out shortly. But, as I hope to explain to the Committee, it remains a useful tool for the imposition of sanctions. The noble Lord, Lord Lennie, commented just now that some exceptions might apply. That is exactly the kind of exception for which we want to ensure these powers will allow us to apply sanctions.
It is important that this proposal is seen in its proper context. Sectoral sanctions—those aimed at groups or sectors rather than individuals—remain a vital foreign policy and national security tool. The ability to designate by description also enables us to refer to lists of designated persons produced by others, such as the United Nations. To have a single list to look at will reduce the administrative burden upon business. It will also enable us to target particular entities within a given sector: for example, state-owned banks operating in a particular market. Finally, it will enable us to target groups of persons, such as members of a terrorist group—for example, the Hezbollah military wing.
In some cases—they may be few but there will be exceptions—we will not be able to identify all members of a group by name. But it remains important that those members are subjected to sanctions, to prevent them using their funds and assets to commit terrorist crimes. We are also cognisant of the difficulties that this might cause to banks; the noble and learned Lord, Lord Judge, raised this issue. We accept that a designation by description will be harder for them to implement, but I hope that I can offer a few reasons why this power should be retained despite the difficulties that have been highlighted.
First, as I have said, we will always seek to designate by name where we can and this power will be used very rarely. Secondly, when we use this power we will provide as much information as possible to assist institutions, such as banks and other businesses, to carry out their obligations under the sanctions. Thirdly, it may sometimes be necessary to impose these types of sanctions to cover groups of persons where, as I have said, not all the names of members are not known. Fourthly, banks and businesses carry out their own customer assessments and are well placed to carry out their obligations under sanctions. They also have their own compliance procedures, which enable them to identify persons subject to sanctions and can be used to assist them to identify members of a group. For example, if we designate a group of persons acting in a geographical area, the compliance systems can then be used to pick up economic activity in that area and trigger a deeper investigation into the relevant account holders.
If this amendment were to be accepted, we would be unable to impose these kinds of measures in the cases that I have illustrated. This provision needs to remain to ensure that sanctions can be used as an effective tool for not just foreign policy but, importantly, national security. Noble Lords have alluded to the difficulties, which I fully acknowledge, but I hope that I have offered some degree of reassurance in the context of how they might be overcome.
The noble and learned Lord, Lord Judge, also mentioned the phrase “connected to” and designation by description in primary legislation. The issue remains that the connections and descriptions can be context-specific. For example, what is applied under counterterrorism sanctions may not be applied under Russian sanctions, hence the proposal to include these definitions as regulations. That said, he also referred again to the reports by the two committees. As I alluded to earlier, we are reflecting on the specific points that they have raised, including the one that the noble and learned Lord raised in the context of this debate. I will return to those points and reflect—
Lord Patten (Con)
I apologise for not having entered into the debate at an earlier stage but I have been reflecting on what the noble and learned Lord, Lord Falconer, said about the importance of legislation being specific. I also reflect on the fact that, working in the financial services as I do, I often see names but we are never quite sure who is behind the names. It may therefore be necessary to have a secondary back-up power to address the groups of unspecified people who one thinks are behind those whose names are specified. Much in the spirit of the noble and learned Lord, I suggest to my noble friend that he may wish to reflect on whether there is some way of specifying in the Bill that these are reserved powers, to be used under particular circumstances. That might well reassure those who feel that they are too overarching.
Lord Ahmad of Wimbledon
I thank my noble friend for his intervention. He speaks from experience and, as someone who spent 20 years in the financial services sector, I am acutely aware of the challenges presented by the issue of designations. I will of course take his suggestion and reflect upon it. To address particularly the point raised by the noble and learned Lord, Lord Falconer, this would be the exception. It would not be the norm but would be to cover situations that do occur and have occurred. I have sought in my response to illustrate the circumstances in which that would occur and, based on that, I hope that at this time the noble and learned Lord will be minded to withdraw his amendment.
Lord Thomas of Gresford
Can the Minister explain what the point is of having sanctions if you do not know who they are against? I am looking again at the memorandum to which I referred earlier, which says in paragraph 44:
“Designated persons attract individual sanctions, including asset freezes. Designations are an effective way of coercing or constraining individuals who are directly involved or closely associated with the activity or behaviour targeted by the sanctions. The Government would intend to publish the names of designated persons on a list on its website, and would also notify those persons, where possible, in accordance with clause 1. There are currently around 2000 designated persons under existing sanctions regimes implemented by the UK”.
If that is the purpose of it—to coerce or constrain individuals when you do not know who they are—how can these sanctions be effective in any way?
Lord Ahmad of Wimbledon
I suggest to the noble Lord that if there is a person who is not named but is connected to a group on which that sanction is being observed, that would stop them carrying out particular actions. It would ensure that that sanction was effective.
Lord Judge
My Lords, it really is not beyond the wit of parliamentary draftsmen to produce primary legislation that says, “Designated by name unless it is impracticable to do so” or “Save exceptionally”. That is not difficult, neither is it difficult for parliamentary counsel to produce for us a Bill which says, “Designated by identifying a group or body”. It is not a problem. I make a fuss about this because we are coming to Clause 16, which will enable a Minister to create offences punishable with 10 years’ imprisonment and define the defences. It will be open to the Minister to say in the regulations: “This is an absolute offence. You, the bank, have dealt with somebody for whom we gave a description. It did not quite fit but you dealt with him”. If we have an absolute offence created, I do not suppose that the bank will go to prison for 10 years. But the whole of this legislation goes together; the Bill needs to be seen in its overall context. I do not think that I should pursue it any further at this stage and I beg leave to withdraw the amendment.
Lord Lennie
Lord Lennie
My Lords, I shall also speak to Amendment 26. Amendment 25 would replace “may” with “must”, which would make it consistent with other places in the Bill. Amendment 26 is the real substance and raises a new requirement to notify a designated person once relevant sanction regulations have been made. If a sanction is made, thereafter the individual will have to be notified that it has been made against them. They must also be given a reason for the sanction having been made, under procedural fairness. The legislation contains rights of appeal and review, but how can you appeal or review something you do not know about, or do so if you do not know the reasons for it? That seems a justification for this amendment. What actions are necessary to address the concerns which have led to their designation? On that basis, we invite the Minister to consider whether this is an appropriate amendment to be accepted into the Bill.
Baroness Northover
I shall speak to one amendment in this group, Amendment 61. I support the noble Lords, Lord Collins and Lord Lennie, on the various protections they have outlined in their other amendments. Amendment 61 is extremely simple. It puts forward the proposition that a Minister should provide reasons for complying or refusing to comply with a request for removal from the EU sanctions list. This is very straightforward, not very much to ask and a very reasonable proposition.
Lord Judge
I shall speak to Amendment 60, which is in this group. It is simply a question of elementary procedural fairness. It is really no more than that and no less than that. It may not be wise to tell an individual before he is designated that he is going to be designated because, obviously, if that were to happen the designation would come too late and the assets would be hidden or dissipated, but procedural fairness is a basic principle of the common law. If you are arrested, you must be informed of the reasons for your arrest. If you are made subject to sanctions of the kind envisaged in this Bill, they affect your livelihood and your ability to support your family and to live an ordinary life so that you are, in the words of my noble and learned friend Lord Hope at Second Reading, in effect a prisoner in your own home. If you are in any way going to be subjected to the coercive powers of the state, you should be told why those coercive powers are being exercised against you and they should be justified. This Bill is bung full of massive coercive powers. In these circumstances, the amendment that my noble friend Lord Pannick and I propose is absolutely self-evident, but without it, or without some concession to this group of amendments, we will end up with having done some insidious damage to an essential constitutional principle, and we should not be doing it. I highlight paragraph 29 of the Constitution Committee’s report, but I do not suppose noble Lords want me to read it.
Lord Falconer of Thoroton
What does my noble and learned friend envisage the position to be where the main sort of sanction used is where one is trying to implement sanctions, for example, agreed to in the United Nations? What then does the British Minister do in relation to evidence in relation to why the person is being covered?
Lord Judge
Your name goes on the sanctions list before you are told, so as to avoid the dissipation of your assets, but afterwards you are told that you are now designated, these are the consequences, this is why it is happening, this is what you must not do, this is what you must do and—what is more—you had better know that it is X who has given us this information or that we think you are Igor Judge, but actually there is another Igor Judge who lives in, shall we say, Russia and it is him we are after. That way, you can very rapidly get your review looked at and justice done to you.
Lord Ahmad of Wimbledon
My Lords, I agree with the underlying principle of these amendments, which aim to ensure that designated persons are told the reasons why they have been designated and given sight of the evidence on which this designation is based as soon as is practically possible. I reassure noble Lords that I do not believe that these amendments are necessary. As is the case currently, the Government fully intend to inform all designated parties after their designation either directly in writing or, if we do not have an address for them, through the government website. This notification will set out clearly why they have been designated and the clear and transparent channels through which they can challenge their designation via a request for a reassessment of their designation or a legal challenge in the courts. While we intend to inform designated persons of the reason for their designation, as we have heard from the noble and learned Lord, Amendment 60 rightly highlights that some evidence may not be suitable for disclosure for national security reasons. In these cases, we would provide a summary of the information.
In short, this amendment would simply codify standards to which the Government are already committed and would in any case be expected to meet by the courts. The courts have already made several findings on the need for disclosure of reasons and evidence in cases of designations, which we think would continue to apply, and the Bill makes no effort to disturb these standards.
However, I have listened very carefully to this short but important debate and in the light of the powerful points put forward and the Constitution Committee’s comments, which the noble and learned Lord did not read out, I will consider further and come back to the House.
Lord Lennie
In the light of those helpful comments, I beg leave to withdraw the amendment.
Lord Judge
Lord Judge
My Lords, this is just about the use of a word—it always is. It is a word that the Minister was kind enough to say he would be using and expected to be used if ever these powers were used. The word is “proportionate”. The decisions should include an element of proportionality as a feature, so why do we not just have it straight in the Bill so that it becomes part of the statute of the realm? I draw attention to paragraph 14 of the report from the Constitution Committee.
Lord Collins of Highbury
Maybe I should read out the Constitution Committee’s report, as it might be helpful for the record. We have to acknowledge, like the noble and learned Lord, Lord Judge, that at Second Reading the Minister said that where human rights were affected, a Minister would always need to comply with the European Convention on Human Rights and Strasbourg case law, which will include an assessment of proportionality. The Constitution Committee said it was grateful for those words, but it is such an important limitation on ministerial powers that it should be expressly stated in the Bill. I know the Minister will say, “I am considering the report of the Constitution Committee and the Delegated Powers Committee”, but I hope that by the time he and his colleagues have read those reports, they will be able to come back and agree to the insertion of this very long but important word.
Baroness Northover
From these Benches, I concur. I look forward to hearing what the Minister is planning to do in light of the reports from the Constitution Committee and the Delegated Powers Committee.
Lord Ahmad of Wimbledon
My Lords, I agree with the spirit behind the amendments. Targeted sanctions inevitably involve significant impacts on the people affected by them. That reflects the purpose of sanctions, which are about changing behaviour. I shall repeat, as was mentioned by the noble and learned Lord, Lord Judge, and the noble Lord, Lord Collins, what I said at Second Reading: I reassure noble Lords that where relevant rights under the European Convention on Human Rights are engaged, we consider that proportionality and the impact on the individual will be part of the decision-making. Under Section 6 of the Human Rights Act 1998, the appropriate Minister must act in compliance with those convention rights as informed by the Strasbourg case law. We consider that that includes satisfying themselves that the designation is proportionate.
In the response to our consultation published in August, we made clear that our approach to sanctions would be compatible with UK and international law and we would continue to ensure that the UK’s obligations under the European Convention on Human Rights, particularly Article 6(8) and Article 1 of Protocol 1, are upheld when imposing and maintaining human rights and maintaining designation. However, as a result of the Human Rights Act 1998, the requirement to act proportionately applies across a wide range of legislation regardless of whether it is stated explicitly in the legislation. It is also relevant that the Bill contains a range of protections to ensure that designations are used appropriately.
In cases where the UK has chosen to act in an area where the UN is not acting, the affirmative procedure will apply, ensuring that Parliament has a vote. This will provide an opportunity for Parliament also to consider whether the designation powers being taken by the Government are appropriate. Parliament will also have the opportunity to consider the exceptions and licensing arrangements that will apply to a regime, which can allow, for example, the release of frozen funds to meet basic expenses or travel to be authorised for humanitarian reasons. The Bill further provides for an annual review of each sanctions regime against the purpose that it was put in place to achieve, which will involve looking at the current global picture. The Bill also provides opportunities for reassessments and court challenges.
I state all that because it is important for the record. I hope I have been able to provide noble Lords with reassurance. Nevertheless, while this debate has been extremely short, it is a pertinent one based on a word. I will therefore consider with my officials what further reassurances we can give and, as the noble Lord, Lord Collins, said, reflect on the committee reports. For now, though, I am minded to ask the noble and learned Lord to withdraw his amendment.
Lord Judge
On the basis that the Minister is going to reflect, I beg leave to withdraw the amendment.
Baroness Northover
Baroness Northover
My Lords, this is part of the running theme of the Bill. Once again, we wish to know why Ministers need the wide powers that they appear to have through regulations. I do not need to repeat the arguments that were so well put earlier, but I flag the wide powers here once more. I beg to move.
Lord Ahmad of Wimbledon
My Lords, I shall speak to both amendments in this group, because although referring to different areas—UN lists and International Maritime Organization numbers—I believe that they have some similarities.
For sanctions to be effective, we believe that it is important that the Government act quickly and that the targets of sanctions are easily identifiable. This enables those who are affected by sanctions, including businesses, quickly to work out what they need to do to comply with whatever restrictive measures are put in place.
When a Minister is specifying a ship, they must be confident that they have identified the correct one. There are a variety of ways in which a ship can be identified—using the ship’s name, tonnage, or the country whose flag it flies. I am sure that noble Lords accept that all those details are important. However, they are also changeable. The most reliable way to identify a vessel is by referring to its International Maritime Organization number, which remains with the vessel throughout its lifetime. This is the method used by the UN to specify ships and one that the Government recommend.
The names of those who are on UN lists can be subject to regular changes. As an example, the UN list relating to North Korea has changed five times in the past year. The ability to refer to a UN list, without having to change regulations each time the UN list is amended, would not only be less bureaucratic but would result in less risk of mistakes. I hope that I have underlined the importance of referring to the UN and IMO lists when designating people and specifying ships and that, in the light of that, having provided that clarification, the noble Baroness will be minded to withdraw her amendment.
Baroness Northover
“( ) provide for the procedure to be followed for an application for an exception or licence.”
Baroness Northover
My Lords, I shall speak also to Amendments 42 and 50 in my name and that of my noble friend Lady Sheehan. I also support the amendments in the names of the noble Lords, Lord Collins and Lord Lennie.
We return here to exceptions. The Law Society of Scotland has pointed out to us that there is no provision for regulations to provide for the application procedure for an exception or licence, so that is contained in Amendment 39. We feel that it is useful to have provision for exceptions and licences, and therefore that we need to provide for an application procedure for them. Amendment 42 seeks to make the policy on exceptions clearer, so that they can be granted for humanitarian, development, reconstruction and peacebuilding agencies, as my noble friend Lady Sheehan outlined earlier. Again, we think that it is useful to have those exceptions and, as we discussed earlier, sanctions are having an impact on NGOs. I welcome the proposal by the Minister to meet the NGOs and hope that, therefore, we can take this group of amendments forward in those discussions as well.
Amendment 50 would insert a new subsection in relation to what the Crown Prosecution Service might publish by way of guidance, so that it is clearer where sanctions might have been breached and where somebody might be prosecuted. One thing that we have been hearing is that one uncertainty for NGOs, banks and other suppliers is the lack of clarity on when NGOs or companies will be prosecuted for sanctions breaches. This amendment seeks to clarify that, to assist in that area, too—and, again, I hope that that is something that we can address when the Minister meets the NGOs. I beg to move.
The Earl of Dundee (Con)
My Lords, I support Amendment 42, proposed by the noble Baronesses, Lady Northover and Lady Sheehan, as I do the other proposed amendments in this grouping, including those from the noble Lords, Lord Lennie and Lord Collins of Highbury.
Following what the noble Baroness has just said, I should like to connect four points: first, the case for the Government to provide a licensing system for humanitarian activity; secondly, the desirability that the Government should report back regularly on the humanitarian effects of sanctions; thirdly, the urgent necessity of interim measures to assist NGOs to deal with banking restrictions; and fourthly, the need to implement the recommendations of the current United Nations/Swiss report on international co-operation.
On the case for a licensing regime, as we know, banks are considerably held back by government prohibitions. As a result, the flow of funds for important work is often blocked—for example, in Syria. To redress that anomaly, can my noble friend the Minister say what steps the Government will take to provide a licensing system for essential civilian and humanitarian activity?
Then there are lessons to be learned from Iraq and Somalia, where, as an unintended consequence, broad-based sanctions have impacted adversely on the civilian population, demonstrating the need for frequent scrutiny and review. Therefore, what plans do the Government have to report to Parliament at regular intervals on the effect of sanctions—in particular, where humanitarian work has been impeded?
On interim measures, which ones does my noble friend favour to enable safe, transparent, dependable banking and payment channels? As soon as possible, how will the Government advance a regime of exceptions, to prevent the current blocking of humanitarian work? Such interim measures should reduce restrictions on NGOs functioning in sanctioned countries and surrounding territories.
Just now, fundraising and vital aid are being held up by lack of banking facilities. NGOs active in the Levant, even those registered with the Charity Commissioners, find it difficult to open a bank account in the United Kingdom, and in some instances find it not possible at all. A case in point is Sawa, the first Lebanese NGO to help Syrian refugees when they arrived in the Beqaa valley in 2011. For its achievements in Lebanon and elsewhere, this NGO is much respected; it is the winner of the Global Pluralism Award 2017. However, Sawa is still unable to open a bank account in the UK. Consequently, it cannot receive funds which are urgently required, as well as ready and waiting, in the United Kingdom.
On international co-operation, UK Finance has written a parliamentary briefing paper calling for a new international approach towards humanitarian licensing. Correctly, it asserts that relevant changes in the UK will take proper effect only if also supported and structured elsewhere. A report commissioned by the United Nations along with the Swiss Government advocates setting up viable, transparent safe banking and payment corridors. Not least, that expedient would improve the flow of permissible funds into Syria. I know my noble friend would wish the UK to take a lead in assisting this process. Therefore, what plans do the Government have for backing up the recommendations of the UN and the Swiss authorities’ report so that these proposals can then be taken forward?
Lord Collins of Highbury
My Lords, I support all the amendments in this group and address particularly Amendments 40, 41 and 51 and the requirement for a fast-track process. Like the noble Baroness, Lady Northover, I welcome the Minister’s commitment to meet the NGOs before the next stage of the Bill. It is important to understand that their anxiety is not due to the Minister’s lack of commitment, his intentions or the policy of the Office of Financial Sanctions Implementation, which has a stated policy of processing licence applications for humanitarian purposes as quickly as possible. However, the NGOs and all the amendments in this group seek to create more certainty because, as the noble Earl mentioned, delays occur and when sanctions are biting hard we are unable to get assistance where it is needed. Humanitarian crises can emerge extremely suddenly and we are most concerned about how the new regime will deal with them. As the noble Earl said, there are plenty of examples of the costs of slow-moving sanctions policy—for example, in Somalia in 2011, where uncertainty about the sanctions regime slowed down the NGOs’ response to the famine in that country. I certainly support the proposal of the noble Baroness, Lady Northover, for a general licensing exemption. I hope the Minister will come back with some very concrete reassurances after meeting the NGOs, so that there will not simply be his kind words but a declaration in the Bill to ensure that uncertainty is removed.
Lord Ahmad of Wimbledon
My Lords, Amendment 39 seeks to enable the procedure by which individuals or entities could apply for licences and exceptions to be included in the regulations. Amendment 40 would require the Government to establish a fast-track process for dealing with requests in respect of exceptions and licences for humanitarian purposes, as the noble Lord, Lord Collins, just highlighted.
I would like to make it clear that the consultation on the White Paper raised the need for clear guidance and swift and robust licensing processes. I assure my noble friend Lord Dundee that the Government are committed to a positive reply on both issues. I hope the Committee will be reassured that, given the number of departments involved and the many different derogations, exemptions and grounds for licensing that exist, the relevant application procedures in each sanctions regulation are all contained in guidance. This guidance is publicly accessible to all via various departmental websites. To reproduce them in the regulations themselves would certainly create a substantial administrative burden and greatly lengthen the instruments, so we do not think it is necessary to do that.
On Amendment 40, the variety and complexity of exemptions and licensing arrangements in place means it could also be difficult to establish a single fast-track process that would be straightforward to operate. The Government believe that the criteria for considering the prioritisation for granting licences and exemptions should remain as flexible as possible. We have already committed to dealing with licences as swiftly as possible and we will of course prioritise urgent requests. The fact that a licence is required for humanitarian reasons is something that we already factor into, and will continue to factor into, the time we take to respond to the request. However, I am sure that noble Lords will also acknowledge that humanitarian licences are not the only ones that might require an urgent response. For example, a legal fees licence might be needed to enable an imminent court deadline to be met. To have a fast-track procedure confined to humanitarian licences alone might put these at additional risk by giving priority to a humanitarian needs licence that is not urgent over another request that is. For all these reasons, we do not consider that new requirements need to be added to the sanctions regulations.
I appreciate the sentiment behind Amendment 41, which proposes that a consultation be undertaken for an overarching framework for exceptions and licences. The White Paper consultation on exceptions and licences highlighted the need for good systems and clear guidance when applying exceptions and licensing. We have taken on board the comments of all respondents and replied to them and, as we said in our reply, we intend to design the post-Brexit licensing framework based on these representations. We also intend to consult industry from now until the day we leave the European Union and thereafter, to ensure that the framework allows us to be flexible and has the minimum possible effect on industry while having the maximum effect on the intended targets.
It is also true that an overarching framework for licences might not allow us to take advantage of the flexibility that we currently have for each regime. For example, the licensing grounds for a proliferation regime should be different from those of a misappropriation regime. Different types of sanctions also require different approaches. We currently have centres of expertise on the different types of sanctions, and any move to an overarching framework might put these at risk.
Finally, the Committee will be aware that the moment of leaving the EU is approaching. In that time, after the Bill is enacted, we will need to design the replacement UK regimes. To undertake a consultation exercise on top of that will make it harder to prepare in time. Given that the purpose of this amendment is to ensure good licensing and clear guidance, I hope I have been able to reassure the Committee that we are committed to both.
On the humanitarian exceptions, I have great sympathy with the intention behind Amendment 42; humanitarian, development, reconstruction and peacebuilding agencies need to continue the important work they conduct, often in very difficult circumstances, without fear of unintentionally falling in breach of sanctions. The Government should have the necessary discretion to enable this. The intended effect of this amendment is to make it explicit in the Bill that the types of exceptions that can be granted include,
“humanitarian, development, reconstruction and peace-building agencies”.
However, the addition is unnecessary, as Clause 14(2) as currently drafted allows the Government to create exceptions and issue licenses for activities that are not explicitly listed in Clause 14(2). It is the Government’s intention to use this drafting to create exceptions for a wide range of activities. Humanitarian activities are currently included under existing exceptions and licensing provisions in the sanctions regimes in place, and I assure noble Lords that we intend to continue to include them. Clause 14(6) is an additional clarification of purposes for which exceptions can be created, not an exclusive list. For this reason, accepting the amendment would have no effect on the powers, as they are already contained there and therefore unnecessary.
Clause 14(2)(b) also gives a power to issue general licences. This goes further than the position we currently have under EU law, giving the Government the ability to put in place licensing arrangements for humanitarian purposes, which would enable multiple parties to undertake specified activity without the need for a specific tailored licence. Given that this provision is unnecessary as we already have this power, I hope noble Lords will not press the amendment.
I entirely agree with the intent—although the drafting may need to be looked at—of Amendments 50 and 51, which we understand require the Government to provide guidance about enforcement procedures for sanctions breaches. The need for clear and accessible guidance was highlighted throughout the Government’s consultation on the White Paper. In our response, we said:
“We recognise the call for clear and consistent guidance. Accordingly, the bill would provide for the government to issue guidance on the content and implementation of sanctions. The government is committed to ensuring that this guidance would be of a high standard”.
I am happy to say that the Government have delivered on that promise and have included a provision in the Bill—Clause 36—requiring Ministers to issue guidance about any prohibitions and requirements imposed by sanctions regulations. There will be a mandatory requirement to provide comprehensive guidance for all those affected by sanctions implementation. One strand of the guidance requirement set out in Bill—in Clause 36(2)(b)—explicitly specifies that the guidance may cover,
“the enforcement of the prohibitions and requirements”.
In line with this, we intend to continue to publish guidance on sanctions enforcement.
Clause 36, which we will debate at a later stage, provides for a more comprehensive duty than that specified in the amendment. It has been drafted to allow guidance to be given to all persons in the UK and it enables consultation with sources of expertise as appropriate. For example, we do not expect that the CPS will need to feed into any guidance about how civil monetary penalties are issued in respect of breaches of financial sanctions.
My noble friend Lord Dundee asked specific questions about help for NGOs. I am not sure whether he was in your Lordships’ House when I discussed that matter with the noble Lord, Lord Collins, and the noble Baroness, Lady Northover. We will be meeting NGOs before the next stage of the Bill to discuss how we can better understand and address some of their concerns, but we will continue to issue clear guidance to them. I also assure my noble friend that we will provide speedy and efficient responses to requests for licences. As I have already indicated, under the Bill we can issue general licences, which offer more comfort to banks—which I believe my noble friend specifically mentioned—and give them a greater appetite to assist in these areas.
With that somewhat detailed explanation of where we currently stand on Clause 36, I hope the noble Baroness will be minded to withdraw her amendment.
Baroness Northover
My Lords, I thank everybody, especially the noble Earl, Lord Dundee, for contributing at this late stage of the evening. I welcome that. I agree with the noble Lord, Lord Collins, about the need for certainty in the Bill. I noted what the Minister said. It reflects the complexity of Brexit and the energy that it is taking up, even in this area, and I therefore look forward to the meeting with NGOs that he has promised. In the meantime, I beg leave to withdraw the amendment.
Baroness Northover
Baroness Northover
I shall speak also to Amendment 45 in my name and that of my noble friend Lady Sheehan. I also support Amendment 44 in the name of the noble Lord, Lord Collins.
Once again, we are concerned that regulations confer wide powers—in this case of entry and disclosure. Clearly, regulations should not authorise the disclosure of information that is subject to legal professional privilege, and the noble Lord, Lord Collins, will no doubt address that in a moment.
We are seeking the deletion of Clause 15(1)(d) and (e), which confer wide powers of entry and to authorise or restrict the disclosure of information. We want to give the Minister an opportunity to place protections around these areas, as we have in other instances. We are also concerned that under Clause 15(3)(b) an “appropriate authority” could be,
“such other person as may be prescribed”.
It is difficult to think of anything wider than that description. Therefore, once again, we flag enormous concern about wide powers—especially those put in regulations. I beg to move.
Lord Lennie
My Lords, I will speak to Amendment 44 in this group, which seeks to add the words printed in the Marshalled List to the end of Clause 15 to give protection to the relationship between client and lawyer. It may be thought that that goes without saying, but it does not seem to as far as this Bill is concerned. Legal professional privilege is key to the rule of law and the administration of justice. To omit it from this legislation would seem to be a mistake. It permits information to be communicated between a lawyer and a client without fear of it becoming known to a third party without the clear permission of the client, except in rare cases where LPP is used to protect communications from a client in a case of illegality.
Lord Ahmad of Wimbledon
My Lords, the provision for sharing information is vital to ensure that a sanctions regime works in practice. For example, the provision of information by the private sector is essential in monitoring the financial transactions of sanctioned persons. We need this information to ensure effective implementation and compliance with our obligations under the various sanctions regimes, and to ensure robust enforcement when the law is broken.
The information powers contained in the Bill will ensure that sanctions regimes continue to work effectively by requiring people to report relevant information and by authorising the sharing of information. It may be helpful for me to specify those powers. They provide the basis for the Government to monitor compliance with the regulations; to investigate and obtain evidence if they believe that the regulations have been contravened or circumvented; and to share information with third parties to enable co-operation on the development of sanctions and enforcement efforts.
There is already a duty in EU law on all persons in the UK to supply information to the relevant competent authorities. We currently make failure to comply with this duty an offence only in relation to “relevant institutions” in the regulated financial services sector and “relevant businesses or professions”. We could, if we chose, apply this duty more widely. Clause 15 has been drafted widely to enable the duty to be placed on, and the offence of not supplying information on financial sanctions breaches to apply to, all persons in the UK. The extension of this offence to cover everyone who obtains such information in the course of their business would equalise the scope of the offence with the scope of the related duty. This will give the Government the ability to compel production of information to aid the investigation of reported breaches and ensure there is effective redress for not complying with legal obligations. The regulations will safeguard how the information is used, stored and shared. This will be consistent with the Government’s data protection, commercial and banking confidentiality obligations.
These powers provide the basis for the Government to continue monitoring compliance with the regulations and to obtain evidence if they believe that the regulations have been contravened or circumvented. They will also enable the Government to share information with partners to aid their enforcement efforts.
The deletion of two key paragraphs as suggested in Amendment 43 would have a serious impact on the enforcement of UK sanctions. Let me illustrate how. First, powers of entry set out in paragraph (d) are essential for compliance inspectors to check that the terms of general licences have been upheld and that there has been no circumvention of sanctions. These powers are in line with those in the Export Control Order 2008, which were reviewed in 2014 and considered necessary for ensuring compliance with the terms of licences. Without them, authorities would be unable to check that exporters were complying with the terms and conditions of their licences if they were unco-operative.
Secondly, deleting paragraph (e) would completely remove our ability to authorise the sharing of information relating to designated persons. This is essential both for law enforcement purposes and for liaising with international bodies and our foreign partners on compliance and enforcement in individual sanctions cases. It would also have unwanted effects as we would be unable to communicate information to designated persons, them affected by sanctions and the wider UK. We maintain that the powers in paragraphs (d) and (e) ensure continuity with the existing legislation. Both will continue to be needed for sanctions when we leave the EU.
Amendment 44 seeks to ensure that legal professional privilege, or in Scotland the obligation of confidentiality, is upheld. I would like to say first and without any reservation that of course we do, and intend to continue to, respect legal professional privilege, a point made by the noble Lord. This is the position we currently take in all sanctions regulations and we intend to continue to do so. As the Bill does not explicitly authorise the Government to make regulations that remove this privilege, we do not think we would be able to do so if we so desired. Any such cavalier use of the power would surely be struck down by the courts. I hope that I have reassured noble Lords of the Government’s intentions towards legal professional privilege and that any departures from it can and undoubtedly will be the subject of a judicial decision.
Finally, I turn to Amendment 45. I think I understand the intent of this amendment. It is to ensure that persons who do not have ministerial accountability cannot request information from sanctioned persons or use that information. However, the amendment unnecessarily limits the Government’s ability to request information which is vital for ensuring that sanctions can be enforced and implemented in a robust manner. It will increase the workload of Ministers significantly and unnecessarily if they are required to approve every single information request relating to sanctions. It would also cause difficulty where the Minister is not the appropriate authority. For example, shipping and aircraft sanctions will be implemented by bodies outside Whitehall such as the Civil Aviation Authority, harbour authorities, and the Registrar General of Shipping and Seamen. Depriving them of the ability to seek and use information will make it harder to implement sanctions and will only assist those who avoid or breach them. This clause allows us to work with industry to ensure that sanctions are effective and that we have all the necessary information and evidence available.
The restriction on who can use the information requested would create difficulties in the use of powers to impose civil monetary penalties for breaches of financial sanctions given to HM Treasury in the Policing and Crime Act 2017. In that law, the relevant Minister is required to personally review penalty decisions imposed by the Treasury; the Minister’s view is independent of Treasury officials. The amendment would place the Minister in the investigatory and decision-making process, and then the review process. This would not be appropriate and would give rise to challenge on appeal on process grounds.
I understand the concerns that the Committee might have about these powers being more widely available, as the noble Baroness mentioned, but I hope I have reassured the Committee that we believe that they are necessary for the effective implementation of sanctions. Moreover, I hope the Committee will also be reassured by the fact that the appropriate Minister cannot make regulations delegating powers which are incompatible with the basic and fundamental rights of people in the UK. Indeed, as noble Lords will know, Section 6 of the Human Rights Act 1998 forbids it. I hope that, with this detailed explanation, the noble Baroness is reassured and will withdraw her amendment.
Baroness Northover
I thank the Minister and others. He will know that the deletion of clauses is, as is usual in this place, a challenge to the Minister to come up with something that is more consistent with amendable primary legislation. That is what we are seeking here, along with more specific detail. I have already made reference to the fact that it is difficult to see that the Human Rights Act is necessarily the protection the Minister thinks it might be, but in the meantime, I beg leave to withdraw the amendment.
Baroness Northover
Baroness Northover
I rise to move Amendment 47 and speak to the other relevant ones in the group.
We are seeking to delete sections that allow the creation of offences by regulation. I am sure that we will return to this as we go through the Bill. The Delegated Powers Committee notes the very wide powers and very high penalties that are capable of being set for criminal offences under the regulations. I know that other noble Lords will contribute and I look forward keenly to hearing what the noble and learned Lord, Lord Judge, has to say. We are enormously concerned about this provision. I beg to move.
The Deputy Chairman of Committees (Lord Haskel)
I have to inform the Committee that if this amendment is agreed, I cannot call Amendment 48 because of pre-emption.
Lord Judge
My Lords, I rise to address the whole issue of Clause 16 and Amendments 70 and 71, relating to paragraphs 15 and 18 of Schedule 2. Time is getting on. I have been very brief in my previous three efforts during the debate. I will not take much longer, but I have carefully measured what I will say.
These provisions are lamentable and should not disfigure our statute book. It used to be an invariable principle that criminal offences could be created only by statute. For example, we had a little history lesson earlier, going back to the reign of King Henry VIII, with his famous Henry VIII clauses. Even his subservient Parliament did not give him power to create criminal offences without a statute. The principle has been broken over the years. It is open to the Minister to say that this sort of legislation has happened before and precedents have been set; he may very well do so. Bad precedents should be overruled, not least in this House.
What is pernicious about this legislation? It is secondary legislation that will give power to a single Minister, by regulation, to create criminal offences for conduct that contravenes not statute, but laws made by secondary legislation. It is secondary legislation on secondary legislation, at the end of which, in Clause 16, there may be a 10-year sentence. The mind boggles. Has this been thought through? It does not stop there; that is only the start. The legislation will also simultaneously enable the same Minister who created the criminal offence to redefine the rules of evidence, as they apply to the offence he has created—talk about being judge in your own court—and the Minister creating the offence will be given power, by regulation, to provide for defences as he sees fit, if he sees fit.
That is an astonishing combination of powers. Put in this way, regulations will govern a newly created offence or offences and say, “This is an offence of strict liability. What if the bank that got it wrong when it decided that it would lend money to somebody, failing to appreciate that he was designated, didn’t know? Too bad. This is an absolute offence”. That could be included. They could also say, or a Minister could decide, that those sorts of offences are so precious to our allies and our foreign obligations—let us not overlook terrorism, which is in the Bill—that we had better say that the burden of proof should be on the defendant to prove that he was not a terrorist or breaking the sanctions. That is assuming that there will be a defence at all. Without going into every detail of the rules of evidence, the regulations may provide that all or any of the laws of evidence, which are designed to protect the defendant from an unsafe conviction, may be abrogated by ministerial decree. I assume, as I did at Second Reading, that we will be allowed a trial, but at the end of the trial, if there is conviction for an absolute offence, 10 years’ imprisonment is available.
I hope the Committee shares my view that this is shocking. It is not the way we should create criminal offences and administer criminal justice. It gives too much power to one individual. With great respect, I am not thinking of this Minister or the shadow Minister. We are legislating for 10 or 20 years. Do we want to give this power to anybody who may come to power? Do we want to give these kinds of powers to any Government that we may get? I reckon not. This is too much power in the hands of the Executive. If we let this through it will be a precedent for which Ministers for the next 50 years will sit on this side of the House and say, “But it’s happened before. It’s a precedent”. What sort of a country will we be?
Lord Norton of Louth (Con)
My Lords, I shall be brief. I endorse what the noble and learned Lord, Lord Judge, said. Like me, he is a member of the Constitution Committee, which has reported on this Bill and raised the concerns that he has just outlined. There are particular problems with Clause 16(3) and (4). This amendment would remove them, but by itself it would not be sufficient to address the concerns he has indicated.
The Constitution Committee has made the point before that it is unacceptable for offences to be created by regulation, as we conclude. On that point and the point the noble and learned Lord made about evidence, we consider that such regulation-making powers are constitutionally unacceptable and should not remain part of the Bill. It is important that we do not mess about with the particular provisions of the clause, rather that it is taken away and the Government come back with something that is constitutionally acceptable. As the noble and learned Lord mentioned, this is going on the statute book. It will be there for as long as Parliament allows it to remain and it would therefore be in the gift of future Ministers. That, as he indicated, is not acceptable.
Baroness Bowles of Berkhamsted (LD)
My Lords, I shall speak to the whole of this group of amendments. I gave notice of my intention to oppose Clause 16 standing part of the Bill. From the debate we have had it is quite clear that there is a little bit of an earthquake going on throughout the whole of the Bill. In a sense, its epicentre, as has been rightly explained by the noble and learned Lord, Lord Judge, comes to a climax with the criminal sanctions. Deleting the criminal sanctions parts would not provide a solution because they build on all the other wrongs, if I may call them that, that exist in the other clauses—throughout the sanctions part debated today and the powers contained in Schedule 2, which we will debate. We may eliminate those criminal sanctions, but we would still have an awful lot of other powers that will still do an awful lot of wrong. The fact that the criminal sanctions are laid on top of them is what makes it so egregious.
I move on to the transposition of the fourth money laundering directive and the issue of precedents. It has been said that there are precedents for creating criminal offences by statutory instrument and that in the past as well as now constitutional committees and delegated powers committees of this House have objected. In the earlier debate, the noble and learned Lord, Lord Judge, explained that those criminal offences might be buried among many other regulations. I have a good example here; it is a pretty thick one. It is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017—that is, the fourth money laundering directive. I think that there are 116 pages of dense type there, together with the schedules, and 109 other articles—sorry, we are not in Europe any more, or we will not be, or we may not be, or maybe we are. There are 109 other regulations contained within that. One of those is new—we have just dealt with it again recently—but in terms of the precedent, they derive from things that happened in the Proceeds of Crime Act. They reflect what has happened to the primary offence of money laundering, on to the secondary or derived offences where banks or other financial institutions have failed to have the right procedures in place. So there are kinds of precedents, even though I do not agree with the way that it has been done.
If we turn to what we have both in Clause 16 and Schedule 2, we see that there are no limitations at all. There are very open powers—they are even more open in Schedule 2 than in the sanctions part of the Bill. There may have been a failed attempt to create a framework for those criminal offences by referencing alongside them that the Minister will look to the matters of defences and evidence, but that has created other problems. As was again elaborated by the noble and learned Lord, Lord Judge, how can we tell that those will not be the right kinds of provisions? What do we know about the future?
The noble and learned Lord, Lord Falconer, said earlier that, ultimately, the only thing that matters is what is in the Act; it does not matter what the Minister’s intentions are, even if he says what they are—it is the words of the Act. We do use legislation for purposes that were not intended. In 2008, at the height of the financial crisis, the UK used anti-terrorism legislation to freeze £4 billion of assets of Landsbanki. It caused us a great loss of reputation in some circles, which is not to say I endorse what Landsbanki was up to. When the Anti-terrorism, Crime and Security Act 2001 was going through Parliament, I do not think anybody said, “We’re going to use this to freeze the assets of banks because they were a bit too laissez-faire in their financial regulation”. Something that was done for one purpose was used seven years later for another. Who is to say that there are not many other examples—I am sure if I dig I can find them—or that we may not get examples like that in the future? One cannot have new offences that are unpredictable as to how the rule of law, the defence and due process will operate. One has to have those safeguards, and this Bill does not do any of that.
I refer to what the Minister said in the debate on Clause 2 on whether one should wind up a company or disqualify directors. This was in the context of a company that would have been breaching sanctions and doing things such as arms trading. The Minister said that those amendments would not do because all the Bill aims to do is to replicate sanctions and the amendments went over and above that—the sanctions provisions that are already in existence, he meant—and we do not want to go further than other countries on sanctions and do what the UN and the EU are not doing. I can tell noble Lords that they do not do unlimited, undefined, potentially abolish-the-defence type of criminal sanctions. Actually, they do not have the powers to do that, but I doubt that they would do it anyway.
Another thing that the Minister said was that the sanctions need to be reversible. I fear that there is nothing very reversible about 10 years in prison. There is something seriously wrong here: it needs a lot more structure around it if they are even going to make the case that we can have sanctions, for instance, if they are going to follow, or punishment for sanctions, if they are new ones. The circumstances that give rise to requiring sanctions might be unpredictable, but the general nature of the sanctions that are imposed are not. You stop people trading or stop people having access to financial services: you can certainly put a framework around those. No effort whatever has been made, yet if you turn to something such as the fourth money laundering directive—and, indeed, the very regulations that have just been made to transpose it—all those safeguards are already there. There is absolutely no reason why they should not be replicated in the Bill.
Lord Thomas of Gresford
My Lords, I emphasise everything that has been said up to now about how unacceptable Clause 16 is. If someone is a designated person, sanctions are imposed upon him and he wilfully and deliberately breaks those sanctions, there is perhaps room for criminal offences which can be defined and can carry sentences of up to 10 years’ imprisonment. However, these regulations are concerned not with that so much as with trying to create a system of regulation of banks and providers of financial services to encourage them to report and to follow what is required in order to prevent money laundering or the busting of sanctions. These are banks and institutions which are not acting wilfully and deliberately and so are not criminal in that sense.
It might be proportionate in those cases—this is what has happened with other regulations—to have a small criminal sanction for a breach of the particular regulation which requires that you report on a client. That is one thing, but here there seems to be a confusion; the two types of criminality are put together. The serious criminality of breaching the sanctions is looked at in the same way as a failure to report what a client may be doing which could amount to a breach of sanctions. It is wrong that that should be subject to serious criminal sanctions of the nature described in the Bill.
What really offends me about it, however, is that the Minister has power to stipulate where the burden of proof should lie: for example, whether hearsay evidence could be introduced or whether a particular defence can or cannot be run—“It shall not be a defence to do” whatever it may say. That is the sort of thing you see in statutes from time to time. It is not Parliament deciding that; it is the Minister. He creates his criminal offence and then makes it almost impossible for a person to defend themselves.
It is one thing to face a charge where you know that the burden of proof is on the prosecution—and there are strict rules of evidence which apply across the board in criminal cases. It is something else if a Minister has power to create his own form of criminal law. That is really what this is all about. It is wholly unacceptable and must be defeated.
Lord Collins of Highbury
My Lords, I do not want to repeat the comments that have been made. The one thing that I would make clear to the Minister is that he has a wide range of opinion against him on this, not least the Law Society’s own briefing, which raised huge concerns about this clause. The Constitution Committee has been very clear. The Delegated Powers Committee has also raised concerns, even though it says that the Foreign & Commonwealth Office has made “a compelling case” in relation to this.
The noble Baroness, Lady Bowles, referred to the argument that it is impossible or too difficult to create a framework. The Delegated Powers Committee said that,
“the FCO’s reasons provide a compelling case for allowing the creation of criminal offences in sanctions regulations … Trying to set out the offences in primary legislation would risk producing offences and penalties that are defective or disproportionate or both”.
We have heard in the debate that it cannot be beyond the powers of the Minister to come up with a much better answer to this difficulty than the one currently being offered by his department. Even though the Delegated Powers Committee says that there is a compelling case, it thinks that parliamentary scrutiny should be enhanced if these powers are conceded. So I hope that the Minister will give deep thought to this and come back at some stage with a much better and more acceptable option.
Lord Ahmad of Wimbledon
My Lords, obviously I have noted the opinions that have been expressed, as the noble Lord, Lord Collins, said. I see that your Lordships’ Committee is concerned about the new criminal offences. To be clear: these types of offences already exist. People who breach financial, trade, immigration and transport-related sanctions can be convicted for those breaches in the criminal courts. We will continue to legislate on this basis so that breaches of sanctions can continue to be an offence.
We have set safeguards. We have set a cap of 10 years on maximum sentences for breaches of trade sanctions, which is consistent with the Export Control Act; for breaches of financial sanctions the cap is set at seven years, which is consistent with recent changes introduced by the Policing and Crime Act 2017. Coming back to the point made by the noble Lord, Lord Thomas, about differentiation between the types of offence, we have lower sentences in respect of information provisions and money laundering regulations.
I hear what noble Lords have said. The purpose behind the sanctions is to replicate the existing legal frameworks for enforcement across the various forms of UK sanctions that will be created by the Bill. For all types of sanctions, Clause 16 includes provision for creating offences and dealing with offences, including defences and the treatment of evidence. It also provides for powers and duties to be vested in persons who assist in the enforcement of any prohibitions. For example, for trade sanctions, Clause 16 enables regulations to apply any provision of the Customs and Excise Management Act 1979, which provides a full suite of powers for the enforcement of these measures. The clause also enables civil monetary penalties, introduced in the 2017 Act, to continue to be issued for breaches of financial sanctions. It does not extend these to other types of sanctions. It also enables regulations made under the Bill to replicate the current position on maximum terms of imprisonment. I have already referred to that. It contains further powers for deferred prosecution agreements and serious crime prevention orders for all measures in the Bill.
Clause 16 also makes a provision that would enable the UK to extend the existing offence of failing to supply information on financial sanctions breaches. As noble Lords know, there is an existing duty on everyone to supply such information, which will be transposed by the Bill. However, the associated criminal offence for not doing so applies only to relevant institutions in the regulated financial services sector and relevant businesses or professions. The Bill enables the UK to equalise the scope of that duty and offence, as I said earlier, by making it a general offence applicable to everyone.
I assure the Committee that I am listening carefully to the representations being made, in particular those made by the noble and learned Lord, Lord Judge. However, we believe that the sanctions enforcement provisions, including criminal and civil penalties, remain proportionate to the scale and nature of sanctions breaches and that they will continue to act as a deterrent. That is the ultimate objective. Although I am sure I will not get a ringing endorsement for—or agreement with—everything I have said, I hope I have outlined where the Government are coming from in drafting Clause 16. Based on my explanation, I hope the noble and learned Lord will be minded to withdraw his amendment.
Baroness Northover
The Minister will have heard the voices, including those from behind him on his own Benches. The noble and learned Lord, Lord Judge, was right to get up because I knew my best bet was to introduce the amendment briefly and pass it across to him. The Minister will have heard him, too. Something tells me that we will return to this on Report and that various things will happen in between but, in the meantime, I beg leave to withdraw the amendment.
Sanctions and Anti-Money Laundering Bill [HL]
Wednesday 29th November 2017
(6 years, 11 months ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 69-II(b) Amendments for Committee, supplementary to the second marshalled list (PDF, 59KB) - (29 Nov 2017)
Lord Lennie
“(4) For the purposes of subsection (2)(b), a body incorporated or constituted under the law of any part of the United Kingdom includes a body incorporated or constituted under the law of the following— (a) any of the Channel Islands;(b) the Isle of Man;(c) any of the British overseas territories.”
Lord Lennie (Lab)
My Lords, this is a probing amendment concerning the territorial application of sanctions regulations. The amendment will make it automatic that the sanctions imposed would apply to bodies incorporated or constituted in the Channel Islands, the Isle of Man or the British Overseas Territories. This is not because they are favourite places to hide away from tax regimes—although they are—but because they are dependent on the UK in terms of foreign and defence policy matters. For sanctions to have an effect, they have to have an international dimension. Currently determined by the UN or the EU, they require co-operation and co-ordination between and across nations. It is surely a matter of good policy to seek to put our own house in order first—which this amendment would help to do.
The Bill currently proposes that its sanction provisions “may” be applied to the Channel Islands, the Isle of Man or the British Overseas Territories by use of an Order in Council, which I understand is a Privy Council matter. I am not a member of the Privy Council and I do not know how it operates. I do not understand in detail how it works, and I am not sure whether such orders are always granted, whether there is ever a debate about them, whether they can be challenged or whether there is delay built into the process. This amendment would make it clear that, as far as sanctions are concerned, the UK will have a consistent application of the law. We would welcome the Government’s views on that.
Baroness Northover (LD)
My Lords, I support the amendment. It is useful to have more precise definitions within the Bill, and it seems that the amendment seeks to tighten up the subsections which relate to the Channel Islands, the Isle of Man and the British Overseas Territories, so that instead of a Minister being able by an Order in Council to add these areas, they are included in primary legislation. It makes sense to clarify that now and in primary legislation in this way to ensure that those whom the UK wishes to sanction cannot evade that sanction by association with these areas. If the UK is to leave the EU, it makes sense to tighten in this way.
The Minister will know that there is a meeting today of the Joint Ministerial Council at the Foreign Office with the overseas territories. Perhaps he could assure us that they would be content to be clearly within the same sanctions regime. I know that they will be less keen on aligning themselves with the UK on anti-money laundering measures; we will of course come to that later.
I also flag to the Minister that, in addition, the Law Society emphasises that guidance should be given on the terms in Clause 17, as well as those in Sections 2, 10, 15 and 46. It points out that in Clause 17 it is unclear whether the UK sanctions regime would apply,
“where UK currency is used, where a non-UK subsidiary of a UK company is involved, or where a UK person on the board of a non-UK company is present when a decision is taken in breach of the UK sanctions regime”.
It suggests that Clause 17 should be renamed “UK nexus” as its current subject matter does not deal sufficiently with “Extra-territorial application”.
It seems that further clarity is required on such issues. Clearly, it would be useful if stakeholders were properly consulted to assess the impact of the scope of application of the UK sanctions regime, simply to identify any unintended consequences. Clearly, intended consequences are fine. So this is a complicated area, but I hope that the Minister will take on board this advice.
Lord Faulks (Con)
My Lords, I note the nature of the amendment and the final provisions in the Bill in Clause 51(3). I was at one stage a Minister with responsibility for the Crown dependencies, so I am acutely conscious of the particular constitutional relationship between the United Kingdom and the Crown dependencies. As I understand it, we do not normally legislate without their express consent. I wonder whether that is why the Bill is framed as it is. However, I look forward to hearing the Minister’s response on this.
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, I thank the noble Lord for tabling this amendment. The noble Baroness, Lady Northover, talked about the Joint Ministerial Council; as a Minister for the Overseas Territories, today has been one of those days when I find myself shuttling between the Joint Ministerial Council and your Lordships’ House. I can confirm to the noble Baroness that this issue—and other elements that relate to the departure of the UK from the European Union—is very much on the agenda of our discussions with the overseas territories. Indeed, as we speak, my honourable friend Minister Walker is hosting a session with them on the implications of the United Kingdom leaving the European Union. The noble Baroness raised issues on guidance and I will certainly take back the issue of where we can clarify certain elements.
I will pick up on a couple of points so I can clear them at the start. In his intervention, my noble friend Lord Faulks—
Lord Collins of Highbury (Lab)
As a matter of information, it is our amendment.
Lord Ahmad of Wimbledon
I am fully cognisant of that. I meant no discourtesy to noble Lords on the Opposition Front Bench; I thought it appropriate to give the context of what I was going to say. The clarification that my noble friend provided from the outset is exactly why the particular clauses have been framed as such.
I will now take up what the noble Lord, Lord Collins, has just pointed out. The amendment is in the names of the noble Lords on the Opposition Front Bench. I thank them, as I did at the start. I believe that I came to the noble Lord, Lord Lennie, first—we will have to check Hansard on that—to thank him for tabling the amendment.
Clause 17 sets out which persons can be bound by sanctions regulations, in the UK and elsewhere. It also confirms that prohibitions or requirements can be imposed on any conduct in the UK, including UK territorial waters, or on any UK person anywhere in the world. This clause is consistent with the way the UK currently implements sanctions as part of the European Union. If noble Lords are interested, further detail is provided in the White Paper we published in April.
Clause 17 also allows for Her Majesty, by an Order in Council, to extend the effect of sanctions to bodies incorporated or constituted under the law of any of the Channel Islands, the Isle of Man and any of the British Overseas Territories. This amendment would remove the ability of Her Majesty to make an Order in Council in respect of corporate bodies registered in the overseas territories and Crown dependencies. Instead, it would require that, when UK Ministers legislate to create sanctions in regulations, these bodies would automatically be caught.
When introducing this particular amendment, the noble Lord referred to the overseas territories in a very generic way. I have had the good fortune of visiting one or two of them—somewhat tragically in the aftermath of the hurricanes that hit—and generalising all our overseas territories in a particular way is not something I would subscribe to. They provide some incredible potential. For example, I am not sure how many Ministers partake of lobster, but apparently Tristan da Cunha has the best lobster in the world. On a more practical note, we have done some incredible work with them on marine protection and building sustainable economies.
I make that point because it is important to recognise the role that our overseas territories play. However, I agree with the point the noble Lord raised that the overseas territories and Crown dependencies must follow the UK Government’s foreign policy, including the sanctions we apply, and that bodies incorporated or constituted in these jurisdictions must also be bound by sanctions. The Foreign Office—to confirm what I said at the start to the noble Baroness, Lady Northover—has discussed the Bill with the overseas territories and Crown dependencies, and they also accept this point of principle.
However, there are constitutional considerations that affect the way sanctions are implemented by the overseas territories and Crown dependencies. As my noble friend Lord Faulks pointed out, at the moment all Crown dependencies—Jersey, Guernsey and the Isle of Man—legislate on their own behalf, as do Gibraltar and Bermuda. We anticipate that these jurisdictions will seek to continue to do so—save, possibly, for a transitional period. We legislate for some of these jurisdictions directly through Orders in Council. However, as I have said, other jurisdictions legislate for themselves.
The Bill is drafted in a way that reflects this reality. It is consistent with the current implementation model for UN and EU sanctions, as well as measures under the Terrorist Asset-Freezing etc. Act 2010. To change this model would depart from current practice and we do not see a compelling case for this. With that explanation—and the assurance I have given to the noble Baroness on the valid point she raised about the Law Society, which I will certainly look at again—I hope that the noble Lord will be minded to withdraw this amendment.
Lord Lennie
I thank the Minister for that answer. We will consider, read carefully what he said and, perhaps, come back to it. In the meantime, we will seek leave to withdraw the amendment.
Lord Pannick
Lord Pannick (CB)
My Lords, this amendment is in my name and those of the noble and learned Lord, Lord Judge, and the noble Lord, Lord Collins of Highbury. It is not concerned with lobsters; it is concerned with the duty of the Minister to consider a request to vary or revoke a designation. The Bill contains no provision requiring the Minister to address such a request within any specific time period. I can understand why it would be inappropriate to set any defined time period—how long it takes to address a request to vary or revoke a designation will inevitably depend on the circumstances of the individual case—but the Bill should, I think, contain a more general obligation on the Minister in relation to time. This amendment would require the Minister to decide on a request to revoke or vary,
“as soon as reasonably practicable”.
It is important for the Bill to impose such an obligation because, under Clause 32, read with Clause 33(5), a person who is put on a sanctions list cannot seek a review from the court until the Minister has made the decision on the request to vary or revoke the designation. It would be quite wrong for a person to be listed, with all the adverse consequences that that involves, with no opportunity to complain to a court unless the Minister had an obligation to act with reasonable expedition. In an extreme case, were this amendment to be included in the Bill, the courts would be able to say to the Minister that his or her delays were unacceptable.
I cannot see that a “reasonably practicable” test could be in any way objectionable. I suspect that the Minister will tell the Committee that the amendment is unnecessary because of course Ministers will decide these cases as soon as reasonably practicable. We have heard such assurances repeatedly during this Committee stage. However, I am sure that the Minister understands that in contexts as important as this Bill I prefer to see obligations written into the statute rather than rely on assurances from Ministers, however fair and reasonable they are. I beg to move.
Baroness Northover
This seems an eminently reasonable amendment. It almost seems unambitious in its scope—it invites Ministers to answer questions along the lines of “as soon as possible” and “shortly”—but noble Lords are surely right to seek to put something of a common-sense timetable on this, and we support them. The Bill proposes to give such wide and untrammelled powers to Ministers that any moves to qualify them should be welcomed.
Lord Collins of Highbury
As the noble Lord said, I have added my name to this amendment, and I have done so for a very good reason, which is that it is about an important matter of procedural fairness and should be included in the Bill. It is not unreasonable to say that there should be a judgment about the actions of a Minister in terms of timeframes. As we have understood in this House on many occasions, the summer can often be extended into the autumn without the blink of an eyelid.
Lord Judge (CB)
Without this amendment, we are leaving a recipe for lethargy, which is inappropriate. We need it so that the court will get hold of the complaint, if one is needed, as soon as practicable.
Lord Ahmad of Wimbledon
My Lords, I thank the noble Lord, Lord Pannick, and the noble and learned Lord, Lord Judge, for tabling this amendment, and I thank other noble Lords for their contributions. Perhaps I will disappoint the noble Lord, Lord Pannick, somewhat by saying that I agree with the substance and constructive nature of the proposal before us. When the noble Baroness, Lady Northover, started talking about “shortly” and so on, I was reminded of my time as the Aviation Minister and the occasion when an announcement on Heathrow Airport was pending—but we got there.
In that mood, let me outline the Government’s position on this amendment. When a request is received from a designated person to vary or revoke their designation, the appropriate Minister should ensure that they make their decision as soon as is reasonably practicable. As sanctions are applied without giving those sanctioned the opportunity to make representations, and because they have serious consequences on the individuals concerned, it is important to ensure that mistakes are rectified swiftly.
As sanctions are intended to change behaviour, it is also important that people should be able to have their designation revoked if they change their behaviour. Clause 19 therefore provides a quicker and less costly option than going to court. It will also have the advantage of keeping unnecessary pressure off the courts and potentially reducing costs to the taxpayer. The reassessment process exists to allow designated persons to seek swift redress when wrongly designated—and I can assure noble Lords that the Government fully intend to act promptly to requests for reassessments.
I shall certainly reflect on the amendment. I have listened carefully to noble Lords, who have made a compelling case for us to look at our position. With the assurance today that we will look at the amendment again—although it is only an assurance at this juncture—I ask the noble Lord, Lord Pannick, to withdraw his amendment.
Lord Pannick
I am grateful to the Minister. I look forward to hearing from him before Report that the Government are able to move on this matter. He has heard the views that there is no basis for not including this in the Bill. I hope this is the first of many amendments today that he will see the wisdom of. On that basis, I beg leave to withdraw the amendment.
Lord Pannick
Lord Pannick
Again, this amendment is in my name and the names of the noble and learned Lord, Lord Judge, and the noble Lord, Lord Collins of Highbury. It concerns the periodic review provisions in Clause 20. The appropriate Minister is required to consider any designation of a person every three years. That is far too long a period given the gravity of the consequences of designating a person. It is true, as the Minister emphasised at Second Reading, that the listed individual can seek a review under Clause 19, but subsection (2) of that clause provides that once such a request has been made, no further request may be made by the individual unless,
“there is a significant matter which has not previously been considered by the Minister”.
There may well be cases where, although the individual can point to no significant new material, the Minister, on reviewing the matter, may find good reason to vary or revoke the designation. Indeed, the passage of a year without any further material coming to light may justify looking again at whether the listing is appropriate. The three-year period is especially troubling because of the grave consequences of listing for the person concerned and because, as I said in the earlier debate today, you cannot start court proceedings under Clause 32(1)(d), to be read with Clause 33(5), until you have sought a review by the Minister and received a decision on that review.
The Minister will confirm that under the EU system, which this Bill is designed to replace, a periodic review occurs every six months normally but certainly in all cases at least every year. I can see no justification for this Bill to triple the period which can elapse before a review is required. I beg to move.
Baroness Northover
The noble Lord, Lord Pannick, was eagle-eyed as ever, and this issue came up at Second Reading. He now brings forward this amendment with other noble Lords, and we support them.
The point here is that the review period for designations would occur not after one year but only after three. As the Minister said on Second Reading, it could happen earlier, but of course it does not have to. I also note that, on Second Reading, the Minister said that he did not regard the period proposed by the Government as excessive. He did not answer the point that this was a detrimental change from the position should we stay in the EU. I expect that he has now had time to consult on that and—if you like—to recognise that the writing is on the wall and, I hope, to persuade his colleagues that this cannot stand.
There is no reason for the frequency of reviews to change from one year, as now in the EU, to three years. I hope and expect that the Minister will find that this is one straightforward area in which to concede. After all, it has always been said that if we were to leave the EU, no protections or rights of UK citizens would be diminished. This is a case in point.
I raise one other issue, which I think has been flagged to the Bill team. This is, again, from the Law Society. It is concerned that UK courts should have the jurisdiction to hear wrongful listings in the case of UN listed persons. It points out that the Bill does not require or permit a UK court to quash a wrongful listing for a person who is UN listed and can only ask the Government to use their best endeavours to secure a de-listing in the UN. It recommends that the Bill directly transpose into UK law—
Lord Pannick
I am sorry to interrupt, but that is the specific subject of Amendment 62, to which we are coming. I do not wish to inhibit the noble Baroness, but she may wish to be aware of that.
Baroness Northover
I did not spot that point. In that case, I will wait until we get to it. I hope that the Bill team will have taken it on board, both from the amendment submitted in the noble Lord’s name and, indeed, from what we sent through.
Lord Judge
My Lords, I had thought of saying something but while the Minister, unlike Richard III, is in the giving mood, I do not want to discourage him.
Lord Lennie
My Lords, we have heard, and the noble Lord, Lord Pannick, has repeated, the gravity of the consequences of sanctions on the lives of individuals and dependants upon them. Three years is a very long time, particularly if the designation is wrong or if behaviour has changed and they are now compliant. Therefore, we ask that the three years be reviewed and replaced by one year. It cannot be left for a length of time without a review taking effect. The Minister has the right to review. The individual has only one possibility of an application review. Therefore, we ask that this become automatic in the Bill.
Lord Ahmad of Wimbledon
My Lords, I thank the noble Lord for tabling this amendment. The noble and learned Lord, Lord Judge, sat down before making a further point. I was reminded not of Richard III but of Oliver Twist, who wanted “more”.
On this particular point, Clause 20 is one of a number of safeguards, as I am sure noble Lords have seen, within the Bill that provides for designated persons and requires the Government regularly to conduct a thorough re-examination of designated decisions. The Government must, as we have heard from noble Lords who have spoken through this short debate, conduct this review at least every three years. The noble Lord, Lord Pannick, has rightly raised the issue, and I accept the point, that the EU carries out reviews more frequently. However, Clause 20 should be considered as part of a system of safeguards that the Government have built into this Bill which I believe will provide at least an equivalent, and in some respects greater, level of protection to that afforded to individuals designated by the European Union.
Baroness Northover
In the Explanatory Notes accompanying the Bill, it is mentioned that sanctions apply to about 2,000 people. That does not seem a huge number of people where one might need to make this kind of assessment.
Lord Ahmad of Wimbledon
I am not quite sure what the noble Baroness’s question is.
Baroness Northover
The Minister was saying that this was very onerous. I am aware that there is discussion elsewhere in the Bill of immigration status conflicting with those who have had sanctions imposed upon them. Obviously, when one is dealing with immigration status, one is dealing with very many people, but the point made in the Explanatory Notes is that one is not dealing with a large number of people here or a large number of sanctions provisions.
Lord Ahmad of Wimbledon
I think I understand the noble Baroness’s question, but, notwithstanding the issue of numbers alone, Clause 20 lays out a process which the Government perceive to be more efficient than that currently adopted by the EU.
Lord Pannick
My Lords, I thank the Minister for his response. It is disappointing. I am not persuaded. As the noble Baroness pointed out, a limited number of people are involved here, and surely the time and the resources are justified by the significance of the sanctions imposed. It is right and proper that sanctions of such significance should be reviewed more often than every three years.
The Minister says that the individual can seek a review, which is right, but the individual can do so only if there is a significant matter known to the individual not previously considered by the Minister. There may well be material in the files available to the Government which is not known to the individual. The Minister says that the individual can go to court, but it is the same under the EU system: you can go to court but the whole point of the Bill is to encourage court procedures as a last resort.
The Minister’s other point was that there is a sanctions review every year, but as I understand it—the Minister will correct me if I am wrong—that is not a review of individual cases but a review of the structure of the system, so for my part I do not see that that adds to the debate.
I will reflect on what the Minister has said, and I hope that he will reflect on this debate before Report, but we may well come back to this on Report. For the moment, I beg leave to withdraw the amendment.
Lord Collins of Highbury
“( ) No later than six months from the date of completion of a review under subsection (1), the appropriate Minister must lay the findings of the review before Parliament.”
Lord Collins of Highbury
My Lords, when we had discussions with the Minister prior to Second Reading and just after, the review of the regulations cropped up on a few occasions, the justification being that some of these new powers and regulations would not be subject to primary legislation. In those discussions, I asked, if you are reviewing in government, who tests and scrutinises that review? This is the first Brexit Bill and we have heard on many occasions that Brexit is an opportunity, or an obligation, to bring powers back to the United Kingdom. If that is the case—I do not necessarily agree—and the Minister supports it, this is an opportunity for him to support the principles of these amendments, which are about ensuring that powers taken by the Executive are subject to proper scrutiny, and that the Executive are held to account by Parliament.
Amendment 59 sets out the details and asks: how do we do that job? What are we measuring? But if there are issues and the Minister says, “I cannot have this list because there are things in it that may be subject to national security, or other things that cannot be disclosed”—the Government seem to have a habit of not disclosing information to Parliament on matters relating to Brexit—I would be more than willing to consider those concerns and take them into account. Obviously, if there are issues with the list then the minimum standard that I am arguing for is Amendment 58. I do not think it unreasonable that if the Government are taking these powers, we should be able to hold them to account in any possible review. I know the Minister will say that regulations are subject to consideration by Parliament, et cetera, et cetera, but that is not the scrutiny we want to see here. I hope that if the noble Lord is able to continue in his giving mood, he can give us some positive words about how Parliament will be able to hold the Executive to account.
Baroness Northover
My Lords, these amendments in the name of the noble Lord, Lord Collins, helpfully make much clearer the commitments that Ministers must make to review the regulations they have put in place, giving a time by which this must happen and more detail on what they should include. They would, indeed, as the noble Lord has indicated, make these reviews more transparent and accountable and we are happy to support them.
Lord Ahmad of Wimbledon
My Lords, they say that generosity defines the spirit of a person, so perhaps I can be slightly more generous than noble Lords may perceive. The noble Lord, Lord Collins, is quite correct: we have talked about this issue, and sanctions, we all accept, can be an effective tool of foreign policy and national security, but I also accept that they can have serious implications, not only for those directly designated but also for businesses and charities operating in particular areas.
Foreign policy priorities can change frequently. It is therefore important that Ministers regularly revisit the decision to apply sanctions regimes to political problems and security challenges, and also consider carefully whether the sanctions are having the intended purpose, whether there are unintended consequences and what adjustments might be needed to achieve the desired effect.
Clause 26 therefore requires the Government to carry out a political review of its sanctions every year. The EU also carries out annual reviews of its sanctions regimes. The purpose here is to consider whether the sanctions should continue unchanged or be amended. If there is a published outcome, it is simply confirmation that the legal Acts have been renewed or amended. We have in mind a similar model for the UK; the annual review would be mainly an internal policy exercise, rather than a report for external publication. If the Government decided as a result to amend the sanctions regulations, this would involve a process of parliamentary scrutiny through which we would set out the rationale. Of course, the Government would always respond to Parliamentary Questions about specific areas of policy through the usual channels.
That said, I have listened very carefully to the noble Lord, Lord Collins, and we are looking at the amendment specifically. I will reflect on the proposal in that regard. He made the helpful suggestion that, between Committee and Report, we meet again to work out some of the perhaps necessary parameters. I know he appreciates national security issues and other such issues. I hope, with the assurance that we will reflect on his proposal, the noble Lord is minded to withdraw his amendment.
Lord Collins of Highbury
I thank the Minister. I am going to take that as his continued giving mood and I certainly would welcome a meeting. If you are going to have a political review, I do not see how it can be limited to the Executive; Parliament needs to be involved. I therefore welcome his comments and, in light of them, beg leave to withdraw the amendment.
Lord Pannick
“( ) For the avoidance of doubt, in relation to a decision under subsection (1)(c) above, the court has power to set aside the designation if satisfied that it is in breach of the principles applicable on an application for judicial review.”
Lord Pannick
This amendment is in my name and the names of the noble and learned Lord, Lord Judge, and the noble Lord, Lord McNally. It is concerned with persons who are designated in this country because they have been placed on the UN sanctions list. It raises a very troubling rule-of-law issue, to which the noble Baroness, Lady Northover, referred in one of our earlier debates this afternoon.
Clause 21(2) and (4) provide that a person who is designated here because they are on a UN list may request the Secretary of State to use best endeavours to secure that their name is removed from the UN sanctions list. My concern is that what Clause 32 means —and indeed is intended to mean—is that, in relation to such a case, a court in this country has no power other than to overturn a decision of the Secretary of State not to use such best endeavours, and to ask the Secretary of State to use best endeavours at the UN. What the Bill appears to deny the person concerned is the right to say to the court: “I have been listed in this country—designated in this country—because I am on a UN list. But I am on a UN list as a result of procedural unfairness, as they have never told me why I am listed, or as a result of a substantive defect. There is no basis whatever for my listing, therefore the court in this country should quash the domestic designation”.
Baroness Northover
My Lords, Amendment 62 is partly in the name of my noble friend Lord McNally. I knew he would not be able to be here, and he sends his apologies for that. I have to say that I read the amendment and the clause a number of times and it seemed to me that the amendment tightened and clarified the clause. What I failed to spot, as a non-lawyer, was what lay underneath it. I am extremely glad that the issue I raised earlier has been so effectively explained by the noble Lord, Lord Pannick. I again express support from these Benches for what he has said.
The Lord Bishop of Chester
My Lords, if I heard the Minister correctly, he compared the noble Lord, Lord Pannick, to Oliver Twist asking for more. I wonder, having heard the noble Lord, whether the Minister would agree that Oliver Twist had right and justice on his side.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, I support the amendment. I recognise that it is not an entirely simple point; it is not perhaps as straightforward as some of the amendments with which we dealt earlier. I see the force of the Government’s argument that the UK has no alternative under international law but to give effect to our obligations under the UN charter; indeed, Article 103 of the charter expressly dictates that these obligations prevail over any conflicting international law obligations. In the 2010 Supreme Court case of Ahmed, I ended my dissenting judgment with the hope that the majority view would not be thought to indicate any weakening of our commitments under the charter. In Ahmed, however, I also stressed the draconian nature of these orders. I said:
“The draconian nature of the regime imposed under these asset-freezing Orders can hardly be overstated … they are scarcely less restrictive of the day-to-day life of those designated (and in some cases their families) than are control orders. In certain respects, indeed, they could be thought to be even more paralysing”.
It strikes me as highly relevant to the amendment that in the case of Ahmed the Court of Appeal had held—and before the Supreme Court Treasury counsel for the Government argued this in terms—that orders implementing a UN resolution are reviewable, and that on such a review the court can grant relief directed against any UK public authority, not against the United Nations. That, essentially, is what the amendment seeks to achieve, or at least to clarify.
I note not least that one of the team of counsel instructed for the Government in the Ahmed case was Sir Michael Wood, who had been the senior legal adviser to the FCO. Clearly he had seen no insuperable obstacle to the court having this judicial review jurisdiction—the very thing that the amendment seeks to put beyond doubt that the court has. On balance, therefore, my concluded view is that we can and should make plain that the court will have this jurisdiction.
Lord Judge
My Lords, my name is attached to the amendment. I shall not repeat what the noble Lord, Lord Pannick, had to say. The issue is simple: we must honour our obligations to the United Nations but if, having honoured them, there is an injustice, we must provide a remedy.
Lord Lennie
My Lords, I had not realised that there would be quite such a debate on the application of the rule of law, but I am now aware that it is an important matter. When a sanction’s designation is in place, and a review has been requested but denied by a Minister, the court here will have the authority to set aside the designation if the Government are found in breach of the applicable principles. That is entirely appropriate and sensible. I support the amendment.
Lord Ahmad of Wimbledon
My Lords, I thank the noble Lord for tabling the amendment and all noble Lords for their contributions.
I agree that appropriate remedies for designated persons are vital, but the Bill achieves this. However, since some noble Lords have mentioned comparisons with other systems of challenges—there was reference to the EU—it is worth emphasising how this Bill has been designed to reflect the current procedural protections for designated persons that exist in the European Union.
As the noble Lord acknowledged, I stated at Second Reading that the proposed threshold of “reasonable grounds to suspect” for designations is the same standard that the UK currently uses when considering designations at the EU and the United Nations. It is broadly equivalent to the threshold applied by EU courts. The Bill then provides a system for reviews and reassessments. Where those lead the appropriate Minister to decide that designation is not appropriate, they must take remedial actions. As I indicated in a previous debate, these provisions provide at least an equivalent level of protection to that afforded to individuals designated by the EU.
I agree with the noble Lords that designations should be put in place and maintained by the United Nations only if there is a sound basis to do so. I can assure all noble Lords—the noble Lord, Lord Pannick, in particular—that, as a permanent member of the UN Security Council, the UK makes this point consistently. The Bill provides a route for persons designated by the UN to bring a challenge in UK courts. As the noble Lord stated, if the court finds that the decision of the Secretary of State not to use best endeavours to secure an individual’s delisting at the UN is unlawful, the court may order the Secretary of State to do so.
However, as the noble and learned Lord, Lord Brown, also pointed out, this matter is slightly more complex. As a member state of the UN, we are legally bound to implement decisions of the United Nations Security Council taken under Chapter VII of the charter. If a person has been designated by the UN, the UK is bound by international law to maintain sanctions against the person unless and until the UN Security Council agrees to remove this designation. Again, as the noble and learned Lord pointed out, as set out in Article 103 of the UN charter, these UN obligations take precedence over obligations under any other international agreement, such as those in the European Convention on Human Rights.
I recognise that in the past—as the noble Lord, Lord Pannick, referred to—the EU court has occasionally made rulings striking down EU designations in place to implement UN sanctions. The UK’s position has consistently been firmly that it should not do so and the UK has made this point in submissions to the EU courts in the Kadi case. The EU courts adopting this approach does not change our analysis of the position. The EU is not a signatory to the UN charter and is therefore not bound by its terms—we are. It is not correct to say that this will leave a person in the UK in a worse-off position than a person in another EU member state. All the other member states of the European Union are also signatories to the UN charter, and are bound by it. If there is no EU law in place to implement a UN designation, those countries would need to take alternative steps, for example under their own domestic law, to remain in compliance with their UN obligations. The noble and learned Lord, Lord Brown, has just reflected that we have done this in the UK in the past. When, in 2010, the Supreme Court in the case of Ahmed ruled that an order putting UN counterterrorist sanctions in place was ultra vires, we created domestic legislation—the Terrorist Asset- Freezing etc. Act 2010 to ensure that the UN sanctions remained in place.
Lord Pannick
I am grateful to the Minister. I have listened carefully, but I am not persuaded. The Minister is telling the Committee that however strong the individual’s case that his or her designation is unfair as a matter of procedure and substance, there is nothing that the English courts can do except ask the Secretary of State to use best endeavours at the United Nations, which the Secretary of State may already have done. What happens if the UN’s response is that it will maintain the designation and the English court is still satisfied that there is no basis for including this person on the list? There may be no evidence that justifies it; it may be a rank breach of fairness.
I am not satisfied, as I said, that we should subcontract these matters to the United Nations. I can well understand that the English court would be very slow to form the view that it should take the step of quashing the domestic designation when the United Nations has imposed internationally such a designation, but I cannot accept that the English court should be left without power to do so if it believes that injustice has been done, given the grave consequences for the individual concerned. I will reflect further on this, and I hope the Minister will reflect further before Report. If not, we will need to return to what, as the noble and learned Lord, Lord Judge, said, is a simple matter but also a fundamental matter of the rule of law. For the moment, I beg leave to withdraw the amendment.
Lord Collins of Highbury
Lord Collins of Highbury
My Lords, this group of amendments is focused on a subject matter that we repeatedly return to: namely, parliamentary accountability and scrutiny of the actions of the Executive. I want to focus primarily on how we enable Parliament to do the job of scrutiny. Amendments 65 and 68, in particular, are designed to ensure that there is relevant information in relation to actions to revoke or introduce regulations. I know that the Minister will say that because regulations will be placed before Parliament there will be a scrutiny function there—but I think more than that is needed. We say that an affirmative decision is required, and also that the reasons should be clearly stated and set out in a written memorandum by the appropriate Minister. So the theme that we are returning to, and focusing on, is enabling Parliament to scrutinise, and giving it the tools to do that job.
There is a power under Clause 35 for an appropriate Minister to suspend regulations “for a specified period” —no period being specified, of course, because that is subject to regulations. I keep coming back to the fact that, in the exercise of powers, it is important to put certain principles on the face of the Bill. We would insert a requirement for the time period to be put in. We must understand that the power of the Executive to suspend regulations or other sanctions has the potential to cause compliance uncertainty for business. There could be uncertainty about when and on what terms a sanction may be reimposed, or whether it could be revoked entirely.
The purpose of the amendment is to create more certainty for all those involved, and by doing so to introduce more effective compliance with sanctions. Considering the aims of those sanctions, that is very important. The persons or entities that are subject to suspended sanctions may still be affected by reputational stigma. It is important, in terms of procedural fairness, that these issues should be properly addressed.
The group is focused primarily on parliamentary scrutiny and enabling Parliament to do that job effectively, and I have also put my name to Amendment 72, to Clause 44. I look forward to the contribution from the noble Lord, Lord Pannick, on that. In my opinion that clause gives the Executive an overwhelming power, which the Minister will have to give very good reasons for retaining. I beg to move.
Lord Pannick
My Lords, the noble Lord, Lord Collins, mentioned Amendment 72, which is in my name and his, and in those of the noble and learned Lord, Lord Judge, and the noble Baroness, Lady Northover. It concerns Clause 44(2), which is a very broad Henry VIII clause. As the noble and learned Lord, Lord Judge, repeatedly argued during earlier debates in this Committee and elsewhere, we should not be giving Ministers powers to amend primary legislation without very strong justification. Clause 44(2) would allow Ministers to take action,
“amending, repealing or revoking enactments”,
including primary legislation,
“(whenever passed or made)”.
It contains no limitations on those powers. For my part, I cannot see any justification for including such extensive powers in the Bill. I strongly suspect that such a provision is included simply because it may turn out to be useful at some time in the future. We in this House are seeing too regularly provisions of this sort and we ought to take a stand against the conferral of such sovereignty on Ministers.
Baroness Northover
My Lords, the noble Lord, Lord Collins, is once again trying to help the Government, and I appreciate his efforts. He seeks to put a very useful time limit on how long a so-called “specified period” in Clause 35 might be, and his Amendment 64 proposes a further time limitation. We will come back to Clause 35 when we discuss the next group of amendments and I shall address that clause as a whole shortly.
Amendment 65 in the name of the noble Lord, Lord Collins, seeks to check the wider and unspecified powers on the revocation of sanctions that the Government seem to want to grant themselves in Clause 38. We do not want to see wide and untrammelled powers in either the setting or the revoking of sanctions. The noble Lord is right to seek to address this.
My name is, indeed, attached to Amendment 72. The case for this amendment was very cogently argued by the noble Lord, Lord Pannick. The clause contains one of the wide-ranging Henry VIII powers that we have seen elsewhere in the Bill. I cannot see how this power can stand. Clause 44(2) states:
“Regulations under this Act may make supplemental, incidental, consequential, transitional or saving provision”.
That is a rather wide-ranging description. Therefore, I trust that the Minister has been given enough leeway by his colleagues across government to think again.
Lord Judge
I will not add very much, but I am beginning to think that there is a computer in every department which produces a Henry VIII clause at least once in every Bill. That is what we have here. This is not belt and braces; it is belt, braces and Henry VIII’s great big heavy boots. We do not want it.
Lord Ahmad of Wimbledon
The noble and learned Lord made me imagine Henry VIII’s boots for a moment.
As regards thinking, I am forever thinking; I think it is a good thing to do. The Government are reflecting very carefully on all elements of the arguments noble Lords are putting forward on these amendments. I will say at the outset that I can see that a number of these amendments gather around a central theme—namely, the appropriate roles of Parliament and the Government when creating and implementing future policy on sanctions. I assure noble Lords that I recognise that this is a difficult balance to strike. As power flows back to the United Kingdom from the European Union —I say to the noble Baroness, Lady Northover, that it is a case of “when” we leave the EU—it will not be appropriate to simply follow the model in the European Communities Act 1972, where decisions of the EU either apply directly in UK law or are implemented through statutory instruments following the negative procedure.
I assure noble Lords that we have tried hard to strike the balance correctly in this Bill and ensure that Parliament has the right level of oversight of the Government’s exercise of sanctions policy. For example, we have ensured that the UK autonomous sanctions regulations must be approved by Parliament before they are put in place. I continue to listen very carefully to the points that have been made about the need for proper parliamentary scrutiny. I assure noble Lords that I will continue to reflect on those points—and not just in respect of these amendments.
It is perhaps worth remembering that sanctions are, in essence, as I have said repeatedly, a matter of foreign policy and national security, which fall more to the Government than Parliament. This was recognised by the great constitutional lawyer A V Dicey, who wrote that the “right of making treaties” was,
“left by law in the hands of the Crown, and are exercised in fact by the executive government”.
That is also the practice in other western countries with national sanctions regimes and legislation, such as Canada and Australia.
On the amendment we are discussing, it is important to recognise that the imposition of sanctions is not a punishment but an attempt to change the behaviour of those who are acting in a threatening or unacceptable manner. That is why the provisions provide ways of suspending, amending and revoking sanctions. Iran is an example of where sanctions have been suspended. Under the 2016 nuclear deal, Iran sanctions can be “snapped back” by the EU if there is a breach of the international commitments made by Iran in relation to nuclear development. Noble Lords will be aware that those suspension arrangements were part of a delicate political balancing act, which the UK is working hard with the EU and other partners to preserve.
Lord Falconer of Thoroton (Lab)
I thank the Minister for his detailed explanation. Does the Henry VIII power in Clause 44(2) allow the Government, by regulations, to remove protections that an individual has under other primary legislation in relation to sanctions, for example under the Human Rights Act 1998?
Lord Ahmad of Wimbledon
My understanding is that the regulations would apply only to the sanctions themselves, but I shall clarify that legally as well in answer to the noble and learned Lord and return to the specific issue on Report.
Lord Falconer of Thoroton
Will the Minister write to me, so that we know the Government’s position before Report?
Lord Ahmad of Wimbledon
Perhaps I was not clear: that was exactly my intention. I do not want to say something from the Dispatch Box that is not accurate, so I will write to the noble and learned Lord on that particular point.
Baroness Sheehan (LD)
I am a little intrepid in saying this as I am not a lawyer or a constitutional expert but this seems to be a Bill that, from a layman’s point of view, lets the Government give themselves great powers through the way it designates individuals, connecting persons through descriptions, through definitions of involved people and through clauses that give powers to amend. These include Clause 39, which gives power to amend all of Part 1 so as to authorise additional sanctions, and Clause 44(2), which gives sweeping Henry VIII powers to amend, repeal and revoke amendments and enactments. To me, this seems like Jekyll and Hyde legislation. You think you are getting one thing, yet there is every ability within the proposed Act to change itself into something quite different.
I was quite concerned in last week’s debate, when my noble friend Lady Bowles talked about how Acts could be used for unintended purposes. I recall the case of Maya Evans, who read out the names of 97 British soldiers during the remembrance ceremony at the Cenotaph in 2005. Although it was a very innocuous statement that she was making—she was protesting against Britain being taken into the Iraq war; she felt that it was illegal—she was arrested and was the first person in the UK to be convicted under the Serious Organised Crime and Police Act 2005. Also in the same year—I might embarrass the Labour Benches here—Walter Wolfgang was forcibly removed from the Labour Party conference. Again, he wanted to protest about the Iraq war, and shouted out “Nonsense!” and “That’s a lie!” during a speech made from the conference platform by Jack Straw. He was ejected and was stopped from re-entering the conference hall by a police officer citing the Terrorism Act.
From my point of view as a lay person, I am fully supportive of the well-informed noble Lords here who are leading the charge to make sure that the Bill does what it says on the tin and does not turn into a Jekyll and Hyde Bill.
Lord Pannick
Whether I am well informed or not, can the Minister confirm that in his response on Amendment 72 he gave a reassurance to the Committee that these powers would be used only when necessary? That was the word he used on more than one occasion. He will remember an earlier debate we had in this Committee on whether that word should be written into an earlier clause. If with the aid of parliamentary draftsmen “necessary” could be written in to confine the use of that power, it would mitigate substantially my concern about Clause 44(2); I speak only for myself. Perhaps the Minister and the Bill team could reflect on that before Report.
Lord Ahmad of Wimbledon
To pick up on that final point, of course we will. I confirm that I used “necessary”. As regards the intervention from the noble Baroness, perhaps I did not quite follow her whole argument—various rules were in play—but I got the general principle that she was in support of the powers that are being conferred. As I said right at the beginning, laying it out in quite a lot of detail, I totally accept the point about the Henry VIII powers—the use of secondary legislation rather than primary legislation—which we have debated several times. Certainly, from our perspective as the Government—that is true not only of ourselves but of previous Governments as well—there is a point in principle that we try to strike a balance. Therefore I am listening carefully. On the specific point that the noble Lord made at the end, I will take that back and see how it can be adapted.
I am in reflective mode, as several noble Lords have noted during some of the earlier debates in Committee. However, on this group of amendments, I hope that after the explanation I have given the noble Lord will be minded to withdraw his amendment.
Lord Collins of Highbury
I agree with many noble Lords who have decided to come back to the Minister before he sat down. His response has been disappointing. These are clearly issues of principle that we will return to. I find it amazing that often, when the Minister gives examples of how difficult it would be to do X or Y, they do not appear that difficult. You can give a reason why sanctions need to be revoked. At the end of the day, whatever Crown powers or executive powers there are, the political reality is that these figures work when there is consent—when people buy into them. We are attempting to ensure that the Executive do not act with untrammelled powers and that they have to account for their actions and explain them. If Parliament then gives its support and consent, those actions and powers become more effective. That is what this debate is about today. We will certainly return to this issue on Report, but in the light of the comments the Minister made to the noble Lord, Lord Pannick, I beg leave to withdraw the amendment.
Baroness Northover
My Lords, I was rather intrigued by the Minister’s definition of sanctions as being something little more than a gentle nudge. I found myself thinking about—
Lord Ahmad of Wimbledon
It is certainly not a gentle nudge. What I was alluding to is that the ultimate purpose behind sanctions is that they should not exist for an indefinite period of time. It is about changing behaviour. As I noted in the example that I gave of Iraq, there are times when we could use these to very good effect to ensure, with people’s behaviour—be they individuals, corporations or, indeed, countries—that sanctions act as an effective, and deterrent, tool.
Baroness Northover
I am glad to have that further clarification. My eyebrows rather rose at that and I was wondering, speaking of what is benign, what my kids would have made of being sanctioned and having their PlayStations removed. They would not regard that as particularly benign. But, very seriously, it is quite striking how leaders around the world with sanctions on them strive hard to get them lifted, so I am glad to have that clarification.
I propose that Clause 35 does not stand part of the Bill. We have a series of such proposals through the Bill, as the Minister will be aware. We have had a wide-ranging discussion just now. I appreciate the efforts to improve things made by the noble Lord, Lord Collins. However, it still seems to us that this clause remains unacceptable, even if amended in the way that he proposed. That is why we propose that it does not stand part of the Bill.
Just as we wish to ensure that the imposition of sanctions is done in a way which is appropriate, transparent and accountable, so too should be the suspension of sanctions. No one here would wish to see the UK as a harbour for those not wanted elsewhere, but we must not give future Ministers the power to do that either. We feel that these powers are wide and vague, and bearing in mind that the secondary legislation coming down to us will include—as the noble and learned Lord, Lord Judge, pointed out last time—many things with which we would no doubt agree, which are then jeopardised should we take the very unusual action of voting down the SI, we need to read the Bill in that light. For example:
“The period begins when a specified condition is met and lasts for so long as the suspending regulations or a specified provision of those regulations has effect”.
That would catch a large number of things. Although the noble Lord, Lord Collins, sought to help the Government regarding the amendment we have just debated, we feel that the Government should think again over the whole clause.
Lord Ahmad of Wimbledon
My Lords, it is important to recognise that the imposition of sanctions is not just a punishment but rather an attempt—as I have articulated in relation to an earlier comment by the noble Baroness—to change the behaviour of those who are acting in a threatening or unacceptable manner.
I state clearly that Clause 35 on suspensions is important. It gives Ministers the ability to provide relief from sanctions to countries, organisations and, yes, individuals where there is evidence of positive steps towards the desired change of behaviour. The ability to suspend sanction measures, rather than fully lifting them, allows Ministers to recognise moves in the right direction while maintaining a credible threat that sanctions can be easily reimposed. We know from past experience that this is an option worth having; thus I believe this clause should stand part of the Bill. I hope the noble Baroness will accept the response I have given, which makes the point that the Bill, at its essence, through Clause 35 provides for the suspension of particular sanctions to ensure that those seeking to improve their behaviour are given an opportunity to prove it. This should be without having the immediate comfort of knowing that their sanction has been not only suspended but lifted altogether. Not having Clause 35 would prevent Ministers from having this very important tool available to impose that kind of suspension.
Lord Collins of Highbury
“( ) Regulations under section 1, which are made by virtue of this section for the purposes of revoking or substantially reducing the effects of sanctions regulations, must be accompanied by the publication of a written memorandum by the appropriate Minister, and such a memorandum must set out— (a) how the decision to amend or revoke the regulations in question is consistent with the overall foreign policy objectives of the UK government, including any specific regional objectives where appropriate;(b) the extent to which each initial objective of the regulations in question has been met, including any specific demands or expectations of any change in the behaviour of the target or targets of the sanctions; and(c) specific provisions for the reinstatement of the initial regulations, in the event that the conditions justifying their revocation or amendment no longer apply.”
Lord Collins of Highbury
My Lords, with this amendment I return to the principle of “tools for the job” and how we enable Parliament to scrutinise effectively. In the previous group, the Minister spoke quite effectively about the reasons for certain sanctions being introduced and how they sometimes underpin and support much broader foreign policy objectives, and he quoted the Iran situation. I did not think that he found that particularly difficult to do. We know that when sanctions are introduced—I come back to this point—we need political support and commitment for them to be effective. Without proper support, they will not be.
That is why it is important that, when the powers and regulations are introduced, we specify how the sanctions fit into the broader foreign policy objectives and why they are there. I fear that sometimes people jump on the sanctions bandwagon because they cannot think of any other action to achieve particular foreign policy objectives. For example, the struggle for human rights is difficult, and different leverages can be used. I do not necessarily think that sanctions are the first port of call, and I accept that they can be part of a suite of actions.
However, when we introduce sanctions, it is important and incumbent on the Government to set out clearly why they are there and how they fit into their overall foreign policy objectives. Furthermore, when will the sanctions be brought to an end and when will we judge them to have been successful? I have heard in this House on a number of occasions that sanctions have been “successful”. That is measured by whether we have stopped certain trade and a certain activity, not by whether they have achieved the foreign policy objectives set for introducing them, and that is what this amendment seeks to do. Once again, I hope that the Minister is in his listening and giving mode. I beg to move.
Baroness Northover
My Lords, once again the noble Lord, Lord Collins, seeks to assist the Government by ensuring that some of the wide-ranging powers sought by Ministers have a little sunlight shone upon them. We support what the noble Lord has said about making the Minister’s actions more transparent and accountable, but we worry—the noble Lord, Lord Collins, has in some ways made reference to this—about the broad categorisation of foreign policy objectives in defining when sanctions are appropriate.
We discussed this issue on the first day of Committee and, although I realise that the noble Lord has carried over the aims as stated in the Bill, we feel that “foreign policy objectives” is too wide a concept. Clearly, if our foreign policy objective were, say, trade with India and we decided, for some reason, to put sanctions on Pakistan and, as described in the Bill, all those associated with that country—as, again, we debated on our first day in Committee—a large number of law-abiding citizens could potentially be caught up in that. That may be regarded as far-fetched, but we always have to look for unintended consequences, given that unexpected things happen in politics.
As we have said before, it is all very well the Minister potentially quoting the Human Rights Act or the European convention, given that some members of his party have spoken of repealing the first and withdrawing from the second. It is therefore important that we ensure that legislation is watertight. With that caveat, I commend the noble Lord, Lord Collins, for trying to assist us in making Ministers under this Bill more transparent and accountable.
Lord Ahmad of Wimbledon
My Lords, I thank the noble Lord, Lord Collins, for tabling this amendment. I agree that sanctions are not the first port of call, a point I have made in previous debates in Committee. The amendment specifically deals with the decision to lift sanctions, and it merits close scrutiny based on a careful assessment of whether the sanctions have achieved their political objectives, as the noble Lord said.
The amendment seeks to oblige the Government to issue a written memorandum alongside any regulation revoking sanctions which would set out the rationale in terms of the original purposes of the sanctions as outlined in Clause 1. While I agree with the important principle of parliamentary scrutiny, I believe that the Bill as drafted provides an appropriate level of scrutiny.
Let me elaborate, if I may. In the case of UN sanctions, revocation would be an automatic response to a decision of the UN Security Council. We can assume that the reasons for the lifting of sanctions would be clearly understood, making a report unnecessary. In the case of UK autonomous sanctions, the regulations could only be revoked using the made-affirmative procedure. The Government would also need to explain the rationale for lifting sanctions and would do this when presenting the said regulations. The explanations provided by the Government would cover the areas proposed in the amendment. However, the Government would need to be careful about putting the full details of the UK’s strategy in the public domain. I know the noble Lord appreciates that point.
This means that, although we support the principle of transparency, obliging the Government to issue a full written memorandum, as proposed by the noble Lord, would be inappropriate. With that explanation, I hope the noble Lord is minded to withdraw his amendment.
Lord Collins of Highbury
I am not sure whether that is a cup half-full or half-empty sort of response. However, I shall take it away and consider it. I beg leave to withdraw the amendment.
Lord Pannick
My Lords, the noble and learned Lord, Lord Judge, the noble Baroness, Lady Northover, and the noble Lord, Lord Collins, have joined with me in objecting to Clause 39, which would allow the Minister to authorise prohibitions or requirements of kinds additional to those set out in Chapter 1. So the Minister, by regulations, would have power to add to financial, immigration, trade, aircraft and shipping sanctions, and sanctions for the purposes of implementing UN sanctions.
If additional types of sanctions are to be added to Chapter 1 and they are not new types of UN sanctions—which is already covered by Clause 7—surely that should be done by primary legislation so that Parliament has the same opportunity to debate and amend the proposals as it does with the clauses of this Bill. These are vital matters to add new types of sanctions to this legislation.
Baroness Northover
My Lords, just as my noble friend Lord McNally and I opposed Clause 35 standing part of the Bill, so we oppose Clause 39 standing part of the Bill. Of course, this is in many ways a more dangerous clause. While, under Clause 35, we might find ourselves not imposing sanctions which other countries—say, within the EU—were imposing, in this case the Government are apparently happy to secure carte blanche powers for imposing sanctions.
As the noble Lord, Lord Pannick, has said,
“an appropriate Minister, may by regulations”,
amend this part of the Bill to,
“impose prohibitions or requirements of kinds additional to those for the time being authorised in Chapter 1”.
The Constitution Committee states:
“We do not consider it appropriate for Ministers to have powers as broad as those conferred by Clause 39. In particular, we consider it constitutionally inappropriate for Ministers to have the power, by regulations, to create new forms of sanctions”.
The Delegated Powers Committee states that,
“we do not consider the powers conferred by Clause 39 to be appropriate”.
They explain:
“We do not consider that the FCO’s reasons are sufficient to justify the powers conferred by Clause 39, particularly having regard to the potential width of the powers and the very significant effects on individual rights that amendments made under these powers would be capable of having”.
They also point out, in relation to UN sanctions, that,
“this power is unnecessary for enabling additional sanctions measures to be imposed for the purposes of complying with UN obligations since Clause 7 already has this effect”.
From right across this Chamber and from the Constitution Committee and Delegated Powers Committee comes a clear message, so we join others in opposing that Clause 39 stand part of the Bill.
Lord Falconer of Thoroton
The width of this power seems extraordinary and constitutionally offensive. As I understand the drafting of the Bill, it is open to a Minister to pass regulations which allow him to identify individuals on whom he can impose a sanction or prohibition that he has invented. What is more, the only restriction on him is that it must be for the purposes set out in Clause 2(1). If the Minister honestly believes that the invention of a new sanction or prohibition is justified by “a foreign policy objective” of the Government—for example, gaining support from one country by attacking its nationals in this country—the power given by Clause 39 would entitle them to invent a new prohibition and impose it by regulations. Furthermore, should any primary legislation stand in the way of a Minister inventing such a new prohibition that he or she believes is designed to promote a foreign policy objective, that primary legislation can be amended to get rid of an objection by the very same regulations under Clause 44(2). That a Minister could do by secondary legislation such a thing—for example, restrict somebody’s spending their own money, prevent them leaving their home, take away their car or stop certain sorts of bank account being used—without primary legislation strikes me as well beyond what any responsible Government would think should be done by secondary legislation. Can the Minister confirm that my analysis of what could theoretically be done is right, and explain why it is appropriate that that be done by secondary legislation?
Lord Faulks
The noble and learned Lord puts a rather sinister construction on this clause. I do not want to add to my noble friend’s discomfort, but I need some persuading that Clause 39 is necessary given the width and nature of the sanctions and the purposes. It was important that the Government resisted the attempt to narrow “a foreign policy objective”, which was an amendment that we debated on the previous occasion, but “a foreign policy objective” gives the Government quite a lot of room for manoeuvre having identified an appropriate sanction. While I suspect that Clause 39 was inserted as a “just in case” provision rather than to give Ministers extraordinary power of the sort that has been discovered, it nevertheless remains at least open in theory to a Minister to exercise power in a way I think all noble Lords find difficult to accept.
Lord Falconer of Thoroton
I intervene only to say this: I did not suggest that the motive of the Government was to do this. My experience as a Minister is that you put through legislation and many years later, after emollient assurances given in the House of Lords, those pesky lawyers look at what is possible under the Act. What I have described is possible. Let us imagine if those very same pesky lawyers said, “Well, you might have difficulty getting that through with primary legislation because of the extraordinary width of the powers, but actually we’ve found these rather clever powers in the Sanctions and Anti-Money Laundering Bill which allow you to do it without primary legislation”. That is the danger.
Lord Hope of Craighead (CB)
My Lords, I do not want to take anything away from the force of the points just made by the various speakers who object to the clause more fundamentally, but I want to pick up the point the noble Lord, Lord Pannick, described as minor: the wording of the clause. If the Government are minded to keep it, I suggest they might like to look at it again. Subsection (1) is very general, and the opening words of subsection (2) state that what follows is:
“Without prejudice to the generality of subsection (1)”.
The bit at the end in brackets, one assumes, does not qualify subsection (1). Is it in the right place? Is the proclamation that what follows is:
“Without prejudice to the generality of subsection (1)”,
really apposite if you are trying to restrict the scope of the powers as you seek to do in subsection (2)? It is a very interesting interaction of subsections but I suggest that it needs a little more care if the clause is to remain—I say nothing more in support of the point that the clause should not stand part of the Bill.
Lord Collins of Highbury
My Lords, I think this is one area where the Minister will have to be in his giving mood, because there is very strong opinion on it across the Committee. What the noble Lord, Lord Faulks, said is absolutely correct: it is a “just in case” clause. What if this happens? What if that happens? If things happen, there is a process and a procedure and the noble Lord, Lord Pannick, said it quite explicitly: bring in laws to deal with it; bring in a Bill that addresses those specific concerns. If it is an urgent situation that we had not thought of, there are processes and procedures we can adopt.
As my noble and learned friend said, there is an opportunity here for what he calls “pesky lawyers”. I am always cautious—whenever I dealt with lawyers in my life I always took the precaution never to ask a question I did not know the answer to. That is the situation here. Because you cannot think of the circumstances, but there may be circumstances, you say, “Let us put it in the Bill”. I am sorry, that is not acceptable. There is a consensus across the board on this and it is even a clause on which, as the noble Baroness, Lady Northover, said, the Constitution Committee and the Delegated Powers Committee are as one, as they are not on other clauses. So I fear this is one issue about which the Minister will have to think again.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords for their contributions on this clause. I am hearing the message loud and clear, but in doing so I need to pick up on a few points as to the motive and the intent behind the clause. I appreciate the clarification by the noble and learned Lord, Lord Falconer, of the Government’s motives. I will not comment on his description of lawyers; it would be entirely inappropriate for me to do so. However, he makes a valid point about the explanation and it is appropriate to explain the Government’s intention behind the clause.
The clause will allow the UK to make amendments to the Bill, as noble Lords have mentioned, to allow for the imposition of new and unforeseen sanction measures, a point well made by my noble friend Lord Faulks. The power is confined to new types of sanctions and cannot be used to alter the purposes for which sanctions can be imposed. I should explain what I mean by new types of sanctions. Common types of sanction include asset freezes, travel bans, arms embargos and prohibitions on aviation and maritime transport. These are included in the Bill. However, the international community sometimes finds it necessary to develop and deploy new types of sanctions. Indeed, a recent example is the UN sanctions imposed in respect of North Korea. That resolution requires that UN member states do not grant work permits to North Koreans save where the UN agrees, in advance, on a case-by-case basis. Prior to the UN’s putting in place that sanction, such a sanction did not exist. There may be times in the future when a currently unforeseen type of sanction would again be appropriate.
Lord Pannick
I am sorry to interrupt the Minister but if the new type of sanction is to be imposed because the UN has considered it appropriate, it surely falls within Clause 7.
Lord Ahmad of Wimbledon
I think I mentioned Clause 7 in the preamble, but the noble Lord is correct. I was going on to say that, while Clause 7 would allow the UK to adopt new types of sanction when mandated by the UN, there may be times in the future when the UK needs to act outside the direct auspices of the UN.
Without the power provided by Clause 39, the UK will not be able to deploy these types of sanction without first passing new primary legislation. I have heard that point very clearly from noble Lords. That could significantly hinder our ability to co-ordinate sanctions with allies at times when UN action is not possible for political reasons. I alluded to the circumstances in earlier debates. This would risk the UK becoming the weak link in co-ordinated international responses to international crises of the kind we have seen in the Syrian civil war and Russia’s annexation of Crimea.
I also agree that it is important to give Parliament its assent when new powers are bestowed on government. That is why this clause provides that the draft affirmative procedure be used in these circumstances. In proposing that this procedure be followed—I come back to a point I made in earlier debates—the Government have sought to balance the twin demands of ensuring parliamentary scrutiny and ensuring rapid international responses.
That said, I will make two points, first on the substantive issue. I have again indicated the Government’s willingness to listen. The noble Baroness, Lady Northover, among others, rightly made the point about the reports that have been produced by both the Constitution Committee and the Delegated Powers and Regulatory Reform Committee. Indeed, they have made a similar point to that which has been debated in this House and we will be responding to those reports shortly. Therefore, I will take this back and look at the sentiment and the strength of opinion that has been expressed in this House.
On the point made by the noble Lord, Lord Pannick, and the noble and learned Lord, Lord Hope, on the drafting of Clause 39(2), while I am not a lawyer, I was looking specifically at the drafting as the noble Lord spoke. It is extremely important that we look at that again and I will take that back to ensure the drafting reflects the intent behind Clause 39. With that proposal, I hope the noble Lord will be minded to agree to the clause standing part of the Bill.
Lord Paddick (LD)
My Lords, in asking that Clause 40 should not stand part of the Bill, we seek the clarification that I asked for at Second Reading, and failed to receive from the Minister, about Clause 40 and the power to make provision relating to routes to challenging decisions with immigration implications. Noble Lords will know that the Bill gives powers to Ministers to impose sanctions. Among them are immigration sanctions or the power to designate persons as “excluded persons” for the purposes of Section 8B of the Immigration Act 1971. In essence, part of the sanctions package could be either to remove designated persons from the UK or to prevent them entering the UK. The Bill provides a mechanism for those affected to ask for the decision to impose sanctions to be reviewed, initially by a Minister and subsequently by the courts—the Court of Session in Scotland and the High Court in the rest of the UK—which could include the decision to designate an individual an excluded person. This would, in effect, be an appeal against the decision to impose the sanction.
An excluded person could, alternatively or in addition, claim that they have a right to asylum in the UK or that their human rights would be infringed if they were returned to their country of origin or refused entry to the UK. This would, in effect, be an appeal against the consequences of the imposition of the sanction, rather than against the decision to impose the sanction itself. It is important that these two potential routes to challenge being designated an excluded person—either the decision to designate or the consequences of being designated—are dealt with separately and appropriately. My understanding is that that is what Clause 40 allows the Government to do, by regulation.
However, Clause 40 is quite complex and, at the same time, non-specific about what the regulations and their effect might be. The Explanatory Notes to the Bill appear to suggest, in paragraphs 115 and 116, that claims of asylum and human rights will continue to be dealt with by the Home Secretary as the Minister with the knowledge, experience and expertise to decide these matters, not by the Minister imposing the sanctions, and that any appeal against the Home Secretary’s decision would be to the immigration and asylum chamber of the First-tier Tribunal, a specialist tribunal with expertise in deciding such claims, not the High Court or Court of Session, where an appeal against the imposition of the sanction would be heard.
In a letter dated 16 November, the Minister stated that it was the Government’s,
“intention to provide, at Committee stage, an illustrative draft Statutory Instrument in relation to the powers under clause 40, so that Peers can fully scrutinise how decisions that have immigration implications will be taken and the routes of challenge”.
We are in Committee and have come to Clause 40 in the Bill, and no illustrative draft statutory instrument has been made available. Can the Minister tell the Committee how noble Lords are expected to accept Clause 40 in the absence of what he promised in his letter?
Lord Ahmad of Wimbledon
My Lords, perhaps I might intervene in this debate and save the Committee some time. First, they say that sorry seems to be the hardest word but it is not for me. I apologise to the noble Lord, Lord Paddick, since after Second Reading, as he said, I wrote to him and said that the Government intended to bring forward a draft instrument and would put on record during Committee the Government’s intended policy in regard to this clause. I regret to say that we have not fulfilled the first part of that intention—I will come to it in a moment—but I hope that, through what I say, I can fulfil the second part of it now.
Let me assure the noble Lord, Lord Paddick, and the Committee more generally that much work has been, and continues to be, done between officials in various departments on refining this important policy area. As the noble Lord acknowledged, the issue is complex and involves not only the specialist tribunal but how this relates to other aspects of the Bill. This has meant that, despite best efforts by officials, the draft statutory instrument was not ready to be published. It was my view and that of the Government that, rather than publish a statutory instrument that is not yet fully ready, Parliament would be better assisted by seeing a more mature version of that instrument. To that end, my officials and others across Whitehall will continue this work apace. We will endeavour to publish a version of the statutory instrument ahead of Report. I would be happy to meet the noble Lord in the interim to discuss this specific issue. I would also like to put on record for the Committee the intention behind this clause and address some of the points that he made.
Clause 40 concerns how appeals against the immigration consequences of UK autonomous sanctions are handled. I would like to give the Committee some background as to the current arrangements before I go on to speak about the clause. Under the current arrangements, UN or EU travel bans are, in the vast majority of cases, imposed on individuals who are outside the UK and have no connection to the UK. The Immigration Act 1971 already makes provision for persons subject to UN travel bans. Clause 40 allows us to ensure that the persons subject to UK autonomous travel bans can benefit from a similar provision.
In the unlikely event that a UK autonomous travel ban were to be imposed on a person in the UK, this would, as a matter of domestic law, have consequences for their immigration status in the UK—a point I know concerned the noble Lord, Lord Paddick. Whereas a person who is outside the UK will be refused entry, those who are in the UK will lose the right to remain here and may be subject to removal. A person affected in this way might argue that any removal from the UK would interfere with their rights under the European Convention on Human Rights, or be contrary to our obligations under the refugee convention. As a result, they may wish to make a human rights or humanitarian protection claim to prevent their removal. These immigration claims are usually decided by the Home Secretary, and a very developed machinery has grown up around the decision-making process to ensure that it is fair and effective and, importantly, complies with our international obligations. Such decisions, once made, can also give rise to a right of appeal before the immigration and asylum chamber of the First-tier Tribunal, a specialist tribunal with expertise in deciding such claims.
I turn to the Bill. Such immigration claims may also be made against the immigration consequences of a UK autonomous travel ban imposed under the Bill. Again, immigration claims are most likely to arise where an individual in the UK would lose their right to remain here. Noble Lords might ask why we need Clause 40, given that this situation can already arise in the context of a UN or EU travel ban. I wish to explain the point here. The Bill establishes a new administrative reassessment process for designations and a court review process in the High Court or, in Scotland, the Court of Session. No such equivalent administrative and court mechanisms are currently applied in domestic law for UN or EU travel bans. The mechanisms in place are different, so we will need to adapt the existing decision-making and appellate structures that I described earlier in order to accommodate the Bill. That is why we need Clause 40.
I turn back to the practicalities. Cases of this kind are likely to be limited in number, but it is vital that we get this right—a point made by the noble Lord himself. The Government consider it important to ensure that such claims are handled appropriately. We want to ensure that domestic sanctions do not unjustifiably interfere with fundamental rights or run contrary to our obligations under the refugee convention. It is also important that the effectiveness of our domestic sanctions regime is not compromised because our domestic legislation no longer enables us to manage effectively such immigration claims as may be made. The Government have therefore considered how these immigration claims should be treated in the context of the new administrative reassessment and court review processes.
Our conclusion is that, as a starting point, we should seek to maintain the status quo. The Home Secretary and the Immigration and Asylum Tribunal should remain the appropriate decision-makers, as they are now. Both the Home Office and the tribunal are vastly experienced in this area, having dealt with 38,681 human rights and asylum claims and appeals in 2016 alone. However, some changes will be necessary in order to ensure that domestic legislation enables us to manage situations where, for example, there would otherwise be the possibility of both the High Court and the tribunal considering the same issues, or the High Court being required to determine a protection claim that the Home Office had not had the opportunity to consider.
To illustrate the point, whereas the tribunal would be best placed to determine an appeal against an immigration decision, determining the lawfulness of a decision to freeze an individual’s assets is a decision that would be better suited to the High Court. The clause provides the powers necessary to make these changes, which will ensure that we continue to comply with our international obligations and that the effectiveness of our domestic sanctions regime is not compromised. To provide appropriate scrutiny, regulations made under this power will use the draft affirmative procedure.
I give this very detailed explanation along with, once again, an apology to the noble Lord, Lord Paddick. I believe that at Second Reading when he raised this issue I had momentarily left the Chamber or I was near the Box to clarify something, so I did not fully hear his contribution and read it only later in Hansard. As I said, I put on record that we would look to return to this in Committee, which clearly we have not been able to do. I am much minded that the instrument put forward is one that we have looked at extensively and reflects the detail of what I have just submitted to your Lordships’ House. I therefore hope that with that somewhat detailed explanation, which I briefly mentioned to the respective Front Benches out of courtesy to your Lordships’ House, the noble Lord will be minded to withdraw his amendment, with the assurance that I look forward to working with him specifically on that SI before Report.
Lord Falconer of Thoroton
I am grateful to the Minister for that helpful and detailed explanation. As I understand him, he is saying that regulations can be produced under this provision, which will delineate between the Minister, the High Court and the Upper Tribunal as to who decides what in relation to the variety of legal challenges that are available both in ordinary law relating to asylum and the right to remain and the rights given under this Act.
That is pretty complex. It is very difficult to judge whether this regulation-making provision is appropriate in its width without seeing a draft of what the Government have in mind. It is critical that the draft be made available a significant time before Report. I do not know when Report will take place, but it may be in the middle of January. Therefore, in the light of what the Minister said about the detailed work on this draft instrument, when might we see it? Obviously, a lot of work has been done on it and there is a draft in existence. The issue is legal appropriateness and there is no reason why we should not see the draft now.
Lord Ahmad of Wimbledon
The noble and learned Lord makes an important point about ensuring appropriate time before Report. He is correct to say that we are looking at Report taking place towards the middle of January in the new year, and correct to say that we must allow sufficient time to accommodate it. I cannot give him chapter and verse on the exact date but he makes his point well. I also subscribe to his view that it is important to allow noble Lords sufficient time.
Lord Falconer of Thoroton
I am not asking for a specific date, but will it be by the end of the week, or the end of next week? The Minister must give us some assurance that we will have it in time.
Lord Ahmad of Wimbledon
As I said, there are already, as the noble and learned Lord will acknowledge, various issues. We will do this in good order. Perhaps I may take this matter back—because various departments are working on this—and clarify appropriately. I will write to noble Lords on the specific date by the end of the week, which will then provide the detail. I fully acknowledge what the noble and learned Lord said about the importance of allowing effective scrutiny before Report. I say to the noble Lord, Lord Pannick—I am sorry, I meant the noble Lord, Lord Paddick; the noble Lord, Lord Pannick, has left but he clearly left an impression on me—that I look forward to working with him once the draft instrument has been circulated. For good order—I look over to the Box and my private office—once the draft has been published, we will seek to circulate it and lay a copy in the Library, as appropriate.
Lord Collins of Highbury
I, too, welcome the noble Lord’s statement that Report will not be until mid-January.
Lord Ahmad of Wimbledon
I think that I am being corrected by my rather forceful Whip on my left. I am sure that this matter will be clarified through the usual channels.
Lord Paddick
My Lords, I very much welcome the support and contribution of the noble and learned Lord, Lord Falconer of Thoroton. I am very grateful to the Minister for explaining that asylum claims, and any claim that somebody’s human rights will be infringed, will be dealt with by the most appropriate Minister—the Home Secretary—and through the immigration appeal tribunal route, and not by the provisions in the Bill to appeal against the imposition of the sanction itself. I am grateful for that reassurance; it is the one that I was seeking.
I am grateful, too, for the Minister’s apology for missing some deadlines, if I may put it that way. Obviously, I am content to withdraw my opposition to Clause 40 standing part of the Bill.
The Earl of Courtown (Con)
My Lords, as the passage of business has travelled fairly quickly, I think it only fair to speakers in the next debate if we adjourn for 10 minutes until 7 pm.
Sanctions and Anti-Money Laundering Bill [HL]
Wednesday 6th December 2017
(6 years, 11 months ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 69-III Third marshalled list for Committee (PDF, 106KB) - (4 Dec 2017)
Lord Davidson of Glen Clova (Lab)
My Lords, I beg to move Amendment 68ZA and will refer to the other amendments standing in my name. The rationale for this amendment springs from the considerable and widespread concern that there is insufficient democratic oversight of the future anti-money laundering and counterterrorist financing regime, which together with broad delegated powers will permit any future Government to both bypass Parliament and weaken the UK’s anti-money laundering and terrorist financing regime. Accordingly, the amendment seeks to impose an expressly ameliorative obligation on ministerially created regulation in detecting, investigating or preventing money laundering or terrorist financing, or indeed implementing the standards of the Financial Action Task Force.
When the current Foreign Secretary talks of a low-tax, low-regulation dream of a post-Brexit UK, it will be appreciated that he creates concern over whether this includes deregulating our current anti-money laundering and terrorist financing regime in due course. Given the importance hitherto of the UK’s AML and terrorist financing regime marching in lockstep with the EU, the low-regulation rhetoric has a destabilising impact on the perceptions of our European partners. A low-regulation AML and terrorist financing regime in the UK would of course create a new and substantial weakness in the global battle against economic crime, and would be an allurement to organised crime.
The role of the City as the pre-eminent global financial centre places certain responsibilities on the Government, including the maintenance of a strong and up-to-date AML and terrorist financing regime. It would be interesting to hear from the Minister what consideration the Government have given to the adverse effect on access to EU financial markets if UK financial services were subject to an AML and terrorist financing regime diverging materially from the EU regime. Obviously, there will not be an impact assessment of this, but some indication might be helpful.
Be that as it may, the amendment would improve confidence that the UK will not succumb to any temptation to weaken its current regime, and go for a low-regulation regime, in the event that the UK leaves the EU. I beg to move.
Baroness Bowles of Berkhamsted (LD)
My Lords, I will speak to the amendments tabled in my name and in that of my noble friend Lady Kramer. First let me take a brief moment to set the context. At Second Reading the Minister, the noble Lord, Lord Ahmad, said that this Bill was,
“about powers and not policy—it is a technical Bill”—[Official Report, 1/11/17; col. 1374].
Later, when replying to the debate, stimulated by comments by my noble friend Lord McNally, he amended his comment that the Bill was technical and said that it was about principles.
I do not agree. I would say that the problem with the Bill is that there are no principles, because they have not been carried over; there are only unconstrained powers. That is even more the case in the money-laundering part of the Bill. The principles, the starting points, are not defined. In fact, current law is undermined—and, as has already been well expounded on previous days in Committee, the good intentions of the current Minister and the Opposition Front Bench are no safeguard for the future.
There is also the widening effect when EU legislation is no longer governed by the policy constraints of EU treaties or the Charter of Fundamental Rights, which has a particular place in relation to the subject matter of the Bill. In transposition, all that has gone. This leaves us with two fears to address: first, that good law might be wantonly minimised or revoked, and, secondly, that wide powers might be used oppressively or for the wrong purpose. Both those prospects take advantage of the inadequacy of statutory instruments as a way to deal with fundamental matters.
Amendment 68A, which would replace Clause 41, Amendment 69E, which is about standards and designations, Amendment 72A, which would delete Clause 44(3), and Amendment 69A, which deals with exemptions from amendment and revocation, together address the fears that I have outlined. Before getting into the detail I will explain how they fit together. Of course, at this stage they are probing and illustrative, and I know that they are not perfect.
Amendment 68A would delete Clause 41 and replace it with an anchored principle that the money laundering regulations 2017 will continue, and that if they are to be amended, it must be done by an Act of Parliament. Amendment 69E, which could have been rolled up into the same amendment but stands separately, would provide an exception to the requirement for an Act of Parliament for amendment, and would allow for regulations to follow Financial Action Task Force standards and to update the definition of high-risk countries.
I think that there is general agreement that that is needed, but within that context—my Amendment 69E is not perfect in this respect—I have to caution that following FATF standards does not necessarily take into account civil liberties, so a framework of policy is also needed for that. Clause 41 does not give any guarantees of any such framework being carried over, and that aspect needs more attention. So the two amendments that I have outlined lay the general shape as I see that it should be. There are, however, many ways in which the provisions of the Bill, and elsewhere, can render complete change or revocation to whatever shape is laid out.
Amendment 72A to Clause 44(3) would remove the prospect of shape shifting from within the Bill. It would remove the potential to change, by regulation, the definitions of terrorist financing that were themselves made in separate Acts of Parliament that did not envisage change by regulation.
Amendment 69A is there to remind us that shape shifting and revocation options exist externally of this Bill via the European Union (Withdrawal) Bill and the Legislative and Regulatory Reform Act 2006, which can, by regulation, revoke all or part of any Act or regulation in the name of efficiency. Of course, there is no escaping the fact that procedures to combat money laundering and terrorist financing must impose burdens, which to some means inefficiency. The noble and learned Lord, Lord Davidson, has already hinted at some of that. Amendment 69A would, therefore, exempt from revocation or amendment under the two Acts that I have just mentioned.
As regards the deletion of Clause 41, I, too, have had emails from NGOs and others raising concern about the lowering of standards, including one from Global Witness suggesting that Clause 41 be narrowed to permit only enhancement of legislation. I appreciate that is what the amendment moved by the noble and learned Lord, Lord Davidson, sets out to do, and I borrowed some of the language from that to use in one of my amendments. However, the problem is that it is not only in Clause 41(1) that legislation can be done away with by regulation. It appears again, particularly in Schedule 2, where, under paragraph 20, there is carte blanche to change or revoke the money laundering regulations 2017, and one can only interpret that as some kind of intention so to do. I have already mentioned the withdrawal Bill—Clauses 7 and 17 of that Bill are prime suspects—and the “revoke anything” provision in the Legislative and Regulatory Reform Act. So we need to do more to protect against revocation of things that we do not want to see revoked.
On the other fear, of being overbearing, there is the prospect that the already wide definitions of money laundering or terrorist financing could be extended. This is where Clause 44(3) comes in, which uses Clause 1 to modify definitions of terrorist financing that appear in the four other pieces of legislation mentioned in Clause 41(3). Thus Clause 1, which we have already heard quite a lot about as regards the sanctions part of this Bill, now creeps into the anti-money laundering part. It is also worth reminding ourselves that the Delegated Powers and Regulatory Reform Committee has already said in paragraph 37 of its report that each of prevention, detection and investigation have the potential to allow the grant of significant powers affecting the rights of individuals and bodies—and that is before any tinkering with the definition of terrorist financing and before considering the removal of European protections on civil liberties.
Of course, under Clause 1, one of the objectives for change includes furthering a foreign policy objective of the United Kingdom. I pointed out on the first day of debate how UK terrorist legislation was used to freeze the assets of Landsbanki for having reckless capital adequacy and interest rate policies. This was what got them into difficulty—things that were nothing to do with terrorism. Is that the kind of thing that in future might be a foreign policy objective? In that particular instance, I know that it was cooked up in the Treasury. But what guarantees are there against all kinds of disconnected foreign policy objectives? All that flows from Clause 1 becomes relevant in the money-laundering part of the Bill.
Baroness Kramer (LD)
My Lords, I support the thought process behind the amendment of the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins, and I also support my noble friend Lady Bowles. I do not think that I can better the explanation that she has given but perhaps I can reinforce a few of the key points.
Clause 41 has a huge impact on the balance of power between this Parliament and the Executive. Historically, the laws that have governed not the crime of anti-money laundering but the anti-money laundering regulations that provide the network with which to prevent money laundering have gone through an intensive democratic process within the European Union. They have gone through consultation, scrutiny, debate and votes within the European Parliament, and through discussion and presumably votes within the Council. The consequence has been a directive from which flows implementation within the UK through regulation, but only in the context of the very extensive democratic scrutinising and challenging process that has taken place beforehand.
In this transposition, that entire democratic process is destroyed in Clause 41—it disappears entirely. The process that has taken place in the European Parliament and the European Council and its various committees, as well as in the consultation and everything that surrounds it, disappears to be replaced purely by statutory instruments. That is a fundamental shift in the balance of power between a democratic body and an Executive body. I thought that the whole purpose of Brexit was to take the powers that lay with the European Parliament and the Council and to transfer them to this place, not to transfer them wholly to the Executive so that they could use that very narrow strategy of regulation. As my noble friend pointed out, this goes deep and wide. There are no frameworks and no constraints within the Bill that limit the range of powers that it essentially conveys and confers upon the Executive.
The Delegated Powers and Regulatory Reform Committee obviously responded with great vehemence to all this. It concluded:
“We take the view that the FCO”—
the committee saw it as a Foreign Office Bill but I think we may get a response from the Treasury—
“has not provided sufficient justification for the delegation of powers by clause 41, particularly having regard to their wide scope and the significance of the powers conferred. Accordingly we consider the delegation of powers by clause 41 to be inappropriate”.
When we have talked—the Minister has been kind enough to agree to meetings with him and his officials—the argument that has been placed before us is that this enables us to act with speed because speed is essential in the anti-money laundering arena. I think we can all agree that speed and the processes of the European Parliament and Council are not tangled together. If the European Parliament and Council feel it is appropriate to take the time and focus to develop the policy framework then surely there is no urgency for the United Kingdom to throw it away simply to be able to move directly to regulation.
As my noble friend said, it is quite possible within the amendments she has drafted to carve out the small arena in which speed might be relevant. It is limited. It is rare. It might happen and it can be carved out without requiring the rest of the framework to be dismissed and abandoned for a purely regulatory process.
When we had those meetings, my understanding was that one of the reasons for drafting Clause 41 in this way was to allow the consequences of the fifth money laundering directive—which is currently in process in the European Parliament and Commission; I think it is in trialogue at the moment—to be implemented in the UK. That process has taken a sufficiently long time that it seems perfectly possible for it to go through a process within this Parliament with its democratic background. We will probably have those regulations in place before Brexit—perhaps with the possibility of a spillover. I believe that, for those specific regulations, that is something that could very quickly be accommodated. What is fascinating, though, is that if that were the Government’s purpose, there would have been a very tight sunset clause for this—perhaps one of days or a few weeks—but there is no sunset clause. This process of acting through regulation and not through democratic process would be in perpetuity.
I want to pick up the comments from the noble and learned Lord, Lord Davidson. When I speak with these Ministers and with the Opposition today, I understand that they have a personal commitment, and I believe the Government have a commitment, to strong but proportionate anti-money laundering processes. It is because of that personal commitment to proportionality and good regulation that they have felt it completely unnecessary to enshrine those two factors in the Bill. I like very much the phrase that the noble and learned Lord, Lord Davidson, used. When I say we are talking to sheep, I mean it only in the benign sense of sheep—I think sheep are lovely; I do not mean it in a passive way. However, the framework of a Bill designed around those who have benign intentions will provide equal power for those who do not have benign intentions. I think every one of us in this House has often had conversations with people—particularly in the City of London, where I spend a certain amount of my time—who believe that it is absolutely necessary to go back to light-touch regulation and that we are overly fussed about issues such as money laundering and really do not understand the dynamics of modern business; and that it might be necessary for our future, post Brexit, to move to something that is much looser to ensure that London remains attractive. I attribute none of that to the Ministers who are sitting here. But they must recognise that they have permitted the inaction of just such an approach through regulation alone by the language they have put in the Bill. I have no idea if Clause 41 and the related clauses have been drafted in this way simply because there was very little time and, frankly, very little effort put into them, or whether there was a fundamental attempt to achieve a transfer of power. If it was the latter, it is crucial that Ministers tell us why this particular structure has been chosen.
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, I thank noble Lords for introducing their respective amendments. I recognise, as I did at Second Reading, that there has been a good deal of interest in the anti-money laundering provisions of the Bill. In that regard, noble Lords may have noticed—and I am delighted—that I have been joined by my noble friend Lord Bates beside me on the Government Front Bench. I shall defer to him for some of the groups that we will discuss today.
Importantly, I hope this emphasises three things to the Committee: first; the Government’s cross-Whitehall and collaborative approach to the Bill; secondly, the Government’s recognition, as I said, that this is an important Bill and our desire is to get it right; and thirdly, as I hope noble Lords acknowledge—I know I speak for myself and my noble friend—that the Government deeply value what this House brings to discussions and scrutiny and equally respect its role in this regard. That is also true of today’s Committee. We have therefore ensured that appropriate Ministers are present to listen to the points raised by noble Lords.
The description of a wolf in sheep’s clothing took me back to reading the story of the Big Bad Wolf to my three and five year-old children. I assure noble Lords that there are no surprises in the Bill. The intent is very clear. I shall also provide greater detail in laying out the context behind the Government’s response to the amendments before us because that is important to your Lordships’ Committee.
Amendments 68ZA, 68ZB and 68ZC propose that regulations made under Clause 41 may be made only for the purposes of improving the detection, investigation or prevention of money laundering or terrorist financing, or for improving the implementation of international standards published by the Financial Action Task Force. I agree with the intention behind these amendments. This Government and our predecessor have, since 2015, led the way in combating money laundering and terrorist financing. Earlier this year, we brought the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 into force, ensuring that our anti-money laundering and counterterrorist financing regime met the global standards set by the Financial Action Task Force. We are the only G20 country with a public register of company beneficial ownership and, through the Criminal Finances Act 2017, we are taking further action to permit banks to share information relevant to identifying financial crime.
The United Kingdom plays an active role in shaping the international standards set by the Financial Action Task Force, and has done so since it was first established in 1989. In view of the UK’s clear intentions and long record in leading the way in this area, and taking particular account of the commitment shown by this Government and our predecessor, I do not think these amendments are required to take us any further forward. I am sure that the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins, would agree that, realistically, no Government would bring forward regulations under Clause 41 to weaken our abilities to detect, investigate or prevent money laundering or terrorist financing, or worsen our compliance with international standards. Therefore, I hope the noble and learned Lord may be minded to withdraw his amendment.
Turning to Clause 41 in more detail and Amendment 68A, I understand that Amendments 68A, 69A and 69E—tabled by the noble Baroness—seek to protect the current anti-money laundering regime. That is set out in the 2017 money laundering regulations—I set out the full title earlier and will not burden the Committee with it again—which implement the EU’s fourth money laundering directive. Although I sympathise with that intention, I hope I can reassure the Committee that the level of protection afforded by these amendments is excessive and may have unwelcome effects.
Current regulations on money laundering and terrorist financing follow the internationally agreed standards set by the FATF and impose granular obligations on regulated firms. The UK has chosen to follow the FATF standards as anti-money laundering regimes are more effective where they are aligned internationally. That is a general principle accepted by noble Lords. As a general point, the precise nature of the obligations contained in regulations, such as detail of how firms should approach conducting due diligence on their customers and the factors they should take into account in assessing risk, is better suited to secondary legislation than primary.
That follows the approach typically taken in the UK and elsewhere to establishing detailed obligations on regulated firms. For example, the UK transposition of the fourth EU money laundering directive was given effect through primary legislation, for matters of a general nature—including existing provisions of the Proceeds of Crime Act 2002, the Terrorism Act 2000 and the Anti-Terrorism, Crime and Security Act 2001—with more detailed requirements on firms relating to, for example, their approach to due diligence and identifying beneficial owners being made in the 2017 money laundering regulations. A similar approach to transposition was taken by other EU member states.
To provide more detail on the UK legislation relating to the prevention of money laundering, the Proceeds of Crime Act 2002 establishes the general obligations on the regulated sector to report details of transactions that give rise to suspicion of money laundering or terrorist financing. Part 7 of that legislation additionally establishes the substantive money laundering offences relating to the concealment, acquisition, use and possession of criminal property. The 2017 money laundering regulations establish further and more detailed obligations, such as how firms should conduct due diligence on customers, establish and maintain group-wide policies and procedures, and assess risk connected with different customers. Unlike the provisions contained in POCA, those obligations are better suited to secondary legislation, given the detailed requirements that they impose on firms and the need to keep the detail of such obligations updated, to address emerging risks.
An example of the need to address emerging risks can be found through the rapidly evolving policy framework at EU and international level. As noble Lords will be aware, the EU’s fourth money laundering directive was largely transposed into UK law in June via secondary legislation, through the money laundering regulations, as I have said. Yet noble Lords will also be aware that amendments to the fourth money laundering directive were being negotiated even before EU member states had transposed the original directive, demonstrating that anti-money laundering and counterterrorist financing standards can evolve at a rapid pace. The noble Baroness, Lady Kramer, made the point about the justification that the Government are giving and continue to give in this regard: to quickly and effectively address emerging risks and ensure that the UK is a hostile environment for illicit finance, it is right that we use secondary legislation to implement future policy changes. That will ensure that the UK stays aligned with the evolving international standards in this area.
Baroness Kramer
I hope that the Minister can clarify something. He said that it is important to have access to regulation to reflect changing policy standards. Where are those standards? Are they in a piece of legislation? Are they up for debate in this House? Are they really what one Minister decides is policy? Perhaps he can explain that, because that is the missing piece—there is no structure for policy to go through a democratic process.
Lord Ahmad of Wimbledon
As I have already indicated—and I will perhaps challenge the noble Baroness—when we take the legislation in a wider sense, whatever the legislation, there is primary and secondary legislation. As I have said before on secondary legislation, the procedure being put forward by the Government would allow that policy to be stated and debated in both Houses of Parliament.
I shall finish the point. In terms of existing money laundering, I have already alluded to the fact that with the previous directive the money laundering regulations laid out the detail to which the noble Baroness refers.
Baroness Kramer
I must press the Minister on this. He used the word “allow”. I am sure the Government can do what they wish in that sense and can bring forward primary legislation, which this is. Will the Minister confirm that it does not have to go through primary legislation? The—in effect—primary legislation that sits behind the 2017 regulations that he described took place within the extensive process of democratic debate, scrutiny and votes in the European Parliament. I am trying to understand where that piece goes in this legislation.
Lord Ahmad of Wimbledon
My Lords, once we leave the European Union—and I notice the change in tack from the noble Baroness who said “when” and not “if” any more—
Baroness Kramer
It was an error on my part. The more we go into this discussion, the more “if” sounds realistic.
Lord Ahmad of Wimbledon
The noble Baroness knows how much I care for the accuracy of Hansard. She has clarified that.
In this case, the Government’s view is that there will be scrutiny of all future legislation once we have left the European Union. The Government will decide what element of policy that is subsequently translated into legislation will appear as primary legislation or as secondary legislation. However, for the purposes of this Bill, which I will come on to in a moment, there are certain elements that we are laying out in primary legislation and in secondary legislation. In both cases, after we leave the EU it will not be scrutiny in the European Parliament but scrutiny in this Parliament, and the Government will ensure it. I ask the noble Baroness to reflect on this point. When I come to the more substantive comment, if she will allow me, there are mechanisms within secondary legislation to allow for the effective debate to which I alluded at Second Reading.
To get back to the point that I was making—perhaps we differ on this and I acknowledge what the noble Baroness says—we believe that in order to address emerging risks quickly and effectively it is important to ensure that the UK is a hostile environment for illicit finance. This is consistent with the broader regulatory regime relating to financial services, for example, which also requires swifter tools that can be more readily updated to address emerging risks than primary legislation. A similar approach to implementing the standards set by the FATF is applied outside the UK in countries such as the United States. There, the Currency and Foreign Transactions Reporting Act 1970 imposes requirements relating to the reporting of suspicious transactions and so is broadly analogous to the Proceeds of Crime Act 2002. The detailed requirements of the international standards relating to areas such as due diligence and record keeping are then established through regulations promulgated by the Financial Crimes Enforcement Network, housed within the Department of the Treasury.
The Government are committed to parliamentary scrutiny of legislation made through delegated powers as we leave the European Union. This is the point I wish to make to the noble Baroness. I have made it before, but I hope it will reassure some, if not all, noble Lords that regulations made under Clause 41 will be subject to the draft affirmative procedure, unless they update the list of high-risk third countries, in which case they will be subject to the made-affirmative procedure. I made this point previously. I emphasise that updates to the list of high-risk countries will still require parliamentary approval, but they need to be put in place swiftly, as I am sure many noble Lords accept, so that banks and businesses can start to apply the enhanced due diligence measures which are appropriate for these high-risk areas.
The use of secondary legislation to amend anti-money laundering and counterterrorist financing regulations is consistent with our legislative approach in the past. The noble Baroness, Lady Bowles, raised the use of secondary legislation with certain Acts, but in general that is not new. I believe I have already made this point, but it was used, for example, to put the money laundering regulations 2017 in place following the fourth money laundering directive. It also provides consistency with our approach to regulations related to financial services and ensures that our anti-money laundering and counterterrorist financing regime remains consistent with internationally agreed standards. It also avoids the unusual position whereby secondary legislation made by a Minister cannot be changed without primary legislation made by Parliament. I hope that I have convinced the House that Amendment 68A is unnecessary and would place an excessive burden on legislation that needs to be flexible and capable of rapid change.
Baroness Bowles of Berkhamsted
The Minister said that the reason this is done in regulations is because telling a bank how to do its due diligence is too detailed for primary legislation. But he is rather overstating the case, because Regulation 18 of the 2017 money laundering regulations says that, “A relevant person”—this would be the bank—
“must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its business is subject”.
The first requirement there is:
“In carrying out the risk assessment required under paragraph (1), a relevant person must take into account … information made available to them by the supervisory authority”,
under Regulation 17. If you go back, you find that the supervisory authority has to take notice of what the Treasury and the Home Office have said. So this is a cascade that automatically updates. If there is a new risk, the Government identify it, along with mitigating measures, and tell the supervisors, which devise ways to update the information for their sectors. Then the onus is still on the individual businesses to work out how to do this. Yes, there is a list of factors to include, but it is within the power of the Government to say, “This is an extra factor; it does not even need any legislation”. However, it embeds the duties of the Government to have a position and to come out with their reports and then the duties of the supervisors. None of that is definitely retained, because everything to do with this money laundering directive can be rubbed out. So it is not about the excruciating detail that the Minister says it is—the excruciating detail comes from the supervisors.
Lord Ahmad of Wimbledon
I understand the point the noble Baroness makes, but it is not about—to use her term—the excruciating detail. Secondary legislation—with parliamentary scrutiny—provides the Government with the ability to react to rapidly changing circumstances. Relying on primary legislation would not allow the Government to do that. We have a difference of opinion in that regard—but, on the point she made, guidance to financial institutions would follow whatever legislation and whatever rules and laws prevail at that given time.
I turn to Amendment 69A. After the EU (Withdrawal) Bill receives Royal Assent, the powers under the Bill as they are drafted will allow changes to the money laundering regulations 2017 and to the funds transfer regulation which are appropriate to prevent deficiencies that arise as a result of the UK ceasing to be a member of the European Union. It will not enable any other changes to be made. I note that the noble Baronesses, Lady Bowles and Lady Kramer, are aware of the need to make such changes to the money laundering regulations 2017, as demonstrated by Amendment 69D, which we will discuss later today. However, the Government’s approach in this area is to ensure continuity for regulated firms, and certainty for businesses as to the nature of the obligations with which they need to comply.
In order to ensure that our anti-money laundering regime makes legal sense on withdrawal from the EU, we anticipate laying brief regulations made under the power in Clause 7 of the EU (Withdrawal) Bill so as to fix a limited number of deficiencies within the money laundering regulations and the funds transfer regulation. Our approach will make amendments such as—for example—removing references to the Government needing to have regard to reports published by the European Commission and to the Government having to file notifications of risk assessments with EU institutions. It would not be appropriate to keep these obligations, as I am sure noble Lords acknowledge, once the UK ceases to be a member of the European Union.
Given the necessity for such changes in order to have functioning UK law, I do not agree with Amendment 69A, which would remove the ability to make these necessary fixes to our existing laws. Being unable to make necessary changes of the type that I describe would not take account of the fact—the basic fact—that the UK will have ceased to be a member of the European Union.
Legislative reform orders that derive from the 2006 Act are designed to reduce the regulatory burden rather than achieve any policy changes. They must meet a number of preconditions before they can be used to reduce regulatory burdens. Most importantly, they are not allowed to remove any necessary protection, and are therefore not a risk to regulatory safeguards within the money laundering regulations 2017.
I do not agree with the proposed exclusion of a useful tool to ensure that the UK’s anti-money laundering regimes can be simpler, easier to understand and easier to comply with, while ensuring—a point well made by the noble Baronesses in speaking to their amendments—that standards are not driven down, which I agree with, and the strength of the system is maintained. That is another point of principle I agree with.
I hope the Committee will also consider how legislative reform orders are used. There is no convention to use them to make controversial changes, and the preconditions in the 2006 Act will always apply. I believe that the preconditions of the 2006 Act are the appropriate way of constraining the use of its powers. Further, disapplying legislative reform orders in a single case might suggest that it would be appropriate to use them in other similar contexts.
I turn now to the proposed new clause contained in Amendment 69E that would limit amendments to the money laundering regulations 2017 to only those which implement standards published by the Financial Action Task Force, or that identify or revoke a designation of a high-risk third country. I should add that I am again grateful that within the clause both noble Baronesses recognise that new powers are required to update the UK’s money laundering regime after we leave the EU.
The Government are committed to playing a leading role in shaping global anti-money laundering standards through our membership of the Financial Action Task Force. Noble Lords will be aware that we led a successful campaign through the FATF to clarify that only some charitable organisations, such as those working in conflict zones, are vulnerable to terrorist financing, and in doing so improved the ability of civil society organisations to function and receive funding. We have also actively worked to clarify the obligations on the private sector to share financial intelligence. In doing so, we are addressing a key priority for the private sector, which consistently delivers the message that we will be better able to manage financial crime risk if it is able to share more information regarding suspicious customers.
It is right that the Government have the power to update the UK regime when such standards change. There are, however, several areas where the UK’s anti-money laundering regime already goes beyond these standards. Our recently established register of trusts generating tax consequences, for example, goes beyond the standards set by the Financial Action Task Force. Similarly, the decision at Budget 2015 to regulate virtual currency exchanges for the purposes of anti-money laundering and counterterrorist financing did not reflect an expectation of the Financial Action Task Force—it went beyond and it was a policy decision to which we expect to give effect through transposing amendments to the fourth EU anti-money laundering directive.
Although we will remain aligned with Financial Action Task Force standards after the UK ceases to be a member of the EU, our anti-money laundering regime already exceeds its standards in certain areas and we will wish to ensure that our defences against misuse of the financial system remain ahead of global standards, rather than solely reflecting them. Ensuring that we can make regulations so as to detect, investigate and prevent money laundering or terrorist financing, as well as to implement the standards of the Financial Action Task Force, is the most certain method of placing future changes to our anti-money laundering system on a sound legal basis. Adopting the amendment would limit our ability to do so in future.
Baroness Bowles of Berkhamsted
I concede that maybe we should have said “be at least as strict as”, but there is nothing in the Bill that says we are going to maintain and be ahead of global standards. We would all be a great deal happier if there were something in there indicating that standards would be maintained. We know there are good intentions, the Government have been doing good things and the Front Bench opposite would do good things, but it is not there in writing. That is what is fundamental to this: the principles are not fixed.
Lord Ahmad of Wimbledon
I thank the noble Baroness for acknowledging the actions that this Government have taken and—I am sure I speak for the Front Benches—for the faith that she has in both Front Benches. I have listened carefully to her point. The point that I am making is that the UK has already shown that through our commitment to the FATF, which we will continue to be part of. Not only are we complying but we are leading, and that role will continue and indeed be strengthened by the UK’s membership of the FATF. The objectives and obligations that it asks member states to adhere to will continue after we leave the EU.
I turn to Amendment 72A. The definition of terrorist financing contained in Clause 41 of the Bill is identical to that which already exists in the 2017 money laundering regulations. This definition provides that “terrorist financing” means an act that constitutes an offence under various legislative provisions, being sections of the Terrorism Act 2000; the Anti-Terrorism, Crime and Security Act 2001, the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011 and the Terrorist Asset-Freezing etc. Act 2010.
As noble Lords will note, elements of the definition of terrorist financing within Clause 41 cross-refer to secondary legislation that creates a criminal offence; namely regulation 10 of the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011. This provides that any person who contravenes prohibitions contained elsewhere in those regulations commits an offence relating to the financing of terrorism. The offences created through those regulations play an important role in deterring the financing of terrorist organisations. Regulation 14 of those regulations further provides that a person guilty of the relevant offence is liable, on conviction on indictment, to imprisonment for a term not exceeding two years’ imprisonment or to a fine or indeed both.
Clause 1 of the Bill provides that an appropriate Minister may make sanctions regulations where doing so would further the prevention of terrorism, whether in the UK or elsewhere. It is possible that such regulations made under the powers conferred by Clause 1 could impose targeted sanctions and penalties similar to those that are established through the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011, and which are already captured within the definition of terrorist financing within the 2017 money laundering regulations. If such regulations are made, they will effectively update the UK’s regime for counterterrorist financing. I am sure noble Lords will also note that the reference in the definition to the Terrorist Asset Freezing Act etc. 2010 will become obsolete when Part 1 of that Act is repealed.
In these circumstances, it is right that the definition of terrorist financing within Clause 41 of this Bill can be updated so that the UK’s counterterrorist financing framework can be applied consistently, working off a single definition of terrorist financing. Clause 45(5) of the Bill provides that any regulations updating this definition would rightly be made through the draft affirmative procedure, providing Parliament with an opportunity for fully scrutinising any such changes. In the absence of such a power, the Government would otherwise be obliged to maintain a definition of terrorist financing within this legislation that could quickly go out of date and so limit the effectiveness of our response to the financing of terrorist groups.
Baroness Bowles of Berkhamsted
My Lords, there are a lot of regulations going on here that interact with one another. Will they be considered one by one, so that they can be looked at comprehensively, or will they come in a great big wodge—akin to the sort of thing we get on money laundering?
Lord Ahmad of Wimbledon
My Lords, I am sure that the noble Baroness will accept that there are times when it makes sense to discuss certain regulations together in a group. At other times, they will be discussed individually. We will certainly look at the context of each regulation and introduce it in the appropriate manner. The key point I would make in all this is that, under the procedure we have adopted, we want to ensure that there is effective scrutiny.
I totally accept the point of principle and have noted our difference of opinion on the point made by both noble Baronesses and others on primary and secondary legislation. However, I have explained why the Government believe their approach is the right one. I also appreciate the patience of Members of the Committee in our detailed discussions setting the context, which I am sure will be reflected in our discussions today. I thank noble Lords for their patience and indulgence, and hope that they are minded to withdraw or not move their amendments.
Lord Davidson of Glen Clova
My Lords, the patience of this side has not been strained by the Minister, who provided a complex and interesting setting-out of the way in which the UK envisages the future. The debate in this complicated and difficult area has been most useful.
The noble Baroness, Lady Bowles, provided an intensive forensic analysis, which, I suspect, may leave one or two questions that require answers that we may, no doubt, look at on Report. Plainly, there is a difference of view between the Government and the Opposition as to the way forward on minor matters but not on the substantive way forward. While I therefore recognise the tack made on the Bill by the noble Baroness, Lady Bowles, we do not share the way forward that she suggests. However, we recognise a number of the concerns she identifies.
The noble Baroness, Lady Kramer, set out her assessment of the damage to democratic scrutiny that this approach adopts. One does, of course, speculate what would happen if a Labour Government had proposed such wide powers for Ministers. One might imagine that certain Brexiteers would have fairly vociferous views on any such proposal.
The speed argument for the anti-money laundering aspect of this clause is not entirely clear, to this side at least. As to the answer stating that there are emerging risks, it would perhaps be useful to have some examples of how they have emerged and how the current system has failed to deal with them.
The noble Baroness, Lady Kramer, identified the possibility of a sunset clause. She will be pleased to see that my noble friend Lord Collins has an amendment proposing such a clause.
I must reject the ovine reference. We are trying to find a way forward that is consonant with a good, strong regime on AML and terrorist financing. I welcome the Minister’s intention to get it right. He sees improvement as a way forward and we share that approach. Our concern is that not every future Minister might share this Minister’s good intentions and is therefore to push the legislation in an improving direction, and it is for that reason alone that we advanced this amendment.
The Minister set out the UK position at length. Long may it continue; it certainly puts the UK in a strong, leading position in relation to money laundering and terrorist financing protection. At this stage, we will go way and think about this further. I beg leave to withdraw the amendment.
“Public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK
(1) In addition to the provisions made under paragraph 6 of Schedule 2, for the purpose of preventing money laundering in the UK property market and public procurement, the Secretary of State must create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts.(2) The register must be implemented within 12 months of the day on which this Act is passed.”
Lord Hodgson of Astley Abbotts (Con)
My Lords, I begin by giving two apologies to the Committee. The first is on behalf of my noble friend Lord Faulks, in whose name the amendment was tabled. He is unavoidably detained overseas. As I shall explain in a moment, he and I tabled a similar amendment during Committee on the Criminal Finances Act, and he asked if I would take up the cudgel on his behalf tonight. I went to put my name down to the amendment but found that several other noble Lords had beaten me to the punch. Secondly, I apologise to the Committee for not having taken part in proceedings on the Bill before, but I have taken the precaution of reading the relevant sections of Hansard with care. With that, and knowing that several noble Lords want to contribute to this debate, I will cut to the chase, if I may.
At the outset, I thank the Minister my noble friend Lord Ahmad for his offer of a meeting to discuss this matter. Although I am always delighted to meet him, it seemed to me that such a meeting might be more productive after this debate, when he has had a chance to reflect on the range of concerns that may be raised around the Committee and that that might be a better use of his time.
The purpose of Amendment 69 is simple: it inserts a new clause which increases the pressure on the Government to fulfil their long-stated commitment to introduce a public register of the beneficial ownership of UK properties owned by companies and other legal entities overseas. To those Members of your Lordships’ House who were present during proceedings on the Criminal Finances Act earlier this year, the arguments are familiar—some might say, depressingly familiar—but we have a new pilot at the helm tonight, although he has temporarily left the Chamber. I am delighted to be talking to my noble friend Lord Bates. I was offered a meeting with my noble friend Lord Ahmad, so I thought that he might reply to the debate, but never mind. We have a new pilot, anyway, in place of my noble friend Lady Williams of Trafford, who was the Minister on the previous Bill, so, for my noble friend who is coming fresh to this topic, let me summarise the position.
The reasons why UK property is an attractive asset class for someone from overseas can be simply stated. First, property rights in the United Kingdom have been sacrosanct for nearly 400 years. Mr John McDonnell, the shadow Chancellor of the Exchequer, flirted with the idea of seizing property in North Kensington to be handed over to former residents of Grenfell Tower, but I am not sure that that has become Labour Party policy. Secondly, the cities of the United Kingdom remain attractive, engaging and safe places to live. Finally, in recent years at least, UK property as an asset class has appreciated in value.
If you live in less secure and happy circumstances than prevail in this country, where better than in the United Kingdom to buy a bolthole—the value of which has in recent years most conveniently grown enormously? The result has been a veritable flood of overseas money into the property market of London and other major cities. How great a flood is unclear—indeed, one purpose behind the amendment is to try to shed greater light and transparency on the extent of the flood—but, to put it no higher, there is suspicion that not all the hands from which the money to purchase these properties comes are as clean as they might be.
Noble Lords will have received briefings from the pressure group Global Witness which are self-explanatory. They may also have caught the article in last Sunday’s Telegraph, headed, “Fears that ‘dirty money’ paid for Uzbek dictator’s daughter’s £17 million Mayfair and Belgravia homes”.
As I said a few minutes ago, my noble friend Lord Faulks and I tabled an amendment to the Criminal Finances Bill on Report with broadly similar purposes to this one which we are discussing tonight. In her reply, my noble friend Lady Williams of Trafford gave some encouraging and soothing words. She said:
“I am pleased to have the opportunity to return to this issue. The clear abuse of the London property market and high-value properties across the country … to launder money, including the proceeds of corruption, has to be stopped. We must not allow this city to be a haven for kleptocrats hiding their ill-gotten gains. That is why the Government share the ambition of creating such a register”.
She went to say:
“Subject to the outcome of the general election, it remains our intention to introduce legislation to create the register as soon as parliamentary time allows. I hope this provides my noble friends”—
that is, my noble friend Lord Faulks and myself—
“with the reassurances that they seek”—[ Official Report, 25/4/17; cols. 1333-34.]
The general election is now out of the way, but no progress seems to have been made as regards to the implementation of this important policy promise.
It should not be forgotten that as long ago as May 2016, at the international anti-corruption summit held in London, the Government committed to creating a new register showing the beneficial owners of overseas companies that own or want to buy property in the UK, and of overseas companies involved in central government contracts. So this amendment is well in line with government policy.
In her ministerial foreword to the relevant consultation establishing such a register, Margot James MP emphasised that it was important,
“to ensure the integrity and reputation of the UK property market … A higher level of transparency will boost investor confidence”.
Responses to that consultation have now been in for more than six months, so what now is happening?
Of course I understand the eternal pressure of a crowded legislative programme, which has been made significantly worse by the results of Brexit, but the Long Title of this Bill makes it clear that its purposes are,
“to make provision for the purposes of the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing Standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system; and for connected purposes”.
So no one can suggest that this amendment is out of scope with this Bill. Rather, it seems absolutely within the scope of the Bill and, moreover, consistent with government policy and, frankly, a matter of some urgency.
Given that the setting up of the register does, as I understand it, require primary legislation, I now have to ask my noble friends on the Front Bench the question: if not now, when? It is simply not adequate once again to respond by saying, “When parliamentary time allows”. I suspect that parliamentary time will not allow it in the near future, and this really important step for stamping out corruption will drift further and further into the middle and long distance.
There has been a tendency to think that this is an issue confined to London, so before I finish, I draw my noble friend’s attention to the extent that, as London property prices have risen, overseas purchasers have begun to turn their attention to other UK cities. In preparation for our debate earlier this year, I took some time to trawl through the provincial press and I found examples, inter alia, in Birmingham, Bristol and Manchester. I used the Manchester example in the debate then because I thought it would be of particular interest to my noble friend Lady Williams, because she is Baroness Williams of Trafford, in the City of Manchester.
The example in Manchester was of a development of 282 flats over 29 storeys at One Cambridge Street in that city. Purchasers were drawn from 18 different nationalities, including Azerbaijan, China, Japan and Zimbabwe, and 125 flats were bought as a bloc for £25.7 million by OFY, a company based in the British Virgin Islands. Only two of the 282 flats are owned by Britons. The developer’s sales brochure includes the statement:
“The generously proportioned apartments have … appeal to owner-occupiers, investors and renters. In other words, the scheme is appealing to several sectors of the market, including those looking to make the step towards getting on to the housing ladder and more established owner-occupiers”.
Whether first-time buyers would really think that a 99.2% overseas ownership was a fair result I leave to others to judge.
Baroness Bowles of Berkhamsted
My Lords, I have only a little bit to add on this—you may be relieved to know—because I was present during, and participated in, the debates on the Criminal Finances Bill. I saw that this amendment had been tabled and I was available at the time, and I thought that because there had been so much support for it during the passage of that Bill I had better get my name on this amendment quick, before the list got full up. That is why I am second on the list of names attached to the amendment. I did not table an amendment myself because I did not think that it was right to steal somebody else’s good work when I expected that something like this would arrive.
Almost everything has been said by the noble Lord, Lord Hodgson. This is something that needs to be done, and this is an opportunity to do it. It would need very persuasive reasons for me to concede that it should not be done now. As I did at Second Reading, again I remind noble Lords of the context which stretches across everything to do with money laundering and transparency, and that is that the eyes of the EU are upon us. These issues, such as people purchasing property in London with dubious money, are ones on which I often heard accusations when I was chair of the Economic and Monetary Affairs Committee. I was often trying to do something useful for the UK, and one weapon to try to take out my contribution was to attack the UK for not being such a good place because we allowed money laundering and the proceeds of money laundering to reside here in the UK and elsewhere. It is in that context that I suggest to the Minister that he looks kindly on this amendment and sees too that, as the noble Lord, Lord Hodgson, says, now is the time to do it.
Lord Rooker (Lab)
My Lords, I support the amendment. Like the noble Lord, Lord Hodgson, I apologise for not having been involved in previous aspects of the Bill, but I participated in the Criminal Finances Bill, and particularly on this area. As we have a new Minister, I shall use that excuse to develop a bit of what we have from history to assist his briefing. But it is a matter of regret that people still consider the UK, and London in particular, a bolthole for dirty money. London is not nicknamed “Londongrad” for no reason.
There is the legacy of the former Prime Minister, David Cameron, to whom I pay a massive tribute on this issue. He took a bigger stand than any previous Prime Minister, and I shall quote him on the record, because it is important. He made that speech in Singapore in July 2015, and he could not have been clearer. I shall quote three or four paragraphs, because it is important to what I want to say and the examples I want to give.
He said that,
“this is a challenge for everyone – including ASEAN, including Britain. We too must get our house in order – and we are. And that is why the UK government has legislated to ensure that from next year, Britain will become the first major country to establish a publicly accessible central registry showing who really owns and controls all British companies.
This will open up a new era of corporate transparency in Britain. But, of course, it will only apply in Britain and for British companies. So the aim should surely be for others to follow. To really tackle corruption effectively, we need to be able to trace data from one country to another. We don’t want criminals to be able to go unnoticed, just because they move money across borders or have assets in different countries. The torchlight should be able to follow them. If we are to win, we must make sure that there is nowhere to hide.
So I’ll continue to make the case for transparency with international partners – including the British Overseas Territories and Crown Dependencies. And I am willing to go further, and take concrete steps to force the pace. And that includes looking at whether we can get foreign companies investing in the UK to step up to the same level of transparency.
Now with £122 billion of property in England and Wales owned by offshore companies we know that some high-value properties – particularly in London – are being bought by people overseas through anonymous shell companies, some of them with plundered or laundered cash. Just last week, there were allegations of links between a former Kazakh secret police chief and a London property portfolio worth nearly £150 million.
I’m determined that the UK must not become a safe haven for corrupt money from around the world. We need to stop corrupt officials or organised criminals using anonymous shell companies to invest their ill-gotten gains in London property, without being tracked down”.
It was a seminal speech and an incredible read from a British Prime Minister. In some ways, I much regret that we do not get the same thing from the present Prime Minister, because it looks as though things have gone a bit flaky.
As part of the briefing for the Bill, Global Witness and Transparency International produced some of their previous examples. I will not go through them all but there are a couple that I want to raise. The research from Transparency International identified £4 billion-worth of property bought in London with suspicious wealth. Where information is available, Transparency International has found that 98% of the companies involved in the purchases are based in secrecy jurisdictions and that 90% are incorporated in the British Virgin Islands alone. Among this information—Global Witness was a partner—it was revealed that a £147 million property on London’s Baker Street could be linked back to Rakhat Aliyev, the former head of the Kazakh secret police, as referenced by the Prime Minister.
This made me go back to my monopoly chart, which was provided on the first kleptocracy tour of London in February 2016, when Members were invited to go with journalists to various places in London to hear the story of various properties, who bought them and where the money may have come from. The properties in Baker Street of Rakhat Aliyev, the former KGB chief, and their location in the building were pointed out—we had the address and the postcode. He could never have purchased those properties from his salary; it would have been absolutely impossible. We have to be careful about tracking him down because, in 2015, he was found dead in his prison cell in Austria—he had been up to other things and had been arrested.
There were other properties listed on the chart, but I am not going to go through any more of them because the examples are always there. When we have examples like this, we cannot just ignore them. But nothing seems to happen. Journalists, investigators and people who want a democratic, open, transparent and modern rule-of-law Russia come to London to look at the situation and to talk to people. However, there are issues relating to what we have done so far.
I shall come to the Land Registry in a minute, but the brief from Transparency International went on to say that its analysis of the recent Land Registry data, and that of Who Owns England? and Global Witness, revealed that in the two years since the property register was promised, nothing had changed. Financial investigators, civil society and the wider public are still in the dark about the real people behind the 86,397 properties in England and Wales owned by companies registered offshore in the secrecy jurisdictions. The analysis found that, just in 2015, 87% of all the properties owned by overseas companies had an owner in a secrecy jurisdiction, and 57,318 were owned by companies registered in the British Overseas Territories, jurisdictions which do not publish.
Over the last two years the UK Government have made some progress in tackling corruption and money laundering and set the global standard on beneficial ownership transfers by launching a public register of companies—and in the last Parliament, of course, they introduced the unexplained wealth orders. But we need to know who is behind the companies, and where their money has come from. That is absolutely crucial. Otherwise the proceeds of crime will continue to pour into the UK, particularly into London. Evidence has been given to the consultation that closed in March 2017, but as of today there are no results.
Before I make my final point, I advise the Minister, as I did his predecessor, to see the film “From Russia with Cash”—and I think there is also one called “From Ukraine with Cash”. They are easily available, and watching them would benefit the wider debate about what is actually happening here, in this country. I want to refer to the text of the amendment, regarding bids for UK contracts, because the same issue was raised by David Cameron in his Singapore speech. This should not just be about property, but also about overseas companies bidding for contracts in the UK. We should know who owns them.
Let us see how far we have got in the UK. David Cameron said in his Singapore speech that as a first step, he had asked,
“the Land Registry this autumn”,
that is, autumn 2015,
“to publish data on which foreign companies own which land and property titles in England and Wales. This will apply to around 100,000 titles held on the Land Register”.
One evening last week I put that to the test, and applied to the Land Registry for the overseas ownership data. I went through all the seven steps on the website: status, names, date of birth—which I thought was a bit irrelevant, but I filled it in—address and telephone number; I went through the process to prove I was not a robot, and then I agreed the terms. Fortunately, I was able, as I went through it all, to print each page, so I know exactly what information I gave. However, when I came to step 7—downloading the data sets—it said, “Please note these download links will only remain valid for 4 minutes 47 seconds”. After five minutes my little computer said that there were four minutes still to go—at which time, of course, the thing closed down. So I tried it again, and got exactly the same results.
No wonder people cannot find out information, on the basis of things that we have already done, and which we boast about. We are asking the Government to go further than they have already gone with regard to overseas companies, but it is being made difficult to access what is supposed to be there already for public access. There was no cost, and every step was completed, but I ended up with less than five minutes to download. Perhaps that is down to the barmy broadband speeds we have failed to provide. I was in central London when I tried to do this, by the way; I was not at home in Shropshire. This is crazy, and the Minister needs to look at it—although I may have done something completely wrong, in which case I will take advice.
I just want to strengthen what the noble Lord, Lord Hodgson, said, and what the noble Lord, Lord Faulks, said during the earlier attempts to do this. I realise that this discussion will definitely upset a lot of people, as the previous Prime Minister said. However, the fact of the matter is that so much money is piling into London—leaving aside the rest of the country—that there will come a time when it will put our economy at risk. We are talking about huge amounts. The National Crime Agency is concerned about it and people in that agency are on record as having said various things. It looks as though the instruction has been given, “Turn a blind eye to this money coming in because it is good that it comes in”. The fact that it is completely distorting London property prices and making London another country within the UK is beside the point.
Lord Freeman (Con)
My Lords, I very much support the comments of my noble friend Lord Hodgson. As the Minister knows, at Second Reading I very much supported the sentiments which have been expressed so clearly by my noble friend. Indeed, I believe that the proposed new clause in this amendment is very much in line with government policy. If there is a meeting, I hope that I might be included in it along with other colleagues.
Baroness Kramer
My Lords, everything that can be said has been said brilliantly. I hope that we will get an update from the Government which convinces us that this issue is back on track.
Lord Collins of Highbury (Lab)
My Lords, I note that the Minister was about to stand up but I cannot allow him to jump in so soon.
I congratulate the noble Lord, Lord Hodgson, on moving this amendment. I was disappointed that the noble Lord, Lord Faulks, was not present but he has done a grand job and a very persuasive one. Like my noble friend, I congratulate the former Prime Minister, David Cameron, on initiating consideration of this issue. We are talking not just about government policy but about a government commitment. The noble Lord, Lord Hodgson, is absolutely right—there is no better place than this Bill for this commitment to be delivered. That is why we wholeheartedly support this amendment.
I am glad that the noble Lord, Lord Bates, will respond to the amendment because he knows only too well the cost arising from this money flooding into London. We talk about the impact on London property prices and about corruption but we know that the poorest countries lose an estimated trillion pounds a year through tax evasion and corruption. The poorest in our world suffer as a result. That is why we must see the Government deliver on this solid commitment. My noble friend gave clear examples of what is happening and we have received briefs from Transparency International, but you have only to look down the river from the Terrace here to see St George Tower, a fantastic round tower. Two-thirds of it is in foreign ownership and a quarter is held through offshore companies based in tax havens. We only have to look there to see what is going on. This was a commitment of the former Prime Minister and it is an appropriate Bill. The commitment was that it would be introduced by April 2018.
We have heard how long it is since the consultation was concluded. The sad fact that the consultation has not been published is a bit of an indication about the timetable for any proposed legislation. We have an opportunity here and I hope the noble Lord, Lord Bates, will take it up. In previous Committee sittings we heard from the noble Lord, Lord Ahmad, about how he has been in listening mode and will take the opportunity to take this away. This is a perfect example of how we can deliver on a clear commitment made by the former Prime Minister.
Regarding commitments, at the Anti-Corruption Summit there was also a commitment to update the anti-corruption strategy by the end of 2016. That strategy is now long overdue. I hope the Minister will take the opportunity to say how the Government are committing to this general, overall strategy, because all these things are linked. I look forward with interest to hearing from the Minister how this commitment will be met.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, my noble friend Lord Hodgson began his remarks by welcoming me as a fresh face to this topic. That will probably turn out to be classic understatement, but I am delighted to be here on a very important topic.
I first pay tribute to all noble Lords—in particular to the noble Lord, Lord Hodgson, for standing in for the noble Lord, Lord Faulks, and for the energy and commitment they have both shown on this topic over some time. I guess noble Lords will want to hear about the current position so let me get straight to it.
This amendment would set down in legislation a commitment made at the 2016 Anti-Corruption Summit, which the UK convened, to establish a public register of company beneficial ownership information for foreign companies which already own or buy property in the UK, or which bid on UK central government contracts. This was a point referred to by the noble Lord, Lord Rooker.
The Government remain committed to this policy and our intention is to act in this space; that intention has not faltered since the noble Baroness, Lady Williams, gave a commitment earlier this year. My noble friend Lord Hodgson is right to table this amendment—just as my noble friend Lord Faulks and other noble Lords are right to support it—to remind the Government of this commitment. I welcome him doing so.
The UK is a world leader in promoting corporate transparency. We legislated in 2015 to establish a public register of company beneficial ownership—that was how we described it, and it was actually done. We remain the only country in the G20 to have established such a register. The noble Baroness, Lady Bowles, said that the eyes of the EU are on us. I hope they are because we are leading on this; we are not following. We have recently expanded the register to include other forms of legal entity established in the UK, and we remain committed to this agenda.
Earlier this year, the Department for Business, Energy and Industrial Strategy published a call for evidence on the design and implementation of the register of overseas companies that own UK property. As that call for evidence noted, this register will be the first of its type in the world, reflecting the Government’s continued commitment to being a world leader in this area.
The innovative nature of the register does, however, bring with it issues of legal complexity. The Department for Business, Energy and Industrial Strategy has identified that it will require complex amendments to the existing company law framework in the UK, with new functions being delegated to the Registrar of Companies, as well as the three land registries in England and Wales, Scotland and Northern Ireland. I will ensure that the comments about downloads are relayed to the Land Registry. Consideration will also need to be given to the acquisition, use and processing of information.
In addition, a robust enforcement mechanism will be essential, and the Government propose to implement this via the land registration system. Careful consideration will be needed as to how this will be applied to new and existing landowners, while ensuring appropriate protection for third parties. It will also require consideration of the appropriate penalty regime to be applied to persons who fail to comply with the obligation to include the necessary details on the register. These and other issues relating to the operation of the register were raised by respondents to the Government’s call for evidence earlier this year. We have been considering these so as to inform the design of the register.
I make it clear that the Government remain committed to establishing this register and to fulfilling our commitment at the 2016 Anti-Corruption Summit. My noble friend Lady Williams reiterated this commitment yesterday, speaking at the inaugural Global Forum on Asset Recovery in Washington DC. The Department for Business, Energy and Industrial Strategy expects to respond formally to the call for evidence early in the new year. That response will focus, as did the call for evidence, on how the register will be established and not on whether it will be established.
So as to fully take account of the extensive work that the Government, private sector and civil society have already conducted, and continue to conduct, on the design of this register, it is right that we allow the Department for Business, Energy and Industrial Strategy to conclude the process that is already well advanced and to publish its response to the call for evidence early in the new year. This will ensure that the register is well designed, takes full account of the representations received and provides a legally robust mechanism for registering the beneficial owners of overseas companies that own UK property. So as to further inform the response from the Department for Business, Energy and Industrial Strategy, I will ensure that it is fully aware of the points made by noble Lords today in support of establishing the register.
I should add that earlier my noble friend Lord Ahmad gave a commitment to meet my noble friends Lord Hodgson and Lord Freeman and other noble Lords who are interested in this area to update them on matters and to get further information on what they would like to see.
I hope that I have given the Committee some reassurance on our intention to act and on the next steps that we have planned, and that noble Lords can have confidence that no provision is required in this Bill to secure the progress that my noble friends Lord Faulks and Lord Hodgson seek. Therefore, I ask my noble friend to withdraw the amendment.
Lord Rooker
I am grateful to the Minister and would like to add one point. All these properties have been purchased in this country, so there has been conveyancing and the involvement of estate agents. Looking at the list, it is strange that all the lawyers and solicitors involved are the blue-chip City gang who are purchasing these properties. I know that Global Witness and Transparency International and others have to be acutely careful when they say anything publicly because the next day they get a letter from one of these companies advising them that it has been noted. It is not in these people’s interests that we have a register, but I say to the Minister that we will be watching this. He has given a very firm commitment, which I certainly appreciate, but a lot of people with vested interests—our own citizens and companies here in the City and in the legal structures—will not be happy with this, because all these properties have been purchased. Someone has done the conveyancing of this crooked money that has come into London and we have to be aware of that.
Lord Bates
That is right. We are certainly not going to shrink from the commitment from the previous Prime Minister, with which the current Prime Minister is in agreement. We want to see that happen. We have also, of course, taken certain actions in relation to this area. For example, the annual tax on enveloped dwellings, known as ATED, was introduced in April 2013 to ensure that those who place UK residential property in a company pay a fair share of tax.
My noble friend Lord Hodgson asked whether the number of purchasers was increasing. The anecdotal evidence and the facts suggest that. The ATED receipts in 2015-16 were £178 million, a 53% increase on the previous year. It is at least an indicator of the scale of the undoubted challenge. We stand by the commitment made earlier this year. However, because we lead the world in seeking to be the first major economy to have such a register, there are legal consequences. The same lawyers who do the conveyancing will be reading through the fine print of any legislation that comes forward. We have to make sure that it is watertight to ensure that the right people are affected by it and, as the noble Lord, Lord Collins, said, that other people are dissuaded from making those investments here.
With those reassurances and the commitment to meet again, I hope that my noble friend will withdraw his amendment.
Lord Hodgson of Astley Abbotts
My Lords, I am very grateful to all noble Lords who have spoken in support of this amendment: the noble Baroness, Lady Bowles, the noble Lord, Lord Rooker—he has shown that his investigative nose is as sharp as ever—my noble friend Lord Freeman, the noble Baroness, Lady Kramer, and the noble Lord, Lord Collins of Highbury.
My noble friend Lord Bates defended his wicket a great deal better than the English test team has been doing in Australia. He quite fairly drew attention to the Government’s efforts in relation to additional tax for properties owned inside a company and so on. But we have been round the familiar arguments, and nine months after the consultation closed seems a very long time for careful consideration.
I think we will take the Minister up on the invitation offered by his friend for a meeting. I am concerned that there will be a response early in the new year, just as we wave goodbye to this piece of legislation. I am not clear whether this requires additional primary legislation. If so, how will it be fitted into our programme? It could be tacked on to this Bill but once it has gone I am not aware of much else coming down the track where this register and all the other stuff could be included
We have been round this a great many times. I am grateful for the Minister’s initial response. He understands the strength of feeling on all sides of the House that this situation should not be allowed to continue. We look forward to the meeting and, in the meantime, I beg leave to withdraw the amendment.
“Failure to prevent money laundering
(1) A relevant body (B) is guilty of an offence if a person commits a money laundering facilitation offence when acting in the capacity of a person associated with B.(2) For the purposes of this section “money laundering facilitation offence” means—(a) concealing, disguising, converting, transferring or removing criminal property under section 327 of the Proceeds of Crime Act 2002 (concealing etc);(b) entering into an arrangement which the person knows, or suspects, facilitates (by whatever means) the acquisition, retention, use, or control of criminal property under section 328 of the Proceeds of Crime Act 2002 (arrangements); or(c) the acquisition, use or possession of criminal property, under section 329 of the Proceeds of Crime Act 2002 (acquisition, use and possession).(3) It is a defence for B to prove that, when the money laundering facilitation offence was committed, B had in place adequate procedures designed to prevent persons acting in the capacity of a person associated with B from committing such an offence.(4) A relevant body guilty of an offence under this section is liable—(a) on conviction on indictment, to a fine, (b) on summary conviction in England and Wales, to a fine, or(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.(5) It is immaterial for the purposes of this section whether—(a) any relevant conduct of a relevant body, or(b) any conduct which constitutes part of a relevant criminal offence,takes place in the United Kingdom or elsewhere.(6) In this section, “relevant body” and “acting in the capacity of a person associated with B” have the same meaning as in section 44 of the Criminal Finances Act 2017 (meaning of relevant body and acting in the capacity of an associated person).”
Baroness Bowles of Berkhamsted
My Lords, this amendment introduces a new corporate criminal offence of failure to prevent money laundering. The UK already has two failure to prevent corporate criminal offences. The first is in Section 7 of the Bribery Act and the second was introduced recently in the Criminal Finances Act for tax evasion. The wording of the proposed offence is modelled on those existing offences, especially the more recent one that uses the form of facilitation.
Proposed new subsection (2) contains a definition of what the money laundering facilitation offence would be. Proposed new subsection (3) introduces the defence of adequate procedures being in place. The other proposed new subsections follow the format already established in earlier, similar offence types specifying fines, and also cover behaviour outside the United Kingdom.
The money laundering regulations 2017 already establish provisions about procedures for businesses most likely to be used for money laundering. Under those regulations, there are substantial regulatory fines for a company that fails to comply. However, regulatory fines, even large ones, are often taken as a cost of doing business, and they do not have the same impact on a company as a criminal conviction, which is taken much more seriously by both the company and the directors. As a consequence, it makes them sit up and take notice about the controls that are in place and the quality of their internal audit procedures.
In tandem with the possibility of entering into a deferred prosecution agreement, a “failure to prevent” can be a very powerful tool, both as a deterrent and a means of prosecution. Why do we need it? It is a well-known fact that, in the UK, it is almost impossible to find a large company guilty of a criminal offence because our criminal law applies a doctrine of intent derived from law relevant to an individual. Corporate intent requires the finding of a senior responsible individual or “directing mind”—and that is next to impossible in large companies where directors are not regarded as able to know everything and, indeed, the concept of collective responsibility of boards effectively prevents it. It can pay not to even look too hard. For small companies, a director is far more easily assumed to know everything. With little likelihood of being prosecuted in a large company, there is also little incentive for it to enter into a deferred prosecution arrangement—and that is reflected in prosecution statistics. Various other factors taken into account all favour large companies against small companies. Our law is unbalanced.
The Crown Prosecution Service’s legal guidance itself says under its “further evidential considerations” in paragraph 21:
“The smaller the corporation, the more likely it will be that guilty knowledge can be attributed to the controlling officer and therefore to the company itself”.
As long ago as 2010, the Law Commission, at paragraph 5.84 of its consultation paper 195 called the identification doctrine,
“an inappropriate and ineffective method of establishing criminal liability of corporations”.
The Attorney-General was not able to prosecute firms for LIBOR and the observation was made by the Telegraph’s chief business correspondent in 2016 with regard to LIBOR and Forex that,
“we outsource corporate accountability for criminality in the City to US prosecutors”.
The same story is repeated for money laundering. The US achieved deferred prosecution agreements against HSBC and a fine of £1.2 billion. In the UK, only regulatory investigations have been opened, and commentators have blamed the identification regime. Jonathan Fisher QC told the press that it would be “difficult and clumsy” for the FCA to criminally prosecute HSBC as the FCA,
“would have to show that a director or some other controlling mind in the parent company in London knew all about the alleged misconduct”.
So there are rewards for ignorance. Indeed, if any noble Lords watched the appearance of the HSBC chair, CEO and chair of audit before the various Commons Select Committees that they made appearances at, they would have seen that the issue of internal audit was one of the issues that was probed—without success. Sitting and saying nothing is by far the safest option.
The UK introduced a failure-to-prevent offence for bribery in Section 7 of the Bribery Act. The effect of that was reinforced by the introduction of deferred prosecution agreements in 2014. It is useful to consider the effect of the “before and after” of those provisions by looking at BAE, which represents the situation before, and Rolls-Royce, which represents the situation after. Before Section 7 of the Bribery Act, we had the longest-running bribery investigation ever: BAE settled with the SFO. I quote from the blog of David Corker, another lawyer specialising in financial crime litigation, who said that,
“BAE’s obduracy resulted in a humiliating settlement for the SFO and a profound defeat for the interests of justice … BAE was able to dictate the terms of the SFO’s surrender: a plea of guilt to an obscure books and records offence buried away in the Companies Act, the payment of a trifling gratuity to faraway governments at BAE’s discretion”—
that is, BAE chose whether to pay it or not—
“and an everlasting immunity for all its employees who had conducted and overseen the bribery”.
No wonder it was called “humiliating”.
In the “after” scenario in 2017, after Section 7, Rolls-Royce admitted its systemic corruption, paid a fine of £500 million and, instead of seeking immunity for its employees, committed itself to helping the SFO. The need for, and effect of, such a corporate criminal offence are therefore clear. Without such an offence, it will continue to be extremely difficult to prosecute large companies for money laundering offences and the UK will continue to outsource its justice to the United States. Again, I pray in aid the EU situation—but it is unlikely to impress in Brussels, which is progressively turning the handle on these issues and is well able to have them in a list of regulatory requirements that need to be in place to gain any equivalence, or any deal, on financial services.
I turn to Amendment 69C, which requires that if the correct anti-money laundering procedures are not in place—meaning that there had been a corporate conviction of a failure to prevent money laundering—the Secretary of State should ask the court to investigate whether the directors were fit and proper. An automatic finding that they were unfit is not intended; the intention is to mirror what happens under competition law where, following a breach of competition law, the director’s role is looked at. It is already possible for the Secretary of State to refer to the court under their own volition, but I am seeking that there should be some kind of routine follow-up to see whether the directors were, in effect, wantonly negligent or disregarding of their duties, in particular with regard to how they handled internal audit.
I am sure that the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins—who submitted Amendment 69F, calling for a public consultation on corporate liability—will note the overlap with the issues of their concern. I will be interested to hear what is said. Personally, from the general evidence available—including from the Law Commission as long ago as 2010—I am not sure whether consultation is needed on the need to reform corporate liability in general. It is a matter of getting on with it and doing it. There are other areas in which the whole identification doctrine rears its head. Hopefully they will be looked at in due course—but right now, I believe that in the field of economic crime, where we have the precedents for failure-to-prevent offences, the mechanism is known and has been effective and we should proceed to avail ourselves of it. I beg to move.
Lord Hain (Lab)
My Lords, it is a pleasure to follow such an expert and impressive speech from the noble Baroness, Lady Bowles, in moving Amendment 69B. The amendment is supported by my noble friend Lord Collins, and I have put my name to it. It introduces a failure to prevent offence.
In June 2011, the then Financial Services Authority found shocking inadequacies in UK banks’ anti-money laundering controls, with one-third of banks accepting,
“very high levels of money-laundering risk”,
and three-quarters of banks failing to take adequate measures to establish the legitimacy of the wealth they were handling. The then acting head of financial crime at the FSA, Tracey McDermott, said publicly:
“The banks are just not taking the rules seriously enough”.
Yet, after all these strong words, what happened? Instead of the FSA—now the FCA—getting tough with the banks, since 2010 there have been only 10 convictions under the money laundering regulations, not one of them of a bank. It is therefore hardly surprising that there have been repeated money laundering scandals involving UK banks. There is simply no adequate deterrent or serious regulatory risk to make UK banks turn away profitable business that they are offered, and there will not be until the FCA starts prosecuting people and banks for failing to apply the regulations.
By chance, I met a business analyst this morning. Although I did not know it beforehand, he happened to be an expert in this area, and he described London as the money laundering capital of the world. If he is right, that is shameful. The UK is woefully behind where it should be on holding banks and financial institutions to account for money laundering. HSBC was fined $1.2 billion in the US in a criminal settlement for money laundering, and just a few weeks ago it was fined $352 million in France to settle criminal charges for money laundering. Despite being a UK-headquartered bank, and despite being under investigation since last December by the FCA, HSBC has not yet faced regulatory sanction in this country, even though it has been named repeatedly in corruption cases, for example in Nigeria in 2012 and during the 2000s. No UK action was taken against HSBC in any of those cases. Earlier this year, HSBC was again implicated, with other British banks, in laundering ill-gotten money out of Russia.
A failure to prevent offence for money laundering, as provided for in Amendment 69B, would make it significantly easier to hold large global banks such as HSBC to account for poor procedures and for turning a blind eye to handling corrupt wealth. Without this reform, as Jonathan Fisher QC, a money laundering expert, has explained, it would be difficult and clumsy for the FCA or any other agency to prosecute a bank such as HSBC because it would have to show that a director or some other controlling mind in the parent company in London knew about the alleged misconduct. Indeed, it would have to show that that director intended the misconduct to happen. This is an exceptionally high bar which makes it virtually impossible to hold large global financial actors such as HSBC to account in the UK.
In my speech at Second Reading on 1 November 2017, I described a vivid context for this Bill: the massive money laundering organised from the very top of government in South Africa—the presidency itself—and the systematic transnational financial crime network facilitated by an Indian/South African family, the Guptas, and the presidential family, the Zumas. British-based financial institutions such as HSBC, Standard Chartered, the Bank of Baroda and other international institutions have been conduits for laundering hundreds of millions of pounds or billions of rands, mostly through Dubai and Hong Kong.
The South African Parliament itself is in the process of holding a public inquiry into large-scale state capture involving even larger-scale corruption and looting of state-owned enterprises. On 21 November 2017, Mr Zola Andile Tsotsi, erstwhile chair of the state-owned electricity generator, Eskom, gave evidence under oath. What resulted is the first smoking gun implicating the President of South Africa, Jacob Zuma, who exerted shadow control over state-owned enterprises which have been exploited through large-scale looting and money laundering, from which his family and friends have benefited. He did this by deploying one of his nominees, Ms Dudu Myeni, a person near and dear to him—he fathered a child by her. Educated as a primary school teacher, in 2012 she was appointed chair of Africa’s largest state-owned airline, South African Airways. In early December 2015, the then Minister of Finance, Nhlanhla Nene, rejected her request to renegotiate a fleet renewal deal for SAA, because it smacked of corruption. Within days, the President sacked Minister Nene.
Evidence before the South African parliamentary public inquiry showed that, as chair of the state-owned airline, Ms Myeni not only facilitated looting by the Zuma and Gupta families, but also sought to control, instruct and manipulate the running of another state-owned power utility, Eskom, from which the Gupta family, through an intricate network of companies, have siphoned off billions of rands, via various banks, including London-based banks which I am asking the British authorities to investigate. I am grateful to the FCA for the contact it has had with me to pursue this.
First, Eskom chair Mr Tsotsi was ordered by the government Minister for Public Enterprises in February 2015 to refrain from “interfering” with the management of Eskom. He only chaired the Eskom board, after all—why on earth should he bother himself with holding to account the executives underneath him? This ministerial instruction, to put it simply, was aimed at stopping him scrutinising the decisions and behaviour of Eskom and instead ensuring he turned a blind eye to the corrupt award of multibillion-rand contracts to the benefit of the Gupta and Zuma families.
According to the evidence at the parliamentary inquiry that same day in February 2015, Mr Tony Gupta phoned Mr Tsotsi, accusing him of not “helping us with anything”, adding: “We are the ones that put you in the position you are in. We are the ones who can take you out!”. A few days later, on the eve of the newly appointed Eskom board’s first meeting, President Zuma called Mr Tsotsi, instructing him that the board meeting be postponed, without even giving reasons. Less than a week later, Mr Tsotsi was instructed by South African Airways chair Ms Dudu Myeni to attend the presidential residence on 7 March 2015, where she unlawfully ordered the suspension of three of Eskom’s key executive members. President Zuma arrived late to the meeting and ordered that Mr Tsotsi go along with the plan, resulting in one of the most notorious examples of looting in South Africa’s recent history. This Zuma-Gupta conspiracy then left the door wide open for the appointment of Gupta stooges, who in less than 18 months had bled the power utility dry. It now faces bankruptcy and has been downgraded by international financial institutions due to governance failures. I am explaining the background before coming to the point about money laundering and the responsibility of UK authorities.
Eskom has more than 471 billion rands in outstanding debt, the majority of which is guaranteed by the South African Government and owed mainly to funders outside the country. In October 2017, Eskom revealed to its largest shareholder, the South African Government, that the power utility only had 1.2 billion rands left in its cash reserves until the end of November 2017, when it should have had 20 billion rands. It is estimated that by the end of January 2018, Eskom will be running a deficit of 5 billion rands. Eskom’s virtually giving billions to the Gupta-Zuma syndicate through nonsensical consulting contracts, tenders for fictitious goods and services, and advances to allow them to buy the coal mines from which they then sold back overpriced, poor-quality coal is the underlying cause of what went wrong.
Similarly, in September 2017, South African Airways was given emergency Treasury funds to help it repay loans of 3 billion rand to Citibank, again diverting precious money from taxpayers into the pockets of the Zumas and Guptas. The bill is being picked up by taxpayers when there is a shortage of the decent schools, hospitals, housing and job opportunities those billions should be spent on.
Each South African state-owned enterprise has been looted using the same modus operandi by the same elite individuals at the very top of the chain—namely President Zuma and his family, and the now infamous Gupta family. They have placed cronies such as Ms Myeni in key decision-making positions in these public enterprises to ensure that all valuable tenders are siphoned off to the Guptas, and in return a cut is then given to the Zuma family. Hundreds of millions of pounds have been siphoned off these important public companies in a process that has been described by the South African media as “state capture”. What is more, well-placed South African whistleblowers inform me that UK financial and banking institutions have been used for the systemic transnational financial crime network run by Gupta and Zuma families.
Then there is the shadowy figure of Mr Nick Linnell, a “Mr Fixit” who, in the late 1970s, operated in the illegal racist white minority regime of Ian Smith in then Rhodesia. He was unlawfully hired by Eskom, on Ms Myeni’s instructions, to assist in unlawfully getting rid of certain executives, thereby clearing the way for the corrupt capture of Eskom. It has now emerged that South African Airways, through dubious unauthorised payments to Mr Linnell, and working hand-in-glove with the remnants of South Africa’s notorious apartheid police, has deliberately targeted well-known anti-corruption activists. This has resulted in unlawful arrests, detention and torture, as part of a desperate attempt to silence these courageous men and women, to stop them exposing systemic state-sponsored corruption. By the way, last weekend it was announced that Dudu Myeni had been appointed as the special adviser to the Transport Minister and that she came “highly recommended”.
I therefore hope not only that this amendment will be supported by the Government but that there will be an immediate investigation by the City of London Police, the Metropolitan Police and the financial regulatory authorities into all bank accounts held in London by any South African state-owned company. Can the Minister, in replying to the amendment, please give me an assurance that this investigation will proceed? Because of the South African Airways chair’s patently unlawful involvement with the Zuma and Gupta families, the authorities should start their investigations with the airline, which is known to bank here in London, to ensure that its UK accounts have not been used for the illegal laundering of moneys from the proceeds of financial crime in South Africa, and that payments from it into UK banks have not been used to pay off stooges who have unlawfully targeted corruption whistleblowers.
The British Government must not permit any UK-based financial institution to be complicit in the plundering of state-owned companies in foreign lands, especially when that plunder affects the poorest of the poor. South Africa suffered enough repression over the apartheid years, and we cannot stand idly by while economic repression replaces racial oppression, serving the greed of corrupt leaders, when we have the ability to help stop it.
The exposure of HSBC, Standard Chartered and the Bank of Baroda to the parasitic Gupta financial crime network is currently the subject of international law enforcement investigations from the FBI to our own FCA. Inevitably, when dirty money from a global criminal network infects one financial institution, it will sequentially infect a number of others. This is the result of what is known as “correspondent banking”—a term that I have just been educated in—which by its complex nature is often misunderstood. Correspondent banks are international banks that clear smaller, generally domestic banks’ foreign currency transactions through large financial centres. In practice, this means that one transaction can move through a chain of financial institutions from the point of payment before it reaches its intended beneficiary. This creates significant money laundering and terrorist financing risks because each bank in the chain has to rely on the other to correctly identify the customer, determine the real owner and monitor the transaction. In essence, the correspondent bank is only as strong as the weakest link in the chain.
Lord Davidson of Glen Clova
My Lords, I pay tribute to my noble friend Lord Hain for that remarkable and well-researched analysis of the real problems that money laundering can cause, and the need perhaps to look at money laundering enforcement in the UK rather more sharply than has been done in the past. He has set out the most remarkable tale of corruption in South Africa and the impact it has had on global banking, and not just within the UK.
On Amendment 69B, we are wholly supportive of the underlying principle of criminalising corporate failure to prevent money laundering. I assume that this amendment cannot be contentious. As the noble Baroness, Lady Bowles, pointed out, the Government and the Law Commission both concur in assessing the nigh impossibility of prosecuting large global commercial actors under current corporate liability legislation. It is clear that identifying the involvement of the directing mind in such entities is a major obstacle. Of course, as the noble Baroness pointed out, that skews prosecutions towards the SME sector and risks leaving major crimes unprosecuted. The Serious Fraud Office, which has the difficult and complex task of prosecuting such offenders, repeatedly has called for such an offence, as do Transparency International, Global Witness and Corruption Watch. It will be especially helpful to hear the Minister’s response given the terms of the EU’s current proposed money laundering directive, particularly Article 7, which covers a not dissimilar approach to questions of failures in the corporate sector.
Is it correct to assume the Government will adopt the proposed new EU directive? More generally, are the Government committed to maintaining regulatory alignment—to use a phrase—with the EU’s AML terrorist financing regime? Or do they envisage a different autonomous regime in due course? The autonomous regime approach has the potential to freeze the access of UK financial services to EU financial markets. I am not sure that I have detected thus far what the Minister’s response is to that particular concern.
The amendment standing in my name regarding consultation, to which the noble Baroness, Lady Bowles, kindly referred, resulted partly from the Government having opened a call for evidence in January this year on corporate liability for economic crime, which inevitably covers money laundering, but nothing appears to have emerged from the Ministry of Justice thus far.
True it is that the Government are reported to have proposed consultation for reform this year, but this year is running out. Amendment 69F seeks to create an obligation within a timeframe for consultation on corporate liability for money laundering, terrorist financing and other financially threatening offences. True it is that there has been a consultation process, a discussion of this area, for very many months, indeed years. As has been pointed out, perhaps we are getting to the point where action is required rather than further consultation. But consultation with a timeframe might at least assist the Government in moving forward even earlier. The fight against economic crime must have a real priority. Economic crime destabilises both fragile and developed economies, as my noble friend Lord Hain has pointed out so eloquently. Of course, one recognises that this Government sometimes seem to be having difficulty concentrating on any issue other than Brexit. This amendment will oblige the Secretary of State to give priority to corporate liability for economic crime.
Lord Bates
My Lords, I thank the noble Baroness, Lady Bowles, for introducing this amendment; she brings her own expertise in this area from her role in the European Parliament. That was evident in the way she went through a very complex issue, and I will come to the response on that.
These amendments propose creating a new corporate criminal offence for the failure to prevent money laundering, and launching a public consultation within six months of this Bill receiving Royal Assent regarding possible further reform of the law relating to corporate liability for money laundering, terrorist financing and offences which pose a threat to the integrity of the international financial system.
I understand and sympathise with the need to ensure that policies are in place which effectively prevent money laundering. However, I hope that the Committee will agree that it is of paramount importance to consider the evidence and current context before creating a new corporate offence, as the noble and learned Lord, Lord Davidson, invited us to do before introducing this element. He referred to the Ministry of Justice call for evidence earlier this year on potential reforms of the law relating to corporate liability for economic crime. Indeed, one of the options considered within that call for evidence was the potential for creating a corporate criminal offence of failure to prevent economic crime. I am sure the Committee can see the overlap with the new offence proposed by Amendment 69B and the provisions of Amendment 69C. The Ministry of Justice is considering the responses to its call for evidence, and will publish a response in the new year.
I should say that the responses to these consultations are like buses: you wait for a few months and then three of them come along together. The other one is of course on our anti-corruption strategy, which the noble Lord, Lord Collins, referred to. I mention it in this context to say that my noble friend Lord Ahmad and I have just been discussing it, and we will seek to provide a substantive update on progress towards the strategy by Report in the new year. Of course, because some of the consultations are outstanding, some of the elements of that strategy may need to wait until they are clarified.
Baroness Kramer
Just for clarification, is the Minister saying that before Report he will be publishing the MoJ’s response to its consultation? He said it would be in the new year.
Lord Bates
I did say the new year, but I was talking about two different things. That is my fault. The MoJ consultation response will be published in the new year—that is what we have said. Earlier the noble Lord, Lord Collins, asked what had happened to the anti-corruption strategy, which is an overarching approach by the Government. I was saying that after discussing that with my noble friend Lord Ahmad, who leads on these matters—
Baroness Kramer
Can I clarify that the MoJ response to the consultation will not be available before the Bill has completed its process through this House?
Lord Bates
The new year is the new year. I do not want to prejudge when that response might be. I have said enough, basically; obviously we are trying to respond to noble Lords’ questions on these matters as fully as we can, but that is as far as I am able to go at this point. What I was saying about the anti-corruption strategy was that we will seek to provide a substantive update by Report.
I hope the Committee can agree that it would be precipitous to introduce a further “failure to prevent” offence before we properly review this evidence. Similarly, this call for evidence substantively overlaps with Amendment 69F, proposing a new consultation relating to corporate liability for offences of the type referred to in Clause 41. It is right that we wait for the Ministry of Justice to respond to this call for evidence before undertaking a further public consultation that covers the same ground.
Further, the Government introduced corporate criminal offences of failure to prevent bribery, which the noble Baroness, Lady Bowles, referred to, through the Bribery Act 2010, and failure to prevent the facilitation of UK and foreign tax evasion in September through the Criminal Finances Act 2017. Consideration of the introduction of future “failure to prevent” offences should be informed by how those policies operate in practice. While the Bribery Act 2010 has been in force for a number of years, the relevant provisions of the Criminal Finances Act 2017 were commenced only in September of this year, meaning that as yet there is little evidence on how the offences established through that legislation are operating in practice.
I further note that many instances of corporate failures related to anti-money laundering are already captured by existing anti-money laundering legislation. The 2017 money laundering regulations, for example, already impose requirements to prevent money laundering on companies in the regulated sector, such as banks, lawyers and accountancy firms. Breaches of any of those duties by the company are subject to civil or criminal penalties, including fines. For example, firms are required to put and keep in place specific policies, controls and procedures to manage and mitigate effectively the risks of money laundering to their business, including by their clients or customers.
Those regulations, the previous regulations and related rules are well enforced. For example, the Financial Conduct Authority fined Deutsche Bank £163 million in January this year for failing to maintain an adequate anti-money laundering framework, after its investigations revealed that a UK division of the bank had failed to take reasonable care to establish and maintain an effective anti-money laundering control framework. Further, in 2015 the Financial Conduct Authority fined Barclays Bank £72 million for similar failures in guarding against financial crime, noting that Barclays,
“did not exercise due skill, care and diligence”,
and,
“failed to assess, manage and monitor those risks appropriately”.
These financial penalties substantively demonstrate that effective and proportionate penalties are already applied to UK-regulated firms that fail to put in place proper systems and controls to prevent money laundering.
Lord Hain
Perhaps I may press the Minister to respond to my request on red flag warnings to the British domestic banks. I am happy for him to write to me about it, but some government response on this matter is important to try to deal with this infection of our own banking system by a disease that is spreading throughout the South African economy.
Lord Bates
The noble Lord, as an experienced Member, will know that when there is an ongoing investigation, to which he referred, it is often dangerous for Ministers, who are supposed to be detached from the process, to comment. However, I recognise the seriousness of the allegations—as does the Chancellor—and they have been passed to the appropriate authorities. I am pleased that they are being investigated.
Lord Hain
I apologise to the Committee for probing this point. I am grateful for the Minister’s response but I have named other banks as well as those to which I previously referred—namely, HSBC, Standard Chartered and the Bank of Baroda. I hope that he or the Chancellor will send me a letter in the manner in which the Chancellor responded to my earlier request—even if the Minister cannot respond this evening, for reasons that I totally understand.
Baroness Bowles of Berkhamsted
My Lords, I thank the Minister for his responses to the amendments in my name and that of my noble friend. I am conscious that there are issues of due process around consultation, but forgive me if I also think that there was a bit of fancy footwork going on with the alacrity with which a call for evidence went out during the progress of the Criminal Finances Bill, when some distinguished Members of the other place started to take a great deal of interest in including an offence of failure to prevent. It is the best part of nine months since then and probably three months since I was contacted and asked whether it was okay to publish my submission to the call for evidence. I said yes, but still nothing has been published. I do not know why we cannot see some of the responses separately from the response of the Ministry of Justice.
However, one thing that has been established is that we have a pretty rubbish criminal regime on corporate liability. Something has to be done. In that context, it would be good to know how long the Minister thinks it might take for the Government to analyse whether any good has been done by having a second failure-to-prevent offence on tax evasion. I gave an exposition of how good it is to have one, and it will not be shown to be any weaker vis-à-vis tax evasion than it is vis-à-vis bribery. Therefore, to require specific evidence within the economic crime sphere is probably overegging it.
The Minister referenced fines, and there will potentially be more fines under the money laundering regulations 2017. I accept that, as well as what he said about the senior managers regime—but ultimately you have to be able to bet to board level. It is, importantly, board members who ultimately control how much resource goes to internal audit. That is behind the director disqualification point. It is always somebody further down, not the people at the top—the people who are able to pass the buck to some junior person who may not necessarily have been given the resources. They are the ones who carry the can, mainly in the senior managers regime.
I therefore hope that the Minister will listen to and think about these points, and consider how much use the Secretary of State is making of the potential for director disqualification when it is discovered that procedures have not been in place in the regulatory environment. The Secretary of State could still say, “Right, I want investigations of whether the directors are fit and proper because they have allowed these things to go on within the companies for which they are ultimately responsible”.
Lord Hain
I would be grateful if the noble Baroness and my noble friend Lord Collins would consider putting this amendment to a vote on Report. I worry that the consultation will go on for so long that the Bill will have passed through this House—and possibly the Commons as well—before we have a chance to vote on this important failure to prevent offence.
Baroness Bowles of Berkhamsted
I thank the noble Lord, Lord Hain, for his support. It is certainly a matter to which we will return—not least because the other place has shown interest in this subject. There are problems with the timing; it may be on the never-never, as he suggests. But for now, I beg leave to withdraw the amendment.
“Money laundering: technical amendment
(1) Until two years after exit day, as defined by section 14 of the European Union (Withdrawal) Act 2017, an appropriate Minister may by regulations made by statutory instrument amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692) in order to—(a) replace references to EU directives and regulations with corresponding references to UK legislation;(b) transpose references to European Supervisory Authorities and any review, report, guideline or Regulatory Technical Standards requirements of the European Supervisory Authorities into corresponding requirements of UK supervisory bodies with any obligations to take account of international developments and to consult also being carried over;(c) transpose requirements for European Commission reports into report requirements from the Treasury and Home Office, including any obligation to take account of international developments;(d) transpose references to delegated acts into provisions for regulations made by the affirmative procedure;(e) update references relating to EEA passport rights or replace them with any corresponding or negotiated right; (f) amend definitions of credit institutions and financial institutions or any other definition lists to eliminate EU cross-references and establish corresponding entity lists;(g) convert any amount in euros to sterling;(h) modify or delete provisions relating to the EEA to retain reference as appropriate or combine with third country provisions;(j) replace reference to the identifying of high risk third countries by the Commission with corresponding UK procedure that takes account of international provisions.(2) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
Baroness Bowles of Berkhamsted
My Lords, the amendment is a very probing amendment—a very “proby” probing amendment—and an illustration of what technical changes could look like, not just with the money laundering regulations but in financial services more generally. It is a vehicle to discuss further what transposition from an EU directive means. The interest is in the contrast between the sorts of things I am going to talk about and what happens through the withdrawal Bill. I drafted the amendment as an add-on to preserved money laundering regulations. While it could be what Schedule 2 could look like, it could be used in the context of the withdrawal Bill, which I understand has to be even more generic. However, it all looks rather “smoke and mirrors” and is not clear on the scope of what might be considered appropriate or redundant, or what might emerge from it. I confess that what I have produced was initially based on my own little check-list of what I might look for in the future, and I thought it would be useful to discuss it.
The amendment says that the Minister “may” make regulations, but some of the points are essential and here we should at some point say there “shall” be carry-over of the relevant policy elements. That is what I am driving at—that one should not lose the policy framework.
Paragraphs (a), (f) and (g) are simply terminology corrections: instead of defining financial institutions with reference to the EU capital requirements directive and markets in financial instruments directive, one just transposes that into a UK list of entities. That is doubtless the sort of thing the Government will be doing. I also suggest changing amounts in euros to sterling. In the context of the fifth money laundering directive, one should probably go further and also be able to change the amounts by regulation. I would have no problem with that.
However, paragraph (b) should perhaps contain “shall”. It provides that reports, reviews and guidelines that were previously to be done by European supervisory authorities be taken over and carried out by UK supervisors, and policy guidance be carried over,
“to take account of international developments”.
My fear here is that in eliminating what are regarded as superfluous EU references, we inadvertently end up disregarding the policy. As my noble friend pointed out, the Government have not addressed the loss of policy framework alongside putting in compensation for a loss of power framework. The Government have said repeatedly that they do not intend to change policy in making post-Brexit or ready-for-Brexit changes, but then you cannot leave behind some of the policy that came from the EU. On the money laundering directives, that would include provisions on proportionality.
Lord Patten (Con)
My Lords, rising for the second time during Committee, I remind the Committee, as on the previous occasion, that I have interests in the financial services world. Having declared that, I must also declare that I love the new concept that the noble Baroness, Lady Bowles, has introduced of not a probing amendment but a “probing probing amendment”, which is exactly what Hansard will, now that I have repeated it, have to record tomorrow for posterity. This will go down over the centuries and may be multiplied in many more ways.
I am fascinated by the point that she made about the read across from EU directives, but I rise to make a “probing speech”—I am more modest—about whether we need to take account in our discussion in Committee today of the announcement that the EU made only yesterday, 5 December, when the Economics Commissioner for the first time blacklisted 17 countries for money laundering. This is the first time that the EU has ever done this. It included Barbados and Grenada. It also grey listed—that is, put on watch—a whole load more, including British territories such as the Isle of Man, Jersey, Guernsey, Bermuda and the Cayman Islands, for possible money laundering. Do we need to consider this? It is a listing, not a directive, but it is linked to what the EU specifically called “aggressive tax avoidance”, which is what we are very concerned about and do not want to see.
This is the first time that the European Union has gone into this issue. Commissioner Moscovici has urged all members to continue to agree on “dissuasive national sanctions”—believe me, Hansard, those are the words he used: “dissuasive national sanctions”. I thought that we had long ago done just this, in this country and in other international fora, when we produced endless lists of countries that should or should not be under the cosh of being blacklisted or grey listed. Do we need any more of this? Were we involved with the EU in discussing whether there should be blacklisting or “grey” listing of the countries? Did we try to dissuade it from going around the same old course again and making it very much more complicated in this first, highly immature step into such listings?
My probing question is: do we approve of what the EU has done? My second probing question is: does it relate to the Bill in any way, and should we be concerned with it, because I strongly support the Bill?
Baroness Kramer
My Lords, the noble Lord, Lord Patten, may be very interested in the next group of amendments, given the theme that he has just raised. He may have raised it because he cannot remain for that group, but if he has the opportunity, he will get a thorough response to the questions that he has just raised—possibly not from the Government, but certainly from other Benches.
I rise to explain the origin of this particular amendment. This came as a consequence again from the meetings that the Minister very kindly was able to offer to discuss the content of the Bill. The Minister will be aware of how strongly I feel about the importance of keeping the democratic process embedded in creating anti-money laundering legislation by essentially taking those powers that are undertaken by the European Parliament and the Council and transferring them to this Parliament, rather than to government Ministers and executive control. That is the underlying issue that essentially faces this Bill, and we discussed some of that earlier.
When we were in that discussion and proposed something very simple—the text of Amendment 68A, which took the existing 2017 regulations, put them on to the face of the Bill and then said they could be amended only by primary legislation in order to make sure that that democratic process continued—two primary issues were raised with us. First, it was said that sometimes action would need to be fast-tracked. We took care of that, as your Lordships who were here will remember, under Amendment 69A, which provided a fast-track mechanism for those moments of emergency. However, I notice from the Delegated Powers and Regulatory Reform Committee report that, when it probed to try to find examples of those emergencies, the FCO could not come up with a single one, which the committee was not very impressed by. But let us accept that there are times when there are emergencies—and there certainly is a role that FATF plays—so we made a carve-out for that.
The second issue that was raised with us was that it would be impossible to change in the Bill the language of regulations tied to the European Union and convert it over to a UK equivalent—that was almost too impossible for anybody who was sitting there drafting the Bill even to contemplate. The noble Baroness, Lady Bowles, who is a fearsome drafter, very rapidly took pen to paper and drafted an amendment which pretty much does that. She accepts that the amendment may not be absolutely perfect, but she does not have the resources or legal staff that the department has available to do the checks and complete conversions. I believe that this particular transposition took about an hour, and I think that anybody on the government Benches would agree that, in terms of making that shift, the amendment probably does 98% to 99% of what is necessary and is in need of only a little refinement.
The amendment makes it clear to the Government, since such a challenge was thrown down, that there is a very simple way—it is a relatively short new clause—to cover what, apparently, was one of the primary obstacles or difficulties for moving through the primary legislation route. This would leave the policy framework and principles in place as part of a democratic process, rather than requiring that all of those be abandoned and we just go to a regulation process on these very fundamental issues.
As my noble friend has said, these provisions can place great burdens on business and—we will come on to this later—can lead to the creation of criminal offences, with imprisonment for up to two years; can define the defences available against prosecution; can put in place new supervisors and change the powers of those supervisors; and can redefine every other piece of legislation that uses the phrase “terrorist financing”, using sweeping wide powers.
I understand the Government would have loved to have been able to do that in primary legislation but could not see a way through and was therefore forced to try and do this through a regulatory mechanism. This amendment is just one of those examples that makes it clear that it can be done, and I hope the Government will take it seriously.
Lord Bates
My Lords, I thank the noble Baroness, Lady Bowles, for doing this. I have to say that I am growing in awe of the noble Baroness and her drafting skills. Should there be any vacancy among the clerks in the Public Bill Office, they will be quite impressed by the notion that the noble Baroness can draw up this technical amendment in one hour—it is very impressive indeed.
My noble friend Lord Patten perhaps did the noble Baroness a disservice by saying that it was a “probing probing amendment”; I think it was a “very probing probing amendment”, which the record should capture. Having read through her handiwork in the drafting, I think she did not do herself justice. The amendment certainly provides a welcome opportunity—which is, I know, its purpose—for us to put on the record some further remarks about how we see this particular issue being addressed.
Lord Naseby (Con)
My noble friend Lord Patten said that there was a black list and a grey list, but the Minister is now saying that there is no such thing as a grey list. That is quite an important clarification, because either the overseas territories are on the black list or they are fully co-operating and on the non-existent grey list. So there is a degree of clarity required about an important matter such as this one.
Lord Bates
My noble friend is right, and I am sorry if I have not been very clear on this. The key point was that the stylistic terms “grey list” and “blacklist”, which may be for general convenience, were not reflected in what we were saying—rather, it is a demonstration of commitments by the 30 jurisdictions named to address the concerns of the EU Code of Conduct Group. So we are more discussing the semantics of the terms that might be used to describe a jurisdiction which is complying or not complying, or progressing or not progressing, towards addressing concerns of the Code of Conduct Group.
Lord Patten
It is extremely important that we have the terminology right. If I have got it wrong, I apologise to the territories involved. I think—I ask my noble friend to reflect on this—that it is perfectly daft to put a British Overseas Territory such as Bermuda on a list of whatever shade of grey, because I believe that it is a very upright outfit and a suitable, well-run territory for financial services, and I do not believe that it is involved in money laundering. But it has been fingered in reports, and Commissioner Moscovici said yesterday that it was on some sort of grey list. We need a certain amount of clarity, because it is damaging to those people who do business with Bermuda. So I agree with my noble friend.
Baroness Kramer
Can I just be helpful? I am sure that there will be a better note from the Box, but is the correct phrase “on notice” for the group that falls within the terminology of the grey list? Is that the correct terminology?
Lord Bates
That may indeed be a very helpful intervention from the noble Baroness, Lady Kramer. However, for the record, because this is a serious point, the note that I read out may not fully reflect the announcement to which my noble friend has referred. To make sure, I shall seek some additional clarification. The next group is very germane to the issue that he raises in relation to overseas territories. Therefore, perhaps without presuming on my noble friend too much, we may have some further information that will better answer that particular point.
In fact, a note has arrived, and I can say that the list published yesterday relates to tax. The EU maintains a separate list of countries which represent a high risk of money laundering and terrorist financing, to which UK firms must have regard. That may be part of the answer; more will come in the next group, if my noble friend can bear with us.
On the EU withdrawal Bill, which the noble Baronesses, Lady Bowles and Lady Kramer, asked about, Clause 7 is very clear—it is a power to remedy deficiencies in law that arise as a result of the UK leaving the EU, no more and no less. That is a level of certainty which I hope will offer some reassurance to the noble Baroness. We do not intend to make changes to the 2017 regulations other than to make those fixes. The 2017 regulations refer to guidelines issued by the European supervisory authorities. Amendment 69D enables those references to be removed only if they are replaced by references to those issued by the UK supervisory authorities. Those would cause additional work and a risk of duplication with other guidance. So, in response to that, and after what I am sure has been a very helpful debate, if not fully illuminating at this stage, I invite the noble Baroness to withdraw her amendment.
Baroness Bowles of Berkhamsted
I thank the Minister for his response. As he perhaps imagines, we will return to the issue again. I take his assurance about the withdrawal Bill not being to make changes of policy, but we still have the problem of what this Bill will be doing. It opens the door to very substantial changes of policy and principle, and that is the problem—nowhere does it have such reassurance that that is not going to happen. I think that the Minister has understood that there are things, especially in financial services regulation, where there is a policy framework, as we have tended to refer to it. Without duplication, you make sure that it is within scope of what the UK supervisory authorities would do—or there are provisions that there should be reviews, which have been put into European legislation for good and proper reason. I probably put a lot of them there myself, and I was probably cheered on by people in the Treasury for doing so. It would be quite appropriate to have something that says that we will continue in the same vein.
I thank the Minister for his comments about my drafting skills. As he probably knows, this involves about 100 directives and I remain available to assist if somebody does not know why they are there, because I probably do. At this point, I beg leave to withdraw the amendment.
Baroness Stern
“Public registers of beneficial ownership of companies in the British overseas territories
(1) For the purpose of preventing money-laundering, the Secretary of State must provide all reasonable assistance to the governments of—(a) Anguilla;(b) Bermuda;(c) the British Virgin Islands;(d) the Cayman Islands;(e) Montserrat; and(f) the Turks and Caicos Islands,to enable each of those governments to establish a publicly accessible register of the beneficial ownership of companies registered in that government’s jurisdiction.(2) No later than 1 January 2019 the Secretary of State must prepare an Order in Council, and take all reasonable steps to ensure its implementation, in respect of any British overseas territories listed in subsection (1) that have not by that date introduced a publicly accessible register of the beneficial ownership of companies within their jurisdiction, requiring them to adopt such a register.(3) In this section a “publicly accessible register of beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006 (information about people with significant control).”
Baroness Stern (CB)
My Lords, I rise to speak to Amendment 69G in my name and those of the noble Baroness, Lady Kramer, and the noble Lords, Lord Collins and Lord Kirkhope, who regrets very much that he cannot be here. The amendment continues the debates that began in what is now the Criminal Finances Act 2017. It reflects the widespread and continuing concern about how the lack of transparency in the offshore financial centres of the British Overseas Territories—that is, Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos—enables the corrupt and criminal to find a haven for their ill-gotten wealth.
The publication of the Panama papers in April 2016 revealed information about thousands of questionable financial transactions. Half of the companies disclosed by the Panama papers—around 140,000—were registered in the British Virgin Islands, which we have heard mentioned a number of times today in relation to property transactions. Those revelations brought home to many the highly damaging effects of the lack of transparency in those overseas territories. During the proceedings of the Criminal Finances Bill, a similar amendment to this was debated, which would have required the Government to help the British Overseas Territories to produce publicly accessible registers of beneficial ownership by the end of 2018. Should any of the territories fail to produce such a register, the Government would require them to do so through an Order in Council no later than the end of 2019.
The amendment became victim to the wash-up before the general election, and an alternative government amendment became part of the Act. This requires the Government to,
“prepare a report about the arrangements in place between … (a) the government of the United Kingdom, and (b) the government of each relevant territory, for the sharing of beneficial ownership information … The report … must be prepared before 1 July 2019, and … must relate to the arrangements in place during the period of 18 months from 1 July 2017 to 31 December 2018 … The relevant Minister must … publish the report, and … lay a copy of it before Parliament”.
Considering the impending dissolution of Parliament and the lack of time, the government amendment was very welcome.
Baroness Kramer
My Lords, it is a privilege to support this amendment. I, too, participated in the passage of the Criminal Finances Act, and I can say with complete confidence that, had it not been for wash-up, the amendment proposed by the noble Baroness, Lady Stern, would undoubtedly have passed this House, and I think it was evident to everybody, including the Government, that it would not have been opposed in the other place either. It would now have been in place in law, which would have been a very good result both for this country and for those who suffer from this combination of kleptocracy, terrorism and industrial-scale criminal behaviour.
I think we agreed in the House then that those activities, which are so distasteful to everybody here, can survive only because there are portals that enable that black money to be converted to white. We have a responsibility to close down each and every one of those portals; it cannot be done in one fell swoop, but we need to do as much as we can as rapidly as we can. Indeed, when we look at much of the instability and much of the suffering across the globe, if we cannot make it financially disadvantageous for those who carry out so much of this rotten and corrupt behaviour, we will have very little ability to make fundamental change.
This amendment has long and far-reaching consequences because it takes such a significant step in continuing the British leadership role in closing down those portals. This is one reason why I am speaking here today. Another reason is to raise the EU question—yet again. The noble Lord, Lord Patten, inadvertently brought the issue forward in the previous group, I think possibly because he had to leave—he is not in his place at this moment—and he thought it important to raise it. The UK in its role has, in a sense, almost worked in two ways. It has worked to put pressure on the overseas territories and Crown dependencies to move to central registers, which I applaud. That process is under way and, for some countries such as Bermuda, has been in place for many generations. Getting to central registers is a very important step in the process of trying to counter tax haven abuse and money laundering. I recognise all that and, in fact, it would be interesting if the Minister could update us on the point that that progress has reached.
The benefits of that process rely on those central registers then being accessible to enforcement agencies in this country and other locations. If they identify a potential criminal, they can then try to chase down whether they have assets hidden in various locations—in this case, particularly in the overseas territories and Crown dependencies. That is an important step, but I am conscious—as is everybody in this Chamber, I suspect—that our law enforcement authorities have very limited resources. An issue, a name, a crime has to come to their attention; there has to be something that indicates to them where assets related to that may be located and they then have to pursue that process. They may get responses very quickly but, if I were a kleptocrat or a criminal, I would reckon the odds were so much in my favour that no enforcement agency would ever find my name and be able to identify the information that was necessary to enable it to pursue me. The odds are overwhelmingly in favour of those who continue to abuse this and to hide their assets.
That is why a public register is so crucial. We as a country have recognised that ourselves. We have made our own register of companies public and transparent. That is a huge and important achievement. We did not do it lightly; we did it because fundamentally, we felt that it was absolutely necessary, and that simply saying that enforcement officials could seek information from the register was insufficient.
Initially, Prime Minister David Cameron intended that the overseas territories and Crown dependencies would follow very much in that direction. But since then there has been new resistance in many, though not in every one, of those locations. Their argument is that they dare not move any faster than the pace of overall international change in increasing transparency. We all recognise very long grass when we see it. Our contribution must be to use the powers that we possess, and the relationships that we have with our overseas territories—it is much more difficult with the Crown dependencies—to achieve that transparency and those public registers.
An additional, much smaller but not irrelevant, issue faces us now if we go through the process of Brexit. As my noble friend said earlier, the EU has become much more aggressive in trying to tackle issues around tax havens and money laundering. An article in the Observer on Sunday—I am sure the Minister read it—contained a fair amount of evidence that the British Government have used their influence to try to protect the overseas territories and Crown dependencies from appearing on the blacklist being developed, and even not to have them on the “on notice” list. In the end, on the “on notice” list are Guernsey, Jersey, the Isle of Man, Bermuda and the Cayman Islands: that is not the complete set of overseas territories and Crown dependencies, but many of them are on the list.
There is a general perception that some of those places might have made it on to the blacklist had there not been protection from the British Government. I do not mean that in a corrupt way, but there is a sort of—how shall we say?—professional courtesy that one member of the European Union offers to another in understanding its particular issues and concerns, and in holding back its hand. If we leave the European Union that will no longer be there. If those countries turn up on the blacklist, the consequences for them will be severe, and the consequences for us—as, in a sense, the overarching authority—will also be severe. If we leave we will be in the position of trying to negotiate a continued relationship in financial services that lets us sell those services across the European Union and keeps us, in a sense, as the primary centre for financial services for the EU and the continent of Europe. That will not be facilitated if we are seen as standing in the way of action that could bring about the transparency that is necessary.
I fully understand that we have often been ahead of the curve, and that is brilliant—but I am talking realpolitik here. With the EU catching up on the positions that we have taken, and looking at the crucial decisions that could be made if we were to Brexit, it becomes additionally important that we tackle this issue now. This is our only opportunity to do that in a timely way. So I hope very much that the Minister will look at this issue and all its complexities.
The noble Lord, Lord Hain, made a passionate speech earlier, and we were all shocked by the exposé that he brought so significantly to our attention. That simply underpins the fact that the amount of money involved, and the extent and dimensions of abuse in the world of finance—whether by kleptocrats, terrorist organisations or criminals—are enormous, and reach into every aspect of life. This is an issue that we have to take seriously: this is our chance to take another step forward in tackling it, and I hope that the Government will seize it.
The Earl of Kinnoull (CB)
My Lords, it is always a pleasure to follow the noble Baroness. I am grateful to her for having responded with such grace and clarity to a point I made six months ago in a similar debate. I should begin by declaring my interests and saying that I am in the curious position of deeply respecting the people who have signed the amendment, and usually agreeing with everything they say, but of disagreeing with what they say tonight. I will explain why.
If we in this Chamber sought to legislate for Scotland in a matter of devolved competence, and we did so without the consent of the Scottish Parliament, we can imagine what a hell of a hullaballoo would be raised immediately. We would be reading about it in every newspaper and the media would be full of it. Indeed, the media are fairly full of warnings from the Scottish Government every day that we must not do that. As a resident of Scotland—not so far from Glen Clova, in fact—I can tell the House that there are deep feelings in Scotland about someone coming into our competence. I know that that will be the same in Wales. I was with the EU Select Committee when we visited the Welsh Parliament, and in the course of a day that point was made to me probably half a dozen times by different Welsh politicians, from every different denomination and party within Wales.
Indeed, as a Parliament we developed the Sewel convention to cope with this situation, and it has been put into the memorandum of understanding. The October 2013 version says that,
“the UK Government will proceed in accordance with the convention that the UK Parliament would not normally legislate with regard to devolved matters except with the agreement of the devolved legislature”.
Indeed, we put that into statute—certainly in the Scotland Act 2016, and I think in the equivalent Wales and Northern Ireland legislation. It has, of course, been litigated.
I have here the Miller judgment, and in his outstanding judgment—from which I shall quote shortly—the noble and learned Lord, Lord Neuberger, rather elegantly reminds us, in paragraph 144, that the Sewel convention was not invented at that time, but that its substance was actually in effect between the UK and Southern Rhodesia, because the leading case in the Privy Council from 1969 discussed that. The Sewel convention represents something that this Parliament has had for a long time, and it stretches out to our Commonwealth as well as to our devolved Administrations here.
In the final paragraph of the five pages considering the convention, the noble and learned Lord says:
“In reaching this conclusion we do not underestimate the importance of constitutional conventions, some of which play a fundamental role in the operation of our constitution. The Sewel convention has an important role in facilitating harmonious relationships between the UK Parliament and the devolved legislatures”.
I repeat all that, and make a meal of it, because I have to say that the countries concerned and named in the amendment—I use the word “countries”, having lived in Bermuda for a number of years—are very proud and sophisticated places. Bermuda is incredibly sophisticated: its GDP per head is much bigger than that of the UK; its reinsurance industry overtook the UK’s in size in 2004, and is much bigger and very sophisticated. It would hate any infection of the sort of corrupt and criminal behaviour that has been elegantly referred to by the noble Baroness, Lady Stern. Everyone working on Bermuda feels—as I and every Member of this House does—that chasing down these corrupt and criminal individuals and their money is very important.
Therefore, we should not legislate without at least consulting these Parliaments, and getting their agreement to do so. It would be deeply wrong and very counter- productive not to do that. If one were to think of legislating, one should do so under the Sewel convention if there is strong evidence that something very bad is going on, and there is no ability to address that. However, I have to say that the evidence is the other way. I looked again at the Wikipedia article on the Panama papers. About half way down that article, there is a rather good league table of the banks that had been involved in that affair. Four of the top 10 banks listed in the league table were based in Luxembourg. None of the top 10 banks was based in any of the countries listed in this amendment. Therefore, we are getting slightly ahead of ourselves. Certainly, there appears to be a bit of work to do at home in the EU before it starts trying to do a lot of work outside.
When responding on the then Criminal Finances Bill, the noble Baroness, Lady Williams—I am sorry not to be able to read out the relevant bits—said that the Government and the overseas territories discussed these issues round the table almost as if they were members of a family, and that there were a lot of subtle ways in which the British Government could try to make sure that there was continual progress on this very important issue. She assured the House that such measures produced continual progress. In my experience, I think they do as well. The thinking behind this amendment is admirable. I hate all this disgusting stuff perpetrated by corrupt and criminal people as much as anyone, but I do not think that the amendment pushes the ball further up the pitch. It would be very damaging constitutionally to our relationships with our loyal overseas territories. We should continue to take the road we have taken so far, which is to push the ball gradually up the pitch, as and when our Government meet representatives of our overseas territories and discuss issues such as that which came out of the EU yesterday.
Lord Naseby
My Lords, I declare an interest as vice-chairman of the All-Party Parliamentary Group for the Cayman Islands. In addition, a member of my family lives in the Cayman Islands. I very much support what the noble Earl, Lord Kinnoull, has just said.
We have come a long way in the best part of 18 months from a situation in which there was no statutory methodology whereby United Kingdom law enforcement agencies could get information from any of the overseas territories in a reasonable length of time and know that it had been properly produced. Speaking only from my knowledge of the Cayman Islands, that information is now available 24 hours a day, 365 days a year. That is rather better than Her Majesty’s Companies House is capable of doing. I think that is a great advance.
I deeply regret what the noble Baroness, Lady Kramer, said: namely, that when Cayman Islands representatives went over to Brussels recently, they were protected by Her Majesty’s Government. They went on their own, put their material before the authorities there, and, quite rightly, the authorities listened properly and recognised the progress that had been made. That is why the Cayman Islands are not on the blacklist. Of course, the volume of financial operations in Bermuda and the Cayman Islands is extensive—so, understandably, anybody who is concerned about financial transactions will keep a watch on what is happening. That is absolutely right and justified.
The noble Earl, Lord Kinnoull, rightly referred to Luxembourg. Top four—not the bottom four. What about other parts of the world? The USA is probably in the clear, as I am sure that the central government of the USA is in the clear. However, it is totally incapable of controlling Delaware, Nevada and half a dozen other states. We are supposed to have a special relationship with the United States. That is not much good if we accept an amendment such as this and find that all the people in our overseas territories are thrown out of business as their legitimate business is undercut totally by Delaware and Nevada—particularly Delaware.
Therefore, I say to your Lordships, “Tread carefully. Recognise that huge progress has been made in the last 18 months and that we now have a situation where our authorities can get concrete evidence when it is required”. We are not getting that out of the present system of control in the United Kingdom. We can go out of this Chamber tonight, go through the smart parts of central London and see how many of those houses are unlit. Do none of us wonder who owns those houses? Do we think the British own them? We all know in our heart of hearts that they are not owned by British people, and almost certainly not by continentals. That money has come from somewhere. It seems to me pretty likely that it is hot money. So I ask noble Lords to think long and hard before they start to destroy these overseas territories.
I was sorry that the noble Baroness who introduced this amendment brought in human rights. I have had the privilege of working and living in Pakistan, India and Sri Lanka and I know that part of the world extremely well. Legitimate British companies working there are not exploiting people. They have brought employment there, better living conditions and all the rest. The noble Baroness is quite wrong to suggest that every company operating there—or the vast majority—is exploiting these poorer countries. I ask the noble Baroness and others to find some real, concrete examples rather than generic ones. That is why I will resist the idea of a public register until such time as we have given the existing one time to work, and until such time as the EU and the United Kingdom persuade the United States to join in with producing uniform reporting. I say to my noble friend on the Front Bench that I hope Her Majesty’s Government will tread carefully and recognise the work that has been achieved so far in a pretty short measure of time.
Lord Collins of Highbury
My Lords, I thank all noble Lords who have contributed to this debate. I very much appreciate the comments that the noble Baroness, Lady Stern, made in moving this amendment. She is probing at this stage. We want to find out exactly what has happened—because, unlike the noble Lord, Lord Naseby, I do not think that progress has been made quickly. We have been making demands on these issues since 2013.
When we are talking about cost, it is not just criminal activity that we are talking about but tax evasion. Sometimes it is called tax avoidance but the cost of tax evasion to developing countries runs to billions of pounds. Again, I come back to the vital point that those who can least afford it are suffering the most from the activities of territories that hide people’s activity. We should not be racing to the bottom. Transparency is about good business and doing good business. That is what this amendment is about. It is not about trying to punish territories or communities that have been trying to develop or extend their economy.
The Earl of Kinnoull
Before the noble Lord sits down, could he give some comment on the Sewel convention-type points that I made? I was making a constitutional point and it would be very helpful to understand the Opposition’s view.
Lord Collins of Highbury
The Opposition’s view, in terms of global economic theft, for want of a better word—the noble Baroness, Lady Kramer, raised this point—is that we are not talking about domestic industries or domestic activities. We are talking about transactions that are going global in terms of what I would call international crime. Not only the Panama papers but also the Paradise papers are showing that these activities are causing far more damage.
I believe that the overseas territories have an obligation to comply with international agreements, certainly regarding our UN obligations on sanctions. If we sanction a country for corrupt activities, the overseas territories have to comply. If it is good enough for sanctions, it is important that we consider it important enough for some of the crimes we have heard described this afternoon.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords who have taken part in this debate. In particular I thank the noble Baroness, Lady Stern, for tabling this amendment. It would require the Secretary of State to provide all reasonable assistance to the Governments of certain of the British Overseas Territories with significant financial centres to enable each of those named overseas territories to establish a public register of company beneficial ownership. It further provides that if, by 1 January 2019, such overseas territories have not established such a register, the Secretary of State should take all reasonable steps to ensure that the Privy Council legislates to require each relevant overseas territory to do so. With your Lordships’ indulgence, I shall refer to the overseas territories as the OTs to save a degree of time.
I also appreciate that, as the noble Baroness articulated in moving the amendment, it was a probing amendment. That allows me to outline what steps have been taken. The OTs, as you know, are separate jurisdictions with their own democratically elected governments. They are not represented in this Parliament and so it has only been in exceptional circumstances that we have legislated for the OTs without their consent.
Financial services are the domestic responsibility of territory Governments. This creates an entirely different relationship from examples where we have had to legislate. For example, we have acted over international human rights obligations and, indeed, on decriminalising homosexuality. On the governance structures in which these territories work, as the noble Earl and my noble friend Lord Naseby have indicated, and as the territories and the House will recognise, legislating for the OTs without their consent would effectively disfranchise their own elected representatives. It would create considerable ill-feeling, which the Government do not wish to do.
Legislating to require certain OTs to establish public registers of company beneficial ownership when they do not wish to do so of their own volition would also mean that the territories would be less keen to maintain their current level of co-operation. This would jeopardise the progress—which I shall come to in a moment—that has already been made in this area and the spirit of working in partnership that we have fostered with them. The noble Lord, Lord Collins, said that I was running off to the joint ministerial council—I think I ran from it. We covered this subject; indeed, it was also covered by my right honourable friend the Prime Minister in her meeting with the overseas territories. Jeopardising progress in this respect is not something any of us want to do. Given the necessary lead-in period for establishing any new register of beneficial ownership, this would set back UK law enforcement’s ability to access information relating to the beneficial ownership of companies in the OTs.
Let me assure noble Lords that this does not mean we are content for no action to be taken in this space. It simply means that we wish to take action within the existing framework of friendly co-operation, building on the progress already made. The noble Baroness, Lady Stern, made the point that I am the Minister for Overseas Territories. I have been dealing quite extensively with them, as noble Lords will understand, particularly certain territories, because of the tragic hurricanes that struck. We raised these issues directly, and we have seen good progress.
As noble Lords will know, the UK is a global leader in the cause of corporate transparency. We are the only country among the G20 to have a fully established public register of company beneficial ownership, and we continue to push for this to become a global standard. The international standards set by the Financial Action Task Force do not require it, however, reflecting the lack of international consensus in this area. These standards require only that:
“Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities”.
Nevertheless, should public registers become the global standard, we would expect the OTs to meet it. The UK is far ahead of other countries in this area. The current EU framework does not require all member states to establish public registers of company beneficial ownership, so many have chosen not to do so. There is already progress in this area and we need to build on it within the existing framework of friendly co-operation, to which I have alluded. Under the arrangements that we concluded with the OTs in 2016, overseas territories with significant financial centres committed to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with automatic access to such information within 24 hours of a request being made, or within one hour in urgent cases.
These arrangements—also known as the “exchange of notes”—came into effect on 30 June this year and are in the process of being fully implemented by the OTs. An important point is that effective implementation of these arrangements will put the OTs ahead of many G20 members and many individual states of the United States—a point made well by my noble friend Lord Naseby.
I am pleased to report that Bermuda, the British Virgin Islands, the Cayman Islands and Gibraltar have central registers of beneficial ownership information or similarly effective systems in place, and they are taking forward population of their systems with beneficial ownership data.
We are also providing support to the Government of Anguilla to establish an electronic search platform providing access to beneficial ownership information, as well as support in drafting underpinning legislation. We are now working with Anguilla to finalise a memorandum of understanding on the terms for provision of our support, and we expect its beneficial ownership system to be established in the spring of 2018, notwithstanding the current rebuilding challenges it is facing following the hurricane. Work on establishing a central register in the Turks and Caicos Islands has been delayed owing to the impact of Hurricane Irma, but we expect this to be in place soon.
We did not seek a bilateral arrangement with Montserrat, as we had with the other OTs with financial centres, because Montserrat had already committed in November 2015 to include beneficial ownership information in its existing public companies register. A Bill requiring the inclusion of beneficial ownership information in the existing register will be introduced to Montserrat’s Legislative Assembly this month. The target date for the addition of that information to the register is 1 April 2018.
Having heard that detail, I hope your Lordships will agree that it demonstrates what can be achieved by working consensually with the OTs. It is right, therefore, that we focus on the implementation of the existing arrangements and that future work in this area be carried out within the existing framework of friendly co-operation, rather than generating ill will by imposing upon the OTs without their consent.
We are committed to following up on these arrangements to ensure that they deliver in practice, are implemented effectively and meet our law enforcement objectives. There is explicit provision in the exchange of notes for the operation of the arrangements to be reviewed six months after they came into force—that is, at the end of this year—and subsequently on an annual basis. These formal review processes are in addition to ongoing monitoring of the practical application of the exchange of notes by the UK and each relevant OT.
In addition, noble Lords will recall that Section 9 of the Criminal Finances Act 2017 amended Part 11 of the Proceeds of Crime Act 2002 to establish a statutory review process for the implementation of the exchange of notes. This report must be prepared before 1 July 2019 and relate to the implementation of the exchange of notes from 1 July 2017 to the end of December 2018. Once prepared, it will be published and laid before Parliament. The Government are clear that OTs with significant financial centres must fully implement the exchange of notes to which they have each agreed. The noble Baroness, among others, asked whether this matter had been raised. I have already said that it was raised at the JMC, and the Prime Minister reiterated this at her meeting with the leaders of the OTs last week. These arrangements have been made and must be honoured.
A key feature of the Government’s approach has been to maintain a level playing field between the OTs with financial centres and the Crown dependencies. As I am sure noble Lords reflecting on my contribution will see, we have robust review processes for the implementation of these arrangements, both on an ongoing basis with the Crown dependencies and the OTs and through the Criminal Finances Act. If these review processes demonstrated that full implementation of the exchange of notes was not taking place in any individual jurisdiction, it would be right for us to consider the issue further.
My noble friend Lord Patten, who I see in his place, raised the EU blacklist. Perhaps I may, first, give some factual information. I will check Hansard but I believe that he mentioned that Bermuda was on the blacklist. Bermuda is not on it; nor are the Cayman Islands or the Crown dependencies. Bermuda, the Cayman Islands and the Crown dependencies are on a separate list—I am quoting here—of co-operative jurisdictions which have been assessed by the EU as being unsuitable for the blacklist. They have also further committed to address any remaining concerns by the end of 2018. I can be quite specific in saying that this is not a grey list; on the contrary, it is a demonstration of the progress and positive commitments that have been made and are being achieved.
Baroness Stern
I thank all those who have spoken in support of the amendment and those who have spoken strongly against it. A debate is always very good for the brain. I thank the Minister very much for the information he has given us, for the hard work he has done at the joint ministerial council and for the progress that is being made. It is likely that this matter will be returned to on Report but, for now, I beg leave to withdraw the amendment.
Sanctions and Anti-Money Laundering Bill [HL]
Wednesday 6th December 2017
(6 years, 11 months ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 69-III Third marshalled list for Committee (PDF, 106KB) - (4 Dec 2017)
Baroness Kramer
“Trust or company service providers
(1) A trust or company service provider that does not carry on business in the UK may not incorporate UK companies without oversight from an anti-money laundering supervisor.(2) In this section—“anti-money laundering supervisor” has the same meaning as “supervisory authority” in Schedule 2;“trust or company service provider” has the same meaning as in regulation 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017);“carry on business in the UK” has the same meaning as in regulation 9 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017).”
Baroness Kramer (LD)
My Lords, Amendments 69H, 69J and 69L in this group are in my name and that of my noble friend Lady Bowles, but the group also encompasses Amendment 69K in the name of the noble Lord, Lord Naseby. This cluster of four amendments work extremely well together, and we are very grateful to the noble Lord for bringing in a piece which strengthens this cluster.
Even the unobservant will have noticed that, in a sense, this is about starting to close loopholes. We had a very interesting comment, I think from the noble Lord, Lord Naseby, earlier—he can tell me if I am wrong—talking about the reputation and the failures of the UK to manage money laundering that involves the overseas ownership of property in London. The noble Lord, Lord Naseby, may not have had the opportunity to be here earlier, but we did have Amendment 69 in the name of the noble Lords, Lord Faulks, Lord Rooker and Lord Collins, and the noble Baroness, Lady Bowles, which directly addressed the public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK, in an attempt to speed up the whole process of getting a public register of beneficial ownership.
Lord Naseby (Con)
I sat through the whole debate on Amendment 69, which took a fair amount of time.
Baroness Kramer
I do apologise, but the noble Lord will know then that that issue was addressed at that point in time. The Government gave us an update on the progress they are making towards what we hope will be such a public register. Indeed, I believe the Minister said it was not a question of whether but how there would be a public register. In a sense, that is one of the criticisms of London that hopefully will be closed within a reasonable period of time. We are still waiting on the timetable, but that is indeed what we hope.
However, the noble Lord is absolutely right that whenever issues are raised, particularly when the UK talks of issues around tax havens in other countries, or we on these various Benches talk about trying to get public registers in the overseas territories and Crown dependencies, the answer nearly always comes back, “Clean up your own house first”. Indeed, that is one of the reasons why I and so many in this House support that public register of beneficial ownership of property.
These amendments that I now address follow on that same theme. I remember the noble Lord, Lord Eatwell, in particular in the debates on the Criminal Finances Bill, being highly critical, comparing London very badly with Jersey. Although we have a public register for companies, it is not one that has any verification system, and he saw that as a very fundamental flaw in the UK system. That accusation comes again and again, whenever we look at trying to do anything with the overseas territories. Whenever we look at any kind of more global activity, the answer that always comes back is: “You say that you’re well in advance of other countries, but look at your own house—you’ve plenty there to get in order”. I would agree that we have plenty to get in order, so let us do it.
The three amendments that I have tabled with the noble Baroness, Lady Bowles, deal with various aspects of this. Amendment 69H deals with an issue that has generally been overlooked. I am very grateful to the noble Baroness, Lady Bowles, for identifying it—as noble Lords can probably tell, she is the expert hand in these amendments and has drafted all three. Amendment 69H proposes that trust or company service providers that do not carry on business in the UK and ensures that they may not incorporate UK companies without oversight from an anti-money laundering supervisor. I will not go through the details of each of its provisions, but essentially it makes sure that anti-money laundering authorities can get a grip on a series of organisations—trust or company service providers—that may have escaped notice up to this point in time. It is one loophole closed.
Amendment 69J takes another tack to close loopholes. It recognises that a company can be tracked if it has a UK bank account, but if the company does not, it is much harder to identify that particular company and make sure that the money laundering authorities can give it due and appropriate attention. In the proposed new clause, if an entity falling under the Companies Act 2006 does not have a UK bank account, it will have to provide a fee. The reason it should provide a fee is that it means that the cost of doing due diligence falls not on the UK taxpayer but on the company. That provides every incentive and every opportunity for the various authorities to pay due attention to that company. That is another loophole closed.
That fits brilliantly with the new clause proposed by the noble Lord, Lord Naseby. I will let him explain that because he will understand it far better than me, but again it highlights the importance of due diligence which flows through the first two amendments that I have described. Due diligence is vital to make sure that those entities that are active in the UK have very limited opportunity—or, preferably, no opportunity—to engage in nefarious activity.
Finally, Amendment 69L directly addresses that issue that was raised by the noble Lord, Lord Eatwell, and others. As noble Lords know, we have a public register of companies here in the UK, but the Government have never used a verification procedure. I understand why they have not. When a register is public, it is transparent. Journalists, NGOs, and members of the public have the opportunity to trawl that database, and that provides for many additional eyes to look through the material. That is exceedingly important, but perhaps it is not sufficient. At this point in time, issues of tax avoidance, tax evasion and money laundering have become far more significant—and on a far more significant scale. This is the time to turn to the supervisory authorities and give them the power and the wherewithal —the wherewithal probably being the critical element—to do verification and proper due diligence on that register.
That is the purpose of the three new clauses proposed in my name and that of the noble Baroness, Lady Bowles. They are to close the kinds of loopholes which leave the UK open to regular criticism that we talk about cleaning other people’s houses but we have not done what is necessary to clean our own. Read those together with Amendment 69 and you have a package that makes a very fundamental difference—one I am sure ought to be acceptable to the Government. I beg to move.
Lord Naseby
My Lords, I shall speak to Amendment 69K, which contains a new clause that I believe would meet a need arising from an apparent money laundering loophole to do with Companies House. Before I get on to it, I thank the Minister and particularly his staff for the consultation periods that were made available to Members of your Lordships’ House; they were extremely well run. I have also had correspondence with his office and I found it extremely helpful, so I put on record my personal thanks.
There are two ways of registering a company in this country, either directly through Companies House or via a company formation agent. Currently, 40% of all companies are incorporated through Companies House. As we probably all know, in July this year the fourth EU anti-money laundering directive came into force. It required considerable change for company formation agents in that they now had to take out enhanced due diligence checks when registering a company. Obviously this increased their workload and indeed the cost considerably, but nevertheless it was to the credit of the industry that it welcomed the changes that came with the directive.
However, under current provisions, fraudsters can still register a business direct with Companies House, either on paper or via the GOV.UK website, and, through that, avoid all the checks now required when company formation agents carry out exactly the same process. My understanding of the rationale behind this is that Companies House is not a business provider, but instead is fulfilling a statutory duty just to register businesses and issue incorporation certificates. Legally, Companies House has to accept in good faith all documents sent to it, and has no statutory power whatever to verify or validate the information contained in them. It can act only within the parameters of the Companies Act, and it has no investigatory powers under that legislation.
In reality, that means that for just £12 someone can set up a company using entirely false details without having to go through any verification checks on beneficial ownership, and with limited checks on registered directors. Individuals who have been involved in money laundering, who have convictions or who have been disbarred as owners in other jurisdictions can therefore gain access to UK companies through Companies House. This loophole cannot be justified; by incorporating at Companies House, fraudsters are able to create the illusion of their company being financially secure and sustainable. That leaves British business, consumers and taxpayers open to abuse through fraud or money laundering.
The organisation Transparency International reports that in the UK last year 251,628 UK companies were created with no checks being made on the person setting up the company or their source of wealth. A further TI report found that there were hundreds of British shell companies implicated, in its judgment, in nearly £80 billion of money laundering. The report goes on to say:
“The fact that a large proportion of firms are incorporated directly through Companies House and undergo no due diligence checks creates a significant money laundering risk to the UK framework”.
That lack of checks and balances harms Britain’s reputation as a leading place to do business, and in my judgment it is essential that that reputation is protected in the lead-up to Brexit. To protect businesses, taxpayers, and the UK’s reputation, it is essential that this loophole is closed.
I do not necessarily expect the Minister to take the precise wording in my amendment. It was written largely by myself with the help of the Public Bill Office, so in a sense it is a probing amendment, but I believe it is one with such depth of information that I would be enormously surprised if Her Majesty’s Government did not respond to it and come back with something similar on Report.
Lord Davidson of Glen Clova (Lab)
My Lords, the Opposition are sympathetic to many of the points that have been made, and I single out Amendment 69H. The capacity to carry out UK company formation from outside the UK is a real lacuna in the current money laundering regime. Monitoring within the UK is difficult enough, as is evidenced by the use of, for example, Scottish limited partnerships in Russian and former eastern-bloc bank fraud and money laundering of gigantic proportions. This vulnerability is of course magnified when the company information provider eludes the UK’s money laundering oversight.
Amendment 69J provides, we respectfully suggest, a useful additional hurdle for any prospective money launderer to negotiate. While the provision of the requisite materials for opening a bank account no doubt seems irksome to many, it none the less provides an additional external check on the background of those seeking to operate via a UK company.
The amendment of the noble Lord, Lord Naseby, offers a clear and useful mechanism for combating money laundering and I share his observation that it would be surprising if the Government did not support this measure with considerable force.
Baroness Bowles of Berkhamsted (LD)
My Lords, there are two issues here. The first is to make sure that money laundering checks are carried out somewhere in the chain. There could be various mechanisms to do so, some of which are suggested in the amendments. Then there is the issue of how Companies House itself will get the money to conduct the checks. That is the point of the provision in Amendment 69L for a mechanism to levy a fee. Obviously, there could be other mechanisms. As to Amendment 69J, if there is no bank account, the fee could be levied at that point. Ways in which to tighten up and get the money are the objectives of this family of amendments.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, I thank the noble Baroness, Lady Kramer, for leading a short but interesting debate on these matters. I shall put some remarks on the record to see whether they satisfy her and my noble friend.
Amendments 69H and 69J would prohibit trust or company service providers, known as TCSPs, that do not carry on business in the UK from incorporating UK companies, unless overseen by a UK anti-money laundering supervisor. The amendments would also require UK companies to establish a UK bank account and evidence this to Companies House. The money laundering regulations 2017 require TCSPs carrying on business in the UK to be fit and proper. We will also shortly formally establish the office for professional body anti-money laundering supervision, or OPBAS, which will work to ensure consistently high standards of anti-money laundering supervision by professional bodies, including TCSPs.
If there are factors that make it unclear whether a trust or company service provider could be regarded as acting by way of business in the UK—in which case it would fall within the jurisdiction of a UK anti-money laundering supervisor—HMRC considers on a case-by-case basis whether registration for supervision is necessary in order to combat attempted evasion of supervisory requirements. I therefore agree with the intention behind the amendment. However, given the pending establishment of the office for professional body anti-money laundering supervision, it is right that we establish this body first and then take proper account of its conclusions around TCSP supervision before taking further action in this space.
Additionally, the problem that the noble Baroness, Lady Kramer, and my noble friend Lord Naseby correctly identified ultimately results from trust or company service providers exploiting the comparative weakness of anti-money laundering supervision in certain overseas jurisdictions. In order to comprehensively address this, our emphasis should not be solely on expanding the scope of our anti-money laundering regime, particularly given the practical difficulties that would arise from UK supervisors seeking to exercise effective oversight over trust or company service providers established outside the UK and with no physical presence within the UK.
Such circumstances would present significant challenges for effective supervision, which typically includes measures such as on-site visits to firms that present higher risks of money laundering. The most effective way of addressing the problem which the proposers of the amendment have highlighted is through effective international co-ordination to drive up standards of supervision in jurisdictions with weaker anti-money laundering regimes than we have here in the UK. This is the agenda which we promote with international partners through the Financial Action Task Force, and it is this agenda which will offer a durable, long-term solution to the problem of weak overseas supervision of trust or company service providers.
Amendment 69J would amend the Companies Act 2006 to require UK companies to establish a UK bank account and evidence this to Companies House on an annual basis, or otherwise pay a fee or financial penalty. The wider purpose behind this part of the Companies Act is to provide a simple mechanism for companies to confirm that corporate information registered with Companies House as required under other obligations is accurate and up to date. The amendment would significantly change the purpose of the annual confirmation statement. As drafted, it would additionally require all UK companies to demonstrate annually that they hold a UK bank account; otherwise, they would have to pay a financial penalty. This would mark a significant increase in the reporting burden on the 3.9 million entities registered with Companies House, the majority of which are small, local businesses which would have to provide evidence of a UK bank account every year.
Amendment 69K would require company formation agents—defined for these purposes as including the UK registrar of companies at Companies House—to conduct customer due diligence. I appreciate my noble friend’s remarks about the consultation which has taken place, led by my noble friend Lord Ahmad, with colleagues and officials. I understand and sympathise with my noble friend’s intention; it is quite correct that we should take steps to avoid corporate vehicles being used for money laundering. However, I hope I can convince him that his amendment is not the best way to do that—although he prefaced his remarks by saying that it was a probing amendment. He will probably want to reflect on my remarks in response to it.
The amendment would represent a fundamental change in the principles under which the UK’s company law system has long operated. The UK registrar of companies has a statutory duty to incorporate and dissolve limited companies. This is carried out by Companies House, which registers company information and makes it available to the public. Companies House is not—unlike trust or company service providers, which are already supervised for anti-money laundering purposes under the money laundering regulations—a private-sector profit-making business. The registrar has no discretion in law to refuse or decline a request to incorporate a company. Companies House therefore cannot decline to establish a business relationship in the way that firms regulated for anti-money laundering purposes must when they cannot discharge their customer due diligence obligations. Because of the registrar’s statutory obligations, Companies House is not considered to be a company formation agent. If approved, the amendment would require further substantial revision to UK company law to allow Companies House to operate in the same fashion as company formation agents.
Approximately 600,000 new companies are registered each year at Companies House. The customer due diligence measures required under the money laundering regulations are significant, and are required to be applied by regulated firms on an ongoing, risk-sensitive basis to prevent illicit actors making use of the financial system. They are not intended—either by international standards, EU law or UK law—to be applied by a public body to all companies that are incorporated within the UK. Were these measures to be adopted, they would be a significant, unfunded burden upon Companies House and would fundamentally alter its relationship with the company formation process. They would also unnecessarily delay the process of company formation. The overwhelming majority of UK companies are set up for legitimate commercial purposes. Applying this amendment as drafted would not address or identify higher risks of money laundering or terrorist financing, but would instead impose an across-the-board administrative burden on Companies House and individual companies.
Lord Naseby
My Lords, I am grateful to the Minister, but he is just repeating the problem. I understand what he is saying about the EU directive, although I am not skilled in that area and would not claim to be. However, I am quite skilled in the practicalities of life, and if a quarter of a million companies are being registered and nobody is checking them, that is a huge loophole, and Her Majesty’s Government have to find a way around that. The commercial sector is doing its proper due diligence—yes, it does it for a fee—but the Government have to say, “Right, it shall all be done by the private sector and Companies House will carry on doing the little bit of work it does for £12”, or develop a section at Companies House to do it. I accept that more work may well need to be done, but we cannot have such a situation in this country.
I can even give the Minister a small case history of what could happen. Somebody goes to Companies House, pays their £12 and registers. It is then reported to HMRC that they have registered. They then write in four months later to say that they have ceased trading. That is a wonderful vehicle for money laundering: they are a registered company, and HMRC has forgotten about them because they have told it that they are not trading. If a quarter of a million of them are doing this—I am not saying there are quite as many as that—it is a huge loophole and Her Majesty’s Government have to figure out how to deal with that section of companies that are currently being registered fully through Companies House.
Lord Bates
I do not accept that all we are doing is describing a problem. We are of course doing that, but we are also highlighting that we are about to formally establish the office for professional body anti-money laundering supervision, which will be responsible for supervising the very professional body of trust companies to which my noble friend was referring. We will have to keep an eye on and watch out for this issue, but we are certainly not complacent about it; we are aware of it and watching it carefully.
Baroness Kramer
My Lords, perhaps I heard the same speech that the noble Lord, Lord Naseby, heard, because it seemed to me a speech in which basically all the loopholes were recognised. The argument was that we cannot do anything much about it. We have to co-operate with international regulators regarding companies based overseas with no UK presence that take advantage of Companies House; and regarding companies that go directly to Companies House, never get noticed again but, under the radar, can behave inappropriately. Some of them are entirely legitimate, I am sure, but within that pool there are bound to be some that are behaving very inappropriately.
Having recognised that there is a loophole, I am not vested in one set of answers to how we close it, but it needs to be closed. If the Minister has problems with the drafting or the way various phrases have been laid out, or if there are various other issues, surely all of those can be overcome once there is a decision in principle that this is a loophole and we ought to close it. I hope there is an opportunity for a conversation before Report, because I suspect that this House would be rather uncomfortable with walking away from a Bill like this and leaving a large and acknowledged loophole on the books and in the system. I beg leave to withdraw the amendment.
Baroness Bowles of Berkhamsted
My Lords, my noble friend Lady Kramer and I gave notice that this schedule should not stand part of the Bill. I would like noble Lords to take a few moments in private to give the schedule the “read it out aloud” test. Let us try one bit of it now. Paragraph 4 says:
“Require prescribed persons to take prescribed measures in relation to their customers in prescribed circumstances”.
All the prescribing is yet to be defined. I am sorry to appear light-hearted, but I can imagine that coming out of the mouths of comedians. Truly, I do not know whether the schedule is sinister or whether it just fails to understand how the money laundering regulations 2017 work. It is sinister if you look at the scope of the powers, which gives opportunity for boundless increase in who can be covered and ignores any proportionality or safeguards that are included in the current law.
It is no use pointing to the reference to the current regulations, which appears in paragraph 20, because that is basically there only to give power for them all to be rewritten, amended or revoked—so there are no guarantees for anything. It is worth having a quick look at paragraph 20, which starts:
“Without prejudice to anything in section 41, paragraphs 1 to 19 or section 44(2), regulations under section 41 may”.
We have to remember that Schedule 2 starts:
“Without prejudice to the generality of section 41”.
So we have a paragraph that starts with three mentions of “without prejudice”, reinforcing that a whole lot of other stuff is expected to be going on. Paragraph 20 then says:
“(a) subject to any modifications the appropriate Minister making the regulations considers appropriate, make provision corresponding or similar to any provision of the Money Laundering Regulations 2017, as those Regulations have effect immediately before they are saved by section 2 of the European Union (Withdrawal) Act 2017; (b) amend or revoke the Money Laundering Regulations 2017”.
It says that you can make provisions corresponding or similar to, or revoke. If that, together with the three references to “without prejudice” is not giving notice that you intend to completely rewrite them, then I really do not know what is. This is, as I have said before, a big part of the problem. It is sinister when looked at that way.
There is also a failure to understand, or at least to commit to, how the money laundering regulations 2017 work. That misunderstanding or failure to acknowledge is there by virtue of the very structure of Schedule 2. It is upside down, starting with the person, moving on to supervisors and leaving out duties of government. It does not seem to appreciate the cascade of risk assessment that drives automatic updating of the nature of risks from the Treasury and Home Office, to supervisors and then on to the persons. The list of powers seems to have been composed by lifting a short part-sentence here and there from individual sub-regulations, ignoring any safeguards including, as I said, the surrounding cascade methodology. The part-sentences are then turned into a list of naked powers that have already received criticism from the Delegated Powers Committee in paragraph 36 of its report. I commend reading that paragraph to noble Lords; it highlights and criticises the unrestricted power over persons, the powers to create supervisors with investigatory powers, the powers to prohibit the carrying on of business and power to impose unlimited fines and criminal offences—all without limit save for the sentencing limits.
It would stretch your Lordships’ patience, especially at this hour, if I went through each paragraph to show its origins and what is missing—although I could do that, if noble Lords wanted. I will just illustrate the pattern with one paragraph but, as I have said, it is a repeating pattern. Paragraph 2(1) requires “prescribed persons”—the yet to be defined prescribed persons—
“to identify and assess risks relating to money laundering, terrorist financing and other threats to the integrity of the international financial system”.
That actually sounds like a pretty good definition of what the Financial Action Task Force was set up to do. The Minister can by regulation make anyone—some small accountant, lawyer or bookkeeper, you, me, the doorkeeper, a schoolteacher—do it all, not forgetting unlimited fines for getting it wrong. Am I being ridiculous? Well, no, because there is no mention of the category of person or it being about their own or a relevant business. Where does this wording come from? Let us look at Regulation 18(1) of the 2017 regulations, entitled:
“Risk assessment by relevant persons”.
It starts:
“A relevant person must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its business is subject”.
Spot the missing bits. It has to be “appropriate steps” relating to its own business. The “relevant person” is not open-ended either, because there is a list of relevant persons in Regulation 8.
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, we are coming to the end—this is the last group. The noble Baroness has given a detailed exposition of the reasons behind the proposed amendments. I can say quite clearly that the Government do not agree with her position. She used phrases such as “the Government going it alone”. Throughout the Committee stage—and today with my noble friend—I have articulated the fact that with the FATF we have led the way. These are areas where Britain is ahead of the curve, not behind it. Perhaps I can answer some of her questions directly, and I will also look carefully at her contribution in Hansard.
Schedule 2 provides further detail on the scope of the anti-money laundering and counterterrorist financing regulations that can be made under Clause 41. Paragraphs 1 to 17 of this schedule confirm that regulations made under Clause 41 can cover the topics already addressed in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
The noble Baroness quoted a few paragraphs. I will quote a few in return. For example, paragraph 4 confirms that regulations made under Clause 41, which she referred to, can require prescribed persons to take specified actions in relation to customers in prescribed circumstances.
The money laundering regulations 2017 currently give effect to the international standards set by the Financial Action Task Force and EU law, by including provisions of this type which require regulated firms to conduct varying levels of due diligence on their customers on a risk-sensitive basis. Further, and for example, paragraph 7, which I think the noble Baroness also mentioned, confirms that regulations under Clause 41 can confer supervisory functions—and corresponding powers—on supervisory authorities, such as the FCA. Other paragraphs within the schedule similarly clarify or supplement other aspects of regulations under Clause 41. For example, paragraph 18 provides that regulations made under Clause 41 cannot provide for criminal sentences that exceed the statutory maximums already established through the money laundering regulations 2017. Section 7 of the Proceeds of Crime Act 2002 provides for longer prison sentences of up to 14 years; these provisions should be seen in that wider context.
Finally, the noble Baroness mentioned paragraph 20 on a few occasions. This paragraph confirms that regulations made under Clause 41 may make provision corresponding or similar to the money laundering regulations. Sub-paragraph (2) also confirms that regulations made under Clause 41 can be used to amend or revoke the money laundering regulations. Indeed, this is exactly what was done when the money laundering regulations came in to replace the 2007 regulations. This is not something new that has been created.
Baroness Kramer
When the money laundering directive came in, there was, through the cascade mechanism, a framework within which the regulations sat. Will the Minister at least acknowledge that that framework is the missing piece here? Does he acknowledge that the cascade structure, which was a backbone to make sure that the framework and the principles were translated down through the system, is also missing here? Amendment and revocation had to be within that context, with those constraints and principles. The new amendment that he quoted has no such constraint or principle sitting around it. That is the whole point that everyone is attempting to make in this discussion. He needs to tell us why the Government have chosen that route, where those frameworks, principles and backbones are eliminated.
Lord Ahmad of Wimbledon
The noble Baroness says “everyone”. I know that she and the noble Baroness, Lady Bowles, made that point but I do not agree. She has made her point and I have listened; perhaps she should listen to the point that I am making in response.
As the noble Baroness says, Schedule 2 ignores the cascade of information. The power in Clause 41 will enable us to update and amend existing legislation that does this, as we did when the regulations were replaced this year, as I have already mentioned. This should not be viewed in isolation, which I fear is what the noble Baroness is doing. When new categories of risk manifest—the noble Baroness, Lady Bowles, talked about virtual currency exchanges—new legislation will be needed, and this power helps to fill that gap.
In sum, Schedule 2 sets out examples of the scope of the anti-money laundering and counterterrorist financing power contained in Clause 41, and it defines the limits of this power in relation to criminal penalties. The noble Baroness, Lady Bowles, ignores proportionality. However, this issue must be looked at in the wider context, not in isolation. Ministers are bound to use these powers proportionately, taking account of people’s human rights, and they are bound by Section 6 of the Human Rights Act 1998. I therefore contend that Schedule 2 should stand part of the Bill.
Perhaps I may briefly mention Amendment 71A, which I understand is related to the opposition of the noble Baronesses, Lady Kramer and Lady Bowles, to Schedule 2. To give an example, the reference in paragraph 2 of Schedule 2 to regulations, mentioned by the noble Baroness, being capable of requiring,
“prescribed persons to identify and assess risks relating to money laundering, terrorist financing and other threats to the integrity of the international financial system”,
corresponds with regulations 16 to 18 of the money laundering regulations 2017. These require the Government, supervisors and regulated firms to assess the risks of money laundering and terrorist financing at a national, sectoral and business level as appropriate so as to inform the nature and extent of any due diligence measures applied by regulated firms.
Perhaps I may give a further example. The reference to “prescribed persons” in paragraph 4 of Schedule 2, which again the noble Baroness quoted, corresponds to Part 3 of the money laundering regulations 2017. This establishes a framework giving effect to the standards of the Financial Action Task Force relating to simplified and enhanced customer due diligence, which I am sure we all welcome. Again, this is not about the UK going it alone; it is about how we are part and parcel of the FATF.
Therefore, the amendment would not remove the Government’s ability to designate categories of business as regulated for anti-money laundering purposes, or designate supervisors. These purposes are already permitted under Clause 41 and are referred to in Schedule 2.
There may also be a number of areas where we want to confer functions upon persons to assist with the implementation and enforcement of sanctions. I think that the noble Baroness, Lady Bowles, startled the doorkeepers when she quoted various examples. Captains of ships and harbour masters, for example, might need to exercise functions in order to comply with shipping sanctions. We might also need to confer functions to help enforce sanctions on border officials, agents of Her Majesty’s Revenue and Customs, or law enforcement agencies, such as the National Crime Agency.
I know the noble Baroness. She is well versed in the money laundering issue, and I respect that. That is why I said at the outset that I will listen again, or read, I should say—listening to Hansard may be stretching it a bit—her contribution very carefully and see if there are aspects that need further amplification and explanation from the Government. I hope that through my practical examples I have addressed some, if not all, of her concerns and that at this point, she will be minded to withdraw her amendment.
Baroness Bowles of Berkhamsted
I thank the Minister for his reply. I fear that a large part of it merely proved my point that small extracts have been turned into powers. I maintain that without the surrounding framework to give proportionality, you do not need everything that is in there. It is difficult—
Lord Ahmad of Wimbledon
I was merely giving a few illustrative examples. Like the noble Baroness mentioned, I think she and I would be the only ones here if we carried on in this respect. What I was doing was merely illustrating, but it is dealt with comprehensively.
Baroness Bowles of Berkhamsted
That is the point. It is converted into a power very comprehensively but it just takes the first section. For instance the one I quoted does not even point out that they are responsible only for what goes on in their own business. That makes it very difficult. A lot of this could be dealt with by putting in those proportionality statements and a few more things.
The other source from which this list of powers has been obtained—which I think the Minister was referring to—is the FATF recommendations. However, you have to bear in mind that the FATF is an organisation meant to look at risks to the financial system, terrorist financing and those kinds of things. It is not set up with a branch to deal with civil liberties or even human rights. It leaves that to the nation states which are then going to implement. I could probably find it in the FATF but it is too late in the evening to do that. You cannot just put the list of powers or of things that the FATF wants you to do into powers without acknowledging that there has to be a framework.
Yes, there may be human rights elements that we have not abolished, nevertheless there are more things—
Lord Ahmad of Wimbledon
To clarify, I said that we need to look at this in the wider context. That is why I referred to the obligations that Ministers are bound by in the Human Rights Act. That is part of our statute, so we are obliged to follow that.
Baroness Bowles of Berkhamsted
Unfortunately, it seems that that ends up in the courts from time to time, which is very difficult for the sorts of people that might find themselves entangled in this. My plea is really that we just make an effort to get this a little bit more right. In that spirit, I will not be pressing Amendment 71A, which was linked to the creation of supervisory powers, which was why it was in the same group. This issue is one that we will wish to return to in general on Report.
Sanctions and Anti-Money Laundering Bill [HL]
Tuesday 12th December 2017
(6 years, 11 months ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 69-IV Fourth marshalled list for Committee (PDF, 79KB) - (8 Dec 2017)
Lord Collins of Highbury
Lord Collins of Highbury (Lab)
My Lords, I will wait a moment while the Minister gets into his listening mode. This amendment picks up points which have already been addressed in Committee relating to the principles of parliamentary scrutiny. Your Lordships’ Constitution Committee said that,
“given that the purpose of the Bill is to address the need for domestic powers to impose, amend and revoke sanctions after Brexit, it is important to ensure that there are sufficient safeguards and there is adequate parliamentary scrutiny to make the delegated powers constitutionally acceptable”.
I know that the Minister will say: “We are doing precisely that. We are using the affirmative procedures”. This probing amendment seeks to increase the level of parliamentary scrutiny so that powers cannot be used until there is a positive vote by Parliament. It is important that we do not walk blindly into a situation whereby we give the Executive powers that cannot be amended, considered or changed. The Minister may say that the necessary scrutiny powers will be used and that they are in the Bill, but why does he not accept that we need the highest possible level of scrutiny? Therefore, I seek from him an assurance that these new powers will not be used and that draft orders will not come into force until there is a vote of Parliament at the highest level.
I certainly accept that there is a need for speed and for delegated powers, but I hope that the Minister will tell us the specific circumstances in which the existing arrangements are not sufficient, and why there needs to be a speeded-up process that does not rely on primary legislation. We have tabled other amendments that we shall discuss later in Committee but I hope that the Minister will explain exactly why he thinks these new powers are necessary without these improved levels of scrutiny. I beg to move.
Baroness Northover (LD)
My Lords, I support the noble Lord, Lord Collins. I wish to speak also to Amendment 75A, which stands in my name and that of my noble friend Lady Sheehan.
We clearly have an international obligation to agree UN sanctions, which, of course, we play a part in agreeing at the UN. It is when we come to sanctions that do not fall under that heading that we must be especially careful about what we leave simply in the hands of Ministers to decide. The noble Lord, Lord Collins, has made that case. Our Amendment 75A would add Clause 16 to those which must be covered by the affirmative procedure. That surely should be the least that should happen. The noble Lord will have heard the debate on Clause 16. The noble and learned Lord, Lord Judge, described this clause as “lamentable”. It gives the power to a single Minister, by regulation, to create criminal offences for conduct that contravenes laws made by secondary legislation. I am sure that we will come back to this on Report. Our Amendment 75A would place a small check on this power, and I therefore commend it to the Minister.
Baroness Sheehan (LD)
My Lords, I wish to speak to Amendment 75A, which is also in my name. I agree with all that the noble Lord, Lord Collins, said. The Bill allows such sweeping powers to future Ministers that we on this side of the House seek to put in place safeguards which will enable Parliament greater scrutiny over the regulations made under Clause 16—namely, that they are made by the affirmative procedure.
Clause 16 is the enforcement clause which includes not only the creation of criminal offences punishable by up to 10 years in prison but makes provision for matters in relation to those offences, including defences and evidentiary matters. The Constitution Select Committee has recommended that Clause 16 should not remain part of the Bill, stating its opinion that such regulation-making powers are constitutionally unacceptable. Indeed, we heard arguments to that effect from the noble and learned Lord, Lord Judge, and my noble friend Lady Bowles on the first day of Committee. I agree with the noble and learned Lord, Lord Judge, that this clause should not disfigure our statute book, as he said. Therefore, this amendment is purely an attempt to create a safety net should Clause 16 remain part of the Bill.
Lord Hain (Lab)
My Lords, I added my name to this group of amendments and I support my noble friend Lord Collins in pressing for greater safeguards and extra parliamentary scrutiny, not least because, as I detailed last week in Committee, the banks and London have an appalling record on money laundering—it gives me no great pleasure to say that. We pride ourselves on having one of the best centres of finance in the world, and it is a tremendous source of employment, which is important. However, there is a record of money laundering that simply requires extra parliamentary scrutiny, which is why this group of amendments is so important. That gives me the opportunity briefly, as noble Lords will be relieved to know, to comment on today’s news that HSBC has been relinquished of the penalties that could have applied in the United States of America for similar allegations. That is good news for a British bank that has a global footprint, and for its many employees here in Britain.
I will make two points on this. I caution all our banks which face allegations of money laundering—the Minister may care to comment on this point. Usually, their initial response is to deny it. Then, for example, HSBC, discovered several accounts held by the Gupta brothers, who are South African associates of President Zuma’s family, and it has closed them down, which is welcome. However, we have had a steady stream of allegations against mainly British companies: Bell Pottinger and KPMG, and then McKinsey, which is an American-based company with a presence here. Their initial stance is to deny, then admit, and then apologise. I caution them that with this disease of money laundering it is better not to deny in the first instance.
My second point is to thank the Financial Conduct Authority for the way it has engaged on this issue. I can report to the House that at least one whistleblower who has been supplying me with information from South Africa has engaged directly with the FCA—it has been a positive experience. I say to the financial institutions involved that I named in your Lordships’ House, including HSBC, Standard Chartered and the Bank of Baroda, that if I find that there is any witch-hunting of those responsible, or of the brave, courageous people in the South African governmental system who have also been supplying me with information, I will name the institutions involved and identify the individuals as having suffered that persecution. I say this before your Lordships because it is important that as we take the Bill through we arm it with the instruments necessary to stop this kind of practice.
Lord Judge (CB)
My Lords, I will not say anything that would diminish what we just heard from the noble Lord, Lord Hain, and I do not believe in repetition. However, if I have to repeat it at the next stage of this process, I shall be as vehement as I was before. I support this amendment.
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, I thank the noble Lord, Lord Collins, and other noble Lords who spoke in this brief debate. In addition—to depart from my notes—for the first time I welcome the new Deputy Chairman of Committees to his position. It is certainly the first time for me stand at the Dispatch Box with him in his place.
From the outset I agree—I made this point clear in various debates at both Second Reading and in Committee—on the need for proper parliamentary oversight of sanctions regimes and I recognise the importance that noble Lords attach to this. That has been made very clear to me during Committee. Amendments 73 and 74 would require the draft affirmative procedure to be used for any non-UN sanctions regimes. As noble Lords know, the UK, through the European Union, imposes a number of sanctions regimes and measures that do not derive from the United Nations. These include, for example, sanctions against Russia over its illegal annexation of Crimea, and sanctions against the Assad regime in Syria.
In the future, it is likely—indeed, highly probable—that the UK would want to join its allies in imposing sanctions in circumstances where UN agreement is not possible. The noble Baroness, Lady Northover, talked about Ministers deciding. No, it would be Parliament deciding, requiring that these sanctions regimes come into effect only after the approval of both Houses of Parliament. In that way it would significantly undermine their effectiveness and make it harder for the UK to impose sanctions at the same time as international partners. Future targets of sanctions would be given forewarning of their designation, which would enable them to move their assets out of the UK and take other steps to nullify the effect of sanctions. This would undermine the credibility of sanctions as a foreign policy tool.
The Bill provides instead that the made-affirmative procedure, as the noble Lord, Lord Collins, acknowledged, should be used for non-UN sanctions to ensure that measures have immediate effect, while still requiring the approval of both Houses within 28 days. This strikes the right balance between enabling the Government to act decisively and ensuring accountability to Parliament.
Amendment 75 would require the draft affirmative procedure for any regulations that suspend, revoke or amend existing sanctions. As the Bill stands, regulations that suspend sanctions are subject to the negative procedure. This is to ensure that they can be used flexibly to recognise an improvement in behaviour while maintaining a credible threat that sanctions would immediately be re-imposed in the event of backsliding. This approach has been used to good effect as part of international diplomacy—for example, in the context of the Iran nuclear deal. If the Government were unable to suspend sanctions without waiting for the express approval of Parliament, it would reduce our ability to swiftly deploy these options in support of foreign policy goals.
In addition, as suspension of sanctions has the effect of reducing restrictions on individuals, we do not consider that it requires the higher level of scrutiny required to introduce such restrictions by imposing non-UN sanctions.
As regards regulations to revoke or amend sanctions, the Bill provides that this may be done using the same procedure as was used to create the regulations in the first place. Regimes containing UN-mandated sanctions would be revoked or amended by the negative procedure, and UK-autonomous sanctions by the made-affirmative procedure. I do not see a reason why the revocation or amendment of sanctions regimes should require greater scrutiny than their creation.
Amendment 75A intends to require the draft affirmative procedure for all sanctions regulations that contain enforcement provisions as set out in Clause 16. I acknowledge that we debated Clause 16 on the first day in Committee. I listened carefully to the concerns expressed about the creation of criminal offences through secondary legislation. We are looking at and reflecting on these concerns.
Let me may say a word or two about the process we currently follow as an EU member state and what we envisage following the enactment of the Bill. For each of the current UN and EU sanctions regimes we currently implement through EU law, the UK has created the relevant criminal penalties through statutory instruments made under the negative procedure. Similarly, we expect that all the sanctions regulations created under this Bill will include enforcement provisions of some kind. We envisage one regulation for each country, setting out the purpose of the sanctions, the specific measures being imposed, and the corresponding prohibitions and offences.
This approach allows a degree of nuance when determining penalties. For example, a breach of sanctions that results in nuclear material being made available to North Korea is obviously very serious, whereas failing to supply information to the relevant authority might attract a less severe penalty. Each regime is different, meaning different offences and penalties might be appropriate. This principle was accepted by the Delegated Powers and Regulatory Reform Committee.
Given that all sanctions regulations will include enforcement provisions, this amendment would require the use of the draft affirmative procedure in all cases, both UN and non-UN. For the reasons I have set out, we believe the correct approach is negative procedures for regulations containing UN sanctions and made-affirmative for UK-autonomous sanctions.
The use of the draft affirmative procedure for UN sanctions regulations would mean that we would routinely breach our obligation to implement the relevant asset freezes “without delay”. Noble Lords may be aware that Part 8 of the Policing and Crime Act 2017—approved by this House—contains specific powers designed to bridge the sometimes lengthy gap between the adoption of measures by the UN Security Council and the entry into force of the corresponding EU legal Acts. The amendment would undo our recent efforts to accelerate our domestic implementation of UN sanctions. Given my explanation to the Committee, I hope that the noble Lord, Lord Collins, is minded to withdraw his amendment.
Lord Collins of Highbury
I thank the Minister for his response. The words of the noble and learned Lord, Lord Judge, come to mind: he said that we are not simply bringing EU law into domestic law and preserving it, but extending it—a lot. That is the key issue of concern to noble Lords in this House. I hear what the Minister is saying but we will keep coming back to this issue in other groupings. On Report, we will certainly make the voices of all noble Lords heard on this subject. I beg leave to withdraw the amendment.
Lord Collins of Highbury
Lord Collins of Highbury
My Lords, we may get the same response from the Minister to this amendment, but Clause 41 deals with more than simply bringing EU law into domestic law. We have a clause on anti-money laundering that basically says that we already have primary legislation, so we have no need for more and will deal with all this through regulation. I want to hear clearly from the Minister why that is the case. These probing amendments are about the Minister having to make the case. What is deficient in our existing legislative framework? Why is it not sufficient to deal with the problems that have already been identified or may be around the corner? It is up to the Minister to say why existing primary legislation is not sufficient.
If it is not sufficient, why are the Government not bringing forward primary legislation to deal with it, or making the case for primary legislation? I am tempted to use the terms “known unknowns” and “unknown unknowns”. What are we leading ourselves into? We have tabled this amendment to ask, if the Government have the powers of the super-affirmative procedure, what is the bare minimum? If we will not have scrutiny through primary legislation, let us ensure that on this clause the Government have to say what they intend to do, are required to consult on it and are required to respond to that consultation before any regulations are brought into force. That is the bare minimum.
So far, in all the Committee days, I have not heard that there is a case to be made on this anti-money laundering. By the way, I think it was on the last Committee day that I raised the question of the anti-corruption strategy. I am really pleased that that was published yesterday; I brought it with me and I hope, if we go on for long enough this afternoon, that I will have the opportunity to read it. One of the things about the strategy that concerns me is: who is leading on it? I understand that John Penrose has been given the responsibility, but when the then Prime Minister David Cameron talked about that need at the anti-corruption strategy summit, we were talking about a Cabinet Minister having responsibility. We were talking about the Government taking these issues seriously. We know that money laundering is the key element in most corruption in the world, where people secretly get money out, get it all cleaned up and buy property et cetera.
I hope the Minister will explain why we seem to have had a downgrade on corruption—and not only that. If it is a priority, why are we not getting primary legislation to address these issues? Why are we seeing this being done, in effect, through the back door? I strongly believe that if the clause remains as it is we must have the super-affirmative procedure to ensure not only that we have only proper parliamentary scrutiny but that the people who put the House of Commons there can see and comment on what is being proposed so that there is proper accountability. I beg to move.
Baroness Bowles of Berkhamsted (LD)
My Lords, I welcome the comments that have just been made on this group of amendments on the super-affirmative procedure. When I went to bed last night I was thinking of commenting only that this enhanced procedure was interesting and worth exploring further, particularly to see whether it goes far enough. We are entering new territory. If a procedure such as this gives sufficient consultative and amendment power to Parliament, it might work—but it is still, as has been emphasised, a big downgrade from participating in an Act of Parliament and therefore should not in any way be a “new normal” to replace what could, or should, be done more fully. Having said that, coupled with the sunset clause that noble Lords have proposed in the last group this evening, it is perhaps even more interesting as a backstop and a temporary measure.
However, this morning—I did not have an inspirational dream and I do not want to retract anything that I have just said—I replied to an email from a lobbyist seeking amendments to the withdrawal Bill to change some things in EU financial services legislation while it is being transposed. As part of my reply I explained that the issue concentrating my mind was far more the division of power between government and Parliament—how changes such as the one they sought to address by lobbying me might be addressed in future—and that there would be legislation following on from the withdrawal Bill. We could say that the Sanctions and Anti-Money Laundering Bill is an advance guard of that follow-on legislation. I ended up by saying that if the Government got their way on the division of power then the lobbyist need never lobby Parliament again. What a statement that is about lack of power and the place of Parliament, yet that is what the Government seek to do to what we proudly call the mother of Parliaments.
Now, “need never lobby Parliament again” is not entirely true. Lobbying would become concentrated solely on getting regulations voted down—in full. I wonder whether the Government have thought through how that would play out. For example, divide and rule—a tactic well used when lobbying and suggestions are varied—would no longer apply. Everyone would be as one, even if for different reasons. I have seen concerted naysaying on issues in the European Parliament—and it is both powerful and very unpleasant.
It is important that Parliament has not just negative but positive power to seek amendments, including to make additions that are significant, not just tweaks. That is what I am looking to preserve, even for any interim measure.
Baroness Kramer (LD)
My Lords, perhaps I may just add a word on this occasion. I welcome the comments of the noble Lord, Lord Collins, and the speech of my noble friend Lady Bowles, but I would be far less concerned about trying to change the regulatory procedures we are considering today if we had in Clause 41 an appropriate policy framework under which regulations were to be placed—that is, the safeguards, the range of powers and the proper kind of scope that I think every noble Lord has considered normal in primary legislation. That layer is completely missing. The whole range of safeguards, including policy safeguards, rests with the Executive, while Parliament will have an opportunity to express itself only through its response to statutory instruments. If that were the end state at which we arrived then I think that anything other than provision for the super-affirmative procedure would be so undemocratic as to be offensive to this House.
I still think that the better solution is for the Government to accept that this is an area of genuine policy which requires genuine safeguards and genuine scope, and they should take on the responsibility of putting those safeguards in primary legislation. I do not understand why they have chosen not to do so. The reasons they have given are, first, that some things need to be done fast, though I think we have agreed across the House that it could be done through a carve-out; and, secondly, that there will need to be a transposition from EU law, although that too can be handled on a mere technical basis.
The issue is the absence of primary legislation as the framework for this process. There is no sunset clause on this provision; that is almost a side issue. The fact that the Government are seeking to manage this entire process without bringing crucial issues back to be dealt with by Parliament, in the proper and democratic way, troubles me hugely. I do not think we have heard any explanation from the Government as to why it is crucial to change the balance of power between Parliament and the Executive or why they are using this Bill as an instrument to do so.
Lord McNally (LD)
My Lords, there is always a temptation in these processes, as the noble and learned Lord, Lord Judge, said, to make the same speech over and over again, but perhaps this speech will suffice for the other issues we will cover today and in the course of this Bill and other Bills.
Of course one of the big worries about the process on which the Government are embarked is—as has been said before, and has just been remarked on—this movement of sovereignty from Parliament to the Executive. I think that this House is doing its job by being very aware of that, but there is another issue in the background to this. I welcome the publication of the anti-corruption strategy. It is keeping faith with a process that has gone on over the past number of years, with all three parties that have been in government, to try to get our house in order regarding our reputation in dealing with corruption, money laundering and associated crimes.
The truth is that we must not be complacent about this. The noble Lord, Lord Hain, was quite right: there is a taint about the behaviour of some in the City. There is a taint about some of the operations of overseas territories, which we will be looking at later. When I was the Minister responsible for the Crown dependencies, my one piece of advice to them was to make sure that they were as transparent as possible in meeting the highest national and international standards. One of the things that the Government and both Houses have to think about as we go through this process that the Government are embarked on is that there are still those who see our future as the buccaneers of world trade, and believe that London and the UK will become a haven for practices that we do not approve of.
That is why it is important that what we put in place during this period will be the base and foundation of our reputation. Those of us who want to see that reputation based on upholding the highest standards—and I fully accept that the Minister shares this—have to understand that each piece of legislation we put forward will be tested against the questions: what do they mean by this, are they going to slip from previous commitments, and are they going to be as tough as they were? Those are the tests that are going to be put to us. Both Houses, and this House in particular, will have to be on their guard to make sure that those highest standards are maintained.
Lord Ahmad of Wimbledon
My Lords, I am very grateful to the noble Lord, Lord Collins, for again raising the issue of parliamentary oversight, and to all noble Lords who have spoken in this debate. I start with a confession: unlike the noble Baroness, Lady Bowles, I did not go to bed last night thinking about the Sanctions and Anti-Money Laundering Bill. I had a three year-old to contend with at that time, so I did not share that experience, nor did I dream about the Bill. Nevertheless, let me say at the outset that I accept the importance of scrutiny, as I have said, and before I come to the amendments in the name of the noble Lord, Lord Collins, I shall address the point just made by the noble Lord, Lord McNally, who spoke about his ministerial responsibilities when he was Minister for the Crown dependencies. His advice is something that I have continued to say to our overseas territories. I was his Whip at that time and I recall those conversations well. Equally, although the noble Lord, Lord Hain, is not in his place, in addressing these amendments I totally acknowledge the important points made in Committee about anti-money laundering and raised again in relation to the previous groups.
I shall address Amendments 75B, 76A and 76B together, as they have a single effect of changing the procedure for regulations made under Clause 41 of the Bill, which concerns anti-money laundering, to the so-called super-affirmative procedure. As we have discussed previously, the Government are committed to ensuring robust scrutiny of regulations made under the Bill. Any regulations made under this clause already have to be made under the draft affirmative procedure and require Parliament’s consent before they take effect. The sole exception to this is when regulations are made to add or remove countries from a list of high-risk jurisdictions in connection to which enhanced due diligence measures must be undertaken. Both the Financial Action Task Force and the European Union currently publish such lists. After the United Kingdom ceases to be a member of the EU, we will seek to align our list of high-risk jurisdictions with that published by the FATF. Part 3 of the Bill provides that regulations updating this list will be made through the made affirmative procedure. This will ensure effective parliamentary scrutiny of such changes, while ensuring that we can align promptly with international standards around which jurisdictions present high risks of money laundering or terrorist financing.
However, this amendment would go further. It seeks to impose the so-called super-affirmative procedure. This would require the Government to publish a draft statutory instrument, with a detailed explanation of its contents, and have due regard to any representations made within a 40-day or 60-day period, including any resolutions of Parliament, before seeking the consent of Parliament to the original or an amended version. I totally appreciate the need for parliamentary oversight, but I believe that this amendment is unnecessary. I assure noble Lords that the Government take parliamentary scrutiny seriously, reflected in the fact that regulations under this clause are already under the draft affirmative procedure.
The Bill will already increase levels of parliamentary scrutiny above and beyond the status quo. We—and other Governments, regardless of party—typically make anti-money laundering regulations through the negative procedure. The Labour Government did this when transposing the third EU money laundering directive through the Money Laundering Regulations 2007. A similar approach was taken earlier this year when we transposed the fourth EU money laundering directive through the money laundering regulations 2017. As noble Lords will be aware, the implementation of the 2017 regulations followed a 12-week policy consultation, followed by a four-week consultation on the draft regulations. Consultations of this type are usual practice for significant changes to regulatory regimes, such as those relating to anti-money laundering.
The Government always pay close attention to the views of parliamentarians, and of noble Lords in particular, on anti-money laundering. In last week’s debate on the Bill we talked about the anti-corruption strategy, which, as the noble Lord, Lord Collins, acknowledged, we published yesterday. In it we reaffirmed our commitment to establishing a public register of the beneficial ownership of overseas companies which own UK property. The Government will publish a draft Bill to this effect in this parliamentary Session, allowing an opportunity for pre-legislative scrutiny. The noble Lord, Lord Collins, asked about the strategy. I assure him that the Home Secretary, as a senior member of the Cabinet, will personally chair a new economic crime strategic board to drive forward action in this regard.
When changing the UK’s anti-money laundering framework after leaving the EU, the laying of regulations through the draft affirmative procedure will allow Parliament and the relevant committees sufficient time to look at the draft before it is debated or comes into effect. I also remind noble Lords that the regulations will be subject to an affirmative resolution in both Houses before they come into force. These measures, along with changes to the Government’s processes for bringing forward secondary legislation, will go further to addressing the issues that the noble Lord, Lord Tunnicliffe, raised earlier this year in relation to the process by which the money laundering regulations 2017 were brought into force.
On the point of broader consultation, I reassure noble Lords that the Government regularly speak to interested stakeholders when considering changes to policy or process. I am confident that this will remain the standard practice in matters of this kind, where the Government are dependent on banks, businesses and other stakeholders to ensure effective compliance. With that explanation, I hope the noble Lord is minded to withdraw his amendment.
Lord Collins of Highbury
My Lords, I thank the Minister for his comments, but I think all noble Lords will be concerned. We are moving from one type of regime to another. The fact of the matter is that, as the noble Baroness, Lady Bowles, has said on numerous occasions, EU directives go through a very detailed process of democratic scrutiny—at European level and, of course, at domestic level. We know in advance what those directives contain and we debate them fully, and we have the opportunity, through our representation in Europe, to challenge elements of them. All that is going to disappear when we leave the EU. We want to know that we are not giving up that democratic accountability to simply place everything in the hands of the Executive. I am rather disappointed, to put it mildly, with the Minister’s response. I assure him that we will be tabling amendments on Report, particularly with regard to Clause 41, which will ensure that there is proper accountability and scrutiny.
Lord Ahmad of Wimbledon
I assure the noble Lord that I am listening very carefully. I did the noble Baroness, Lady Kramer, an injustice when flicking through my notes. As noble Lords can probably hear, my voice is deeper. That is the result of telling your children to wrap up warmly on Wimbledon Common but not following that advice yourself. Nevertheless, I listened to the points made by the noble Lord and the noble Baroness, Lady Kramer, very carefully. I will consider carefully the points the noble Baroness has raised in Committee, particularly on having a framework, and I recognise the importance of the points raised by the noble Lord—I hear his strength of feeling. I will respond to these issues, as I have said. Some of these concerns have been raised in the Delegated Powers Committee’s report, which we will respond to shortly as well.
Lord Collins of Highbury
I thank the Minister for those additional comments but they still do not change my concerns. I would welcome whatever further consideration he gives them and ask that we have what he has to say in plenty of time before Report. In the meantime, I beg leave to withdraw the amendment.
Baroness Northover
“( ) A statutory instrument containing regulations under section 1 that repeals, revokes or amends—(a) an Act of the Scottish Parliament,(b) a Measure or Act of the National Assembly for Wales, or(c) Northern Ireland legislation,must receive the consent of the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly, respectively.”
Baroness Northover
My Lords, Amendment 76 is in my name and that of my noble friend Lady Sheehan. It states that where a statutory instrument that contains regulations under Section 1 repeals, revokes or amends an Act of the Scottish Parliament, a Measure or Act of the National Assembly for Wales, or Northern Ireland legislation, that instrument must have received the consent of the Scottish Parliament, the National Assembly for Wales or the Northern Irish Assembly. I am sure that the Minister will argue that the Sewel convention provides that the Parliament of the United Kingdom,
“would not normally legislate with regard to devolved matters without the consent of the Scottish Parliament”,—[Official Report, 21/7/1998; col. 791.]
but that it does not apply to UK subordinate legislation.
Nevertheless, the new regulation-making powers in the Bill are, as we have heard throughout the Committee stage, very significant. The regulations detailed in Clause 45(5) will enable the Government to amend any Act of the Scottish Parliament and any legislation passed by the Assemblies in Wales and Northern Ireland. I am grateful to the Law Society of Scotland for flagging this up. Once again, this is a wide-ranging power that requires further justification and checks, which is why we have put this amendment forward. When the Minister replies, it would be helpful if he indicated which devolved legislation the Government would envisage amending under regulations made under Clause 1 and, for that matter and perhaps more importantly, which they would not. I beg to move.
Baroness Sheehan
My Lords, I support Amendment 76, to which my name is attached. It would amend Clause 45, which lays out the “Parliamentary procedure for regulations”. The amendment gives substance to the recommendation in the eighth report of the Constitution Select Committee which, at the end of paragraph 6, said:
“If it is the Government’s intention that it would, in practice, liaise with the devolved administrations prior to the exercise of this power, such a requirement could be written into the Bill”.
The Government have argued that this power reflects a reciprocity with that which enables Welsh or Scottish Ministers to amend Acts of Parliament. However, reciprocity can be said to operate only where one is comparing similar powers; this is not the case here. Welsh and Scottish legislation can authorise devolved Ministers to amend UK legislation only within devolved competence, whereas UK legislation can authorise UK Ministers to amend enactments of the devolved legislatures irrespective of devolved competence.
I believe this to be a common-sense amendment, one that seeks the consent of the devolved nations before amending any Act passed by the Scottish Parliament and any legislation passed by the Assemblies of Wales and Northern Ireland. Dare I say it, consultation with the devolved nations may save the Government from further embarrassments such as the fiasco with the DUP that we witnessed, open-mouthed, just last week.
Lord Beith (LD)
My Lords, I add to my noble friend’s wise reference to the Constitution Committee the fact that the committee also pointed out that there is ample precedent for the sort of amendment that is being discussed here. For example, certain statutory instruments made under the Legislative and Regulatory Reform Act 2006 and the Public Bodies Act 2011 have comparable provisions, and there seems no reason why the committee’s advice should not be taken in this case.
Lord Davidson of Glen Clova (Lab)
My Lords, this amendment is a useful reminder that the Brexit process needs to reflect the devolved nature of the United Kingdom. I take this opportunity of looking at this amendment to make certain observations more broadly and, indeed, to go back to the previous group where the Minister referred to a UK property register. He will be aware—and if he is not aware, he will no doubt be told by those sitting beside him—that the United Kingdom property register covers the whole United Kingdom via three separate registers. Indeed, two of those registers come from jurisdictions which voted by a majority to remain in the EU. Plainly the Minister does not intend to give ammunition to those who wish to withdraw from the UK. This Bill, and this part, are aimed at enabling withdrawal from the EU. That is one objective. There is a body of people who will find ground for complaint in more or less anything that in some way does not take account of the separate nature of various bits of the United Kingdom. With that small warning, I commend this amendment, and leave it at that.
Lord Ahmad of Wimbledon
My Lords, the Bill provides powers to be used in pursuit of the UK’s foreign policy and to ensure our national security. Under the UK’s constitutional settlement, these matters are reserved to Westminster. This Bill is accordingly one that is so reserved.
The amendment would, in effect, give the devolved Administrations the right to veto legislation related to UK foreign and security policy. This is contrary to the devolution settlement between Westminster and the devolved legislatures. Devolved legislatures do not have any right to veto measures where they relate to matters of foreign and security policy, including decisions of the UN Security Council. Any such amendments can arise only as the consequence of the sanctions themselves. Their primary purposes will always be a reserved matter.
I reassure noble Lords that during the preparation of the Bill the devolved Administrations were fully consulted on this point and they have not disagreed with our assessment that the Bill is reserved. The amendment would rewrite the devolution settlement, and I am sure that was not the intention behind it.
On the observation and implementation of international obligations within the competence of the devolved Administrations, while they have the power to legislate to implement measures required as a result of international obligations entered into by the UK, that does not provide them with any right to veto UK measures for the purposes of foreign and security policy, including measures negotiated and agreed by the UK in the UN. As I have already said, we have consulted extensively with the devolved Administrations on this very point and they have not disagreed with the Government’s assessment.
Baroness Northover
My Lords, I thank the Minister for that response which was along the lines that I anticipated. Yet again, it is an argument for generally limiting the powers in the Bill so that the concerns that I have expressed would be lessened. I thank noble Lords for their support. In the meantime, I beg leave to withdraw the amendment.
Baroness Bowles of Berkhamsted
My Lords, Amendment 77, which is in my name and that of my noble friend Lady Kramer, takes your Lordships again to the issues of the Ahmed case. The amendment would delete the first three subsections of Clause 47, which repeal the Terrorist Asset-Freezing etc Act 2010, so would stop that Act being revoked. We do not agree with the repeal of that Act and its replacement by a general power to do anything, which is what the Bill does.
There have already been significant contributions from noble Lords, and especially noble and learned Lords, in respect of powers in Clauses 10, 11, 16 and 32 which reach into the same issues. If anything, the amendments proposed already have not gone far enough. The rights of appeal as well as review that are contained in the Terrorist Asset-Freezing etc Act 2010 should not be dispensed with.
The Supreme Court struck down the Treasury’s previous regime as an oppressive one that had devastating effects on families, which led to the 2010 Act. It looks like the Government are giving themselves power to do that again. We come back to worthy intentions, but the safeguards must be there. Under the current law, the court hears appeals against designation decisions, not just reviews. That should be maintained.
This amendment revisits issues debated at the time of the 2010 Act, such as who decides questions of fact and the scope of error allowed to the administrative decision-maker. There will be noble and learned Lords who have a better grasp of the issues than me, and as I mentioned, we have already been around that loop in previous debates on other clauses. However, to me, it is a question of principle: to seek to increase power and simultaneously reduce defences is not acceptable, all the more so when there is no relevant change in circumstances or threats brought about by Brexit. It is no excuse to ravage what have previously been just defences. I beg to move.
Baroness Kramer
My Lords, I will speak briefly. I am no expert on the relevant legislation that is being repealed under this clause, but I have spoken to those who are, and the response I have had is one of shock. Legislation that went through both Houses of Parliament, with great care, debate, consideration and amendment, is now being swept away, to be replaced by a regulatory power, which, again, is not bounded in any way. It could be identical or it could be completely different, but it is not discussed or laid out anywhere in this legislation.
In the past we have talked primarily of powers that have come through a democratic process in Brussels: through the European Parliament’s scrutiny, consultation and voting processes, and through votes of the Council. In this case, we are talking about sweeping away, to be replaced by regulation, significant legislation that came through this Parliament in a democratic process. I do not understand, nor have I heard any explanation, why the Government are choosing to take this route.
Lord Ahmad of Wimbledon
My Lords, I draw noble Lords’ attention to the White Paper that preceded the Bill, in which we noted that the terrorist threat has evolved since the enactment in 2010 of the Terrorist Asset-Freezing etc Act—TAFA—which the noble Baroness, Lady Kramer, just referred to. We need to ensure that UK counterterrorist sanctions powers remain a useful tool for law enforcement and intelligence agencies. We therefore propose to use the Bill to establish a common approach to designations under counter- terrorism and country sanctions regimes, including the asset-freezing powers set out in Clause 2.
Baroness Bowles of Berkhamsted
I thank the Minister for his response. I am sure he appreciates that this is, if I may use the words of the noble Lord, Lord Collins, a backstop amendment. The point is that satisfaction has to be achieved somewhere in the Bill in respect of the clauses I named, particularly Clauses 10, 11, 16 and 32, and so far we do not appear to have that. This is of a package with that. Something has to be done, so while for the moment I am prepared to withdraw the amendment, I expect this whole issue to be revisited with considerable force on Report. I beg leave to withdraw the amendment.
Lord Collins of Highbury
Lord Collins of Highbury
My Lords, in this group of amendments we are trying to address an issue that we have discussed before but in a way that improves not only accountability but responsibility. Amendment 84 states that the Secretary of State must lay a report before Parliament on the adequacy of the implementation and enforcement of current legislation on sanctions, money laundering and terrorist financing in the Crown dependencies and overseas territories. It requires also that the Secretary of State must consult on whether any further legislative changes or enforcement powers are needed in connection with these territories. Amendments 82 and 83 are also probing, designed purely to raise a debate on the adequacy of the implementation and enforcement of current legislation on sanctions, money laundering and terrorist financing in the overseas territories, the Channel Islands and the Isle of Man.
The Minister has, on previous occasions in Committee, stated that the overseas territories are separate jurisdictions with their own democratically elected Governments. They are not represented in this Parliament and so it has been only in exceptional circumstances that we have legislated for the OTs without their consent. These amendments are of course not about imposing legislation. They are about questioning whether we are meeting our responsibilities and whether we are satisfied with our collective responsibility. The one area in which the overseas territories do comply is foreign policy, and in particular UN sanctions. They do not have a choice about that; they have to meet the obligations that the United Kingdom does.
I want to focus on collective responsibility. I promised the Minister that while I was sitting here I would try to start reading the anti-corruption strategy, and it is worth reading some of it out. Tackling corruption is in the United Kingdom’s national interest. It helps to keep us safe from threats to our safety and security from organised crime, terrorism and illegal migration, and from insiders who exploit their position to access assets for malign purposes. It is our global reputation and global responsibilities that are at stake. These amendments seek to ask whether we are taking those responsibilities seriously in respect of the overseas territories, the Channel Islands and the Isle of Man.
These are not domestic issues. They are not about local finance arrangements. I did say previously in Committee that if the financial services are to thrive, they need to have public confidence. That is what has been stated and why we want to take the lead globally. We know that our reputation as an international financial centre is dependent on people having confidence in it. That responsibility is particularly important in relation to anti-money laundering and the threat from international terrorism. If illegal activities take place in respect of one form of activity, you can bet your bottom dollar that they will be taking place in respect of other activities. That is the real threat that we face.
These amendments are a reasonable request in terms of the overseas territories. They are not necessarily abrogating the other demands that we have been making but seek to ensure that in our global responsibility in the fight against international crime, we have taken all the necessary measures to ensure that we can defend not only our security but that of the overseas territories. I beg to move.
Baroness Northover
My Lords, Amendments 82 and 83 ensure that the Act extends to the overseas territories and Crown dependencies, as we have heard, and that regulations in the Bill may be extended to those areas. Amendment 84 makes it clear that the provisions relate not only to sanctions but to money laundering. We had an extensive discussion about this in the previous sitting. These amendments would certainly move us forward, but my question to the noble Lord, Lord Collins, is this: is this strong enough when he states that he seeks to ensure that, “applicable legal frameworks” are,
“sufficiently robust to achieve the objectives of the relevant legislation across the United Kingdom, the Crown Dependencies and the British overseas territories”?
It strikes me that we are not yet in a position where the Crown dependencies and the British Overseas Territories are in the same place as the UK.
The noble Baroness, Lady Stern, and others made a strong case in our previous sitting that it is time to move the matter forward and align the Crown dependencies and British Overseas Territories with the stronger position that we have in recent years secured in the UK. In new subsections (8)(b) and (8)(c), in Amendment 84, we would wish to see that strengthened. Certainly, it is useful to have a report, but we would wish the provisions here to be stronger on the anti-money laundering front. That said, this is clearly an improvement on the current Bill, which is permissive in regard to these areas rather than stating the changes we wish to see.
Lord Collins of Highbury
I just want to reassure the noble Baroness, Lady Northover, that simply tabling these amendments does not diminish our support for other necessary changes, particularly in relation to the overseas territories. We want the Minister to say why these bare minimums are not necessary. It is about moving the debate forward; it is not back-tracking. As I said in my opening remarks, we are not saying that this is somehow preferable to some of the other amendments we have moved, but it is a way of holding the Minister to account. He has to explain why he thinks the current arrangements are satisfactory, and say why such a report would not be appropriate, so that we can operate a policy in line with the strategy published yesterday.
Baroness Northover
I thank the noble Lord for that clarification, which is very helpful.
Lord Beith
My Lords, I am bound, which will be no surprise to my noble friend or to the Labour Front Bench, to express some reservation about conclusions that might be drawn from this amendment but which were perhaps not intended in the way in which it is framed. In doing so, I am speaking purely about the Crown dependencies and not about the overseas territories. My interest in the Crown dependencies is minor, and recorded in the register, but my real interest is having been involved in the production of reports which helped to set the framework for the relationship between the Crown dependencies and the United Kingdom. My thanks go particularly to my noble friend Lord McNally, when he was the Minister responsible, for implementing those reports.
It is partly a matter of tone and partly a matter of phraseology, but our relationship with the Crown dependencies recognises that these are democratic jurisdictions that are fully open to media scrutiny—not just local media, but national and international media as well. They have both legislative and administrative autonomy to a significant degree. In the case of their legislative autonomy, it is recognised by this Parliament that it is for the authorities in the Crown dependencies to pass their own legislation. However, the process by which they secure Royal Assent for it, involving the Privy Council, is one that gives Ministers a full opportunity to raise any issues they might need to raise that touch on UK Ministers’ responsibility for the international relations of Crown dependencies. That responsibility is exercised by Ministers who will look at legislation in that light.
What we discouraged at the time I was chairman of the Justice Committee is Ministers merely marking the homework of Crown dependencies, and saying, “If we were legislating in this way about dogs, or whatever, we would not phrase the legislation like this”—a wholly time-wasting and pointless exercise. But where a UK responsibility arises, as it does in the case of international treaties, for example, it is entirely appropriate that Ministers seek to ensure that there is proper compliance on the part of dependencies. Of course, the autonomy that dependencies enjoy also applies to the administration and enforcement of law; that administration is something for which they are democratically accountable and is open to any scrutiny and international criticism that media and non-governmental organisations can produce.
Lord Collins of Highbury
Does the noble Lord not acknowledge that not all overseas territories are compliant in terms of public registers, which this Government have said is a necessary prerequisite, or thing to have, to ensure increased public confidence? Does he not think that that is something we should expect from all our territories?
Lord Beith
I am grateful to the noble Lord. At the beginning of my remarks, I said that I was referring specifically to the Crown dependencies and not to the overseas territories, on which a different speech might have to be made. I would also have to say that registers of ownership are only as good as the quality of the information contained in them. The decision of Crown dependencies not to have publicly open registers but to have registers fully open to law enforcement and tax authorities, so long as those registers are of a high quality, is what is most important. It can reasonably be argued—and was argued with a noble Lord with responsibilities in this area during our previous debate—that the registers now in existence in the dependencies are actually better enforced than that of Companies House.
Lord Anderson of Swansea (Lab)
Is the noble Lord aware that, for the first time, the European Union has published a list of those countries that are countries “of note” in respect of money laundering? It is sad to say that, of those, Guernsey, Jersey and the Isle of Man appear, which is a matter of concern.
Lord Beith
The noble Lord bears out my point. The process of challenging anything found to be unsatisfactory is one to which the dependencies are open. That may come from European Union sources or non-governmental organisations, but these are open and democratic societies, in which those challenges can be made. The UK Government have responsibilities and have the means of exercising them already at their disposal.
Lord McNally
My Lords, these exchanges show some of the dilemma of dealing with this issue. I ask a fairly simple question when I look at these things. Why should a financial services organisation decide to base itself on some microdot in the Caribbean to provide its services? Once you ask that question, you begin to wonder whether it is to avoid the kind of rigour and inspection that they get in more well-established centres. As I said in my earlier intervention, I worked for three years with the Crown dependencies, ably aided by the Minister, in his then capacity as a Whip. I made two points. One, which I mentioned earlier, was my advice to them to make sure they answered the various questions put to them with full candour and transparency. I pay tribute to the Justice Committee under the chairmanship of my noble friend, who put forward a range of suggestions. Another point was that the British Government should get their act in better order. Sometimes, the job was to make sure that, when getting this dealt with, Whitehall departments were sufficiently accessible and aware of the particular status of the Crown dependencies.
During those three years of experience, I was impressed by the qualities of the Civil Service and the representatives of the Crown dependencies in dealing with these issues. That does not take away the fact that they, and we, have to face the fact that, as the noble Lord, Lord Collins, said, it is our reputation that is at stake. I had nothing to do with the overseas territories, but there is a qualitative difference which needs to be looked at between their standards of supervision of financial services and those of the Crown dependencies. I take the point made by the noble Lord, Lord Anderson, about the Isle of Man and Jersey. I hope they are both addressing what it is that has landed them on that list. That is something for their processes, because this is damaging to them, although there may be other jurisdictions within the EU which could not bear too close examination.
This is in our national interest. It is not us playing the neo-colonial or trying to order them about. We are defending our national interest when jurisdictions are seen as British Overseas Territories. When I had to learn that very peculiar lesson, the first thing I was told was that we joined them; they did not join us. The difference in constitutional relationship is because they were part of the Duchy of Normandy that conquered us. Nevertheless, the Channel Islands and the Isle of Man have to understand that their meeting the highest standards is going to be a legitimate interest of the British Parliament and British Government, in defence of Britain’s reputation.
Lord Ahmad of Wimbledon
I thank all noble Lords who have taken part in this important debate. As we have heard, the UK is responsible for the foreign affairs and security of both the Crown dependencies and overseas territories. That is the constitutional position. Our long-standing practice is that we do not generally legislate for these jurisdictions without their consent. This point was well made, in the context of the Crown dependencies, by the noble Lord, Lord Beith. Sanctions are tools of foreign policy, or are used to protect our national security. It is clear that the overseas territories and Crown dependencies must follow the UK Government’s foreign policy, including the sanctions we apply. I assure noble Lords that the Foreign Office has discussed this with the overseas territories and Crown dependencies and they also accept this central point of principle.
There are currently two ways in which sanctions are implemented by the overseas territories and Crown dependencies. The UK legislates directly for the majority of these jurisdictions through Orders in Council. Other jurisdictions legislate for themselves, but follow precisely the sanctions implemented in the UK. This model is well established and respects the rights of these jurisdictions.
The Bill is drafted in a way that reflects this reality. It is consistent with the current implementation model for UN and EU sanctions as well as measures under the Terrorist Asset-Freezing etc. Act 2010. It allows those jurisdictions that wish to follow UK sanctions through their own legislation to continue to do so. It also allows the UK to legislate directly for certain overseas territories as appropriate.
With regard to anti-money laundering laws, all the Crown dependencies, and each of the overseas territories with a significant financial centre, subscribe to the international standards for anti-money laundering and counterterrorist financing set by the Financial Action Task Force. They are assessed in their own right for compliance with these standards and have responsibility for implementing them within their own domestic frameworks.
The Government, of course, retain an interest in ensuring that the Crown dependencies and overseas territories have robust anti-money laundering regimes. As noble Lords are aware, and as I stated in a previous debate—this point was raised with the overseas territories at the recent joint ministerial council—we are already working very closely with those jurisdictions which do not already have national company beneficial ownership registers on establishing such registers or similarly effective mechanisms, and ensuring that information held on these can be shared in near real time with UK law enforcement authorities.
I remind noble Lords that we legislated earlier this year, through the Criminal Finances Act, to establish a statutory review of how these arrangements have been implemented. This will take place before 1 July 2019 and will inform any further debate about the effectiveness of measures relating to beneficial ownership in place in individual Crown dependencies or overseas territories. We should also recall that full implementation of these arrangements will put these jurisdictions ahead of the international standards in this area, and ahead of the approach taken by many G20 countries and individual states of the United States.
This demonstrates the benefits of the co-operative relationship that we have established with the Crown dependencies and overseas territories in combating money laundering and terrorist financing. These jurisdictions are self-governing and take their compliance with the FATF standards very seriously. The anti-money laundering regimes of each of the Crown dependencies have been evaluated since 2015, with overseas territories, including the Cayman Islands and the British Virgin Islands, both scheduled to be evaluated in the coming year. The commitment of these jurisdictions to international standards in this area is the best way to ensure that they continue to have robust anti-money laundering and counterterrorist financing regimes. As I said in the previous debate in Committee, this is a point we have once again emphasised in all our communications, and it was emphasised by my right honourable friend the Prime Minister in her recent meeting with the overseas territories. These are long-standing arrangements.
The noble Baroness and the noble Lord, Lord Collins, talked about progress and moving forward. We are moving forward positively and I have already talked about the results. In this regard, I do not believe that these amendments are needed. I am sure noble Lords would not wish to jeopardise the achievements that we have seen thus far, which have come from direct co-operation and working with these jurisdictions, and the progress that has already been made. With that, I ask the noble Lord to withdraw his amendment.
Lord Collins of Highbury
I thank the Minister for his response. However, I am a little disappointed. We should not apologise for taking the lead in trying to build confidence globally in financial standards. We should not be in any way apologetic about leading the way because London is a global financial centre—
Lord Ahmad of Wimbledon
My Lords, I do not think I apologised in any sense, and nor should we—I agree with the noble Lord. We are leading the way and we are proud of that. We have to put this into context. The noble Lord, Lord Beith, talked about the important relationship with Crown dependencies. I have talked about the relationship with our overseas territories. They legislate in many areas. The relationship does not just work; the strength of relationship allows us to make the progress we are making. Britain is leading the way and our overseas territories and Crown dependencies have shown substantial progress in this respect. Perhaps other G20 countries have a lot of catching up to do. We are leading in this respect.
Lord Collins of Highbury
I thank the Minister for that intervention. However, I still come back to the point that the Government’s own strategy, published yesterday, is about building public and international confidence in our systems and maintaining our global reputation. I am disappointed because these amendments do not seek to impose but to ensure effective transparency and that we meet our international obligations. I am sure we will return to the subject when we discuss other amendments on Report, and in the light of that, I beg leave to withdraw the amendment.
Lord Collins of Highbury
“Expiry of Act
This Act expires at the end of five years beginning with the date on which this Act is passed.”
Lord Collins of Highbury
My Lords, the purpose of this amendment is to try to reflect a lot of the debates and discussions we have had in Committee. At Second Reading many noble Lords, myself among them, said that the Bill was necessary. In the event of Brexit we need to ensure that we can meet our international obligations and treaty obligations; it is a necessary Bill in the event of Brexit and we certainly would not oppose it. I will repeat the words of the noble and learned Lord, Lord Judge—although I do not want to stop him intervening and making this point—who described the Bill as,
“a bonanza of regulations”.—[Official Report, 1/11/17; col. 1400.]
In Committee he suggested that it should be renamed the,
“Sanctions and Anti-Money Laundering (Regulation Bulk Buy) Bill”.—[Official Report, 21/11/17; col. 107.]
That sums up many of the concerns expressed by noble Lords across the Chamber.
This is and should be necessary in terms of meeting our obligations. However, we need to be able to be in a position to assess just what sort of impact leaving the European Union will have. We are giving the Executive substantial powers; we are not sure quite how those powers will be used, and I hope that the Minister will come back with proposals on a number of suggested amendments. However, in light of all the concerns that have been expressed, the Bill should be revisited—and revisited after a period of time. The time we suggest of five years is adequate to ensure that we meet our international and treaty obligations. However, we do not know—this comes back to the point I made earlier—about the “known unknowns”. The known is that we will leave the EU; the unknown is precisely what the consequences will be—what we need to do.
At Second Reading and in Committee we addressed the issue of mechanisms to ensure co-operation with our European partners and allies. The Minister has repeatedly said, “We will do this, we will be that; we’re not leaving Europe, we’re only leaving the EU”. How do we assess that? How do we know? The important element of the Bill, which is why this clause and this amendment are so important, is that the known unknowns can be properly addressed after a due period of time so that we can come back and say, “Yes, this is adequate”, or, if it is not, the Government—of whatever complexion, whoever is in power in five years’ time—will be required to revisit these issues properly in the light of all the consequences of leaving the European Union. I beg to move.
Baroness Northover
My Lords, I support the amendment. As the noble Lord, Lord Collins, indicated, we have heard enough during the debate on the Bill to know that much needs to change in it. The noble Lord proposes a sunset clause for the Bill—in that way it will not be on the statute books in perpetuity—and I like the notion that it breathes its last in five years and simply expires.
Meanwhile, the Government can work out their relationship with the EU—and where, in the light of that, legislation is required—and develop appropriate primary legislation both on the UK’s sanctions regime and anti-money laundering measures, which can be properly scrutinised in Parliament.
I note that the noble Lord, Lord Collins, said, “in the event that we leave the EU”. There is indeed a question mark about this and what our relationship with the EU will be if we do. So it is no wonder that drafting the Bill was a difficult challenge.
A sunset clause is a useful backstop. However, as the noble Lord, Lord Collins, and others made clear, it still leaves in place a flawed Bill that we will need to address further on Report.
Baroness Kramer
My Lords, it is the responsibility of this House and the other place to ensure that any legislation that leaves our hands is properly drafted, with the necessary clauses and relevant safeguards and instructions. That is our responsibility. I look at sunset clauses as an absolute last resort. They can be appropriate where legislation is, by definition, short term and deals with an event that will disappear. However, neither sanctions nor money laundering fall into that category. Therefore, although I believe we are talking about “when” not “if” we will withdraw from the EU, I would hate to see that become the rationale for legislation that we do not feel is as good as it could be in delivering the purposes of the two Houses.
I support the amendment as a backstop. However, in a sense, it is incredibly sad that we are having to contemplate such a clause because the Bill itself is so inherently flawed. The House will know from the many comments I have made that I think that there are many flaws in it. However, the most fundamental is that, through a back door, in effect—the Bill does not state this and nor have Ministers been willing to state it—it shifts significantly the balance of power between Parliament and the Executive. We have generations of history in battling to prevent that change—whether through front doors or back doors—and I hope that the Bill can be amended on Report or at Third Reading so that it no longer engineers that shift in power and will not still be an example of a Bill that requires a sunset clause because it is so inherently inappropriate.
Lord Judge
I am going to say much the same as the noble Baroness. I am ever an optimist about this. I think that when the Minister has had time to reflect on the wisdom of some of the amendments that have been proposed that will eradicate some of the less desirable features of this Bill, and make it a much better Act in consequence, we will not need a sunset clause. Oh dear—I have reflected that I may be being optimistic, but I think that I am also being utterly naïve.
I shall not support the amendment at this stage—but if when we come the next stage we have had no improvements in the Bill, then I shall.
Lord Falconer of Thoroton (Lab)
I want to underline what was said by the noble and learned Lord, Lord Judge, and the noble Baroness, Lady Kramer. I speak as somebody who has been in the Executive; I have made that point throughout the Committee’s proceedings. I have no doubt that the Bill is necessary, because the nation needs this power. I have no doubt that the noble Minister presenting it is completely—
Lord Falconer of Thoroton
I apologise to him. The noble Lord who is also a Minister—I of all people should know that—means well in his intentions and assurances. From experience in the Executive, we reach for the legislation and read it as it is. My anxiety is that unless we get it right in the Bill, we will give the Executive huge powers. As the noble Baroness, Lady Kramer, said, when we voted to leave the European Union, we never intended to do anything other than leave the European Union. We did not intend to change completely the balance of the constitution and give the Executive that degree of extra power. I am talking not only about this Bill, but the whole balance of the constitution. This is happening because everything is necessarily having to be done in a hurry. The oddity about this Bill is that it is an early stage Brexit consequential. It is not adequate in the balance it has struck between the Executive and the legislature. If this Bill has got it wrong, then things will get worse as the pressure builds on parliamentary draftsmen, Ministers and policymakers. We must stand firm as a House to send a message that future Bills must be more accurate than this one in terms of the balance between the Executive and the legislature.
I support the amendment of my noble and learned friend Lord Davidson and my noble friend Lord Collins because it is inconceivable to me, in the light of the number of changes that we have sought, that everything will be put right on Report. The Bill should be time-limited for five years so that the Government have to come back with a further shot at it. We will need this sort of Bill indefinitely, but the balance in this one is so badly wrong that I think a separate clause is appropriate.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords—indeed, noble and learned Lords—who have taken part in the debate. I acknowledge the points that have been raised on this amendment.
Turning to Amendment 85, it will not surprise the noble Lord that we do not believe that there should be a sunset clause in the Bill. Whatever the nature of our future relationship with the EU—I am sure that the noble Lord, Lord Collins, meant when, not if, we leave the EU; he may choose to clarify otherwise—the powers in the Bill will be necessary. We will need them to comply with UN obligations and we will need autonomous powers to be able to create, amend or lift sanctions to address a wide variety of national security and foreign policy challenges. It is true that the design and scope of sanctions has changed over the years, but we need the power to implement sanctions as part of our diplomatic toolkit, which will not go away.
I also acknowledge and appreciate the point of the noble and learned Lord, Lord Falconer, that all noble Lords, irrespective of the approach and mechanisms, agree with the principle that this Bill is required. I also acknowledge, as I have done in Committee, the important role of this House in the scrutiny of legislation. In the responses I have given on which we are not agreed, I hope it is clear that there are areas that the Government will reflect on and return to. In that respect, I hope to meet with noble Lords in the intervening period before Report to see how we can bridge some of the challenges and differences that have been raised.
Further, I assure noble Lords that we are committed as a Government to getting this legislation right. The Bill is designed to ensure that we can continue to use sanctions appropriately—I know that is a principle accepted by all noble Lords—in response to future global developments and challenges, and to provide that the right safeguards are in place for the use of those powers, which I also respect. I am immensely grateful for the active contributions of noble Lords in helping us to do this.
Lord Collins of Highbury
I thank the Minister for that. I am tempted to paraphrase that notable historical figure, Mandy Rice-Davies: “You would say that, wouldn’t you?” The fact is that we have substantial concerns that need to be addressed as we move to the next stage. To pick up the concerns of the noble and learned Lord, Lord Judge, this is not a probing amendment or a principled amendment, but a give notice amendment. It is about making sure that the Minister, who has been in listening mode, comes back with some possible, positive proposals to address the numerous concerns we have regarding the Bill. In the light of it being a give notice amendment, I beg leave to withdraw the amendment.
Sanctions and Anti-Money Laundering Bill [HL]
Monday 15th January 2018
(6 years, 10 months ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 69-R-II Second marshalled list for Report (PDF, 88KB) - (15 Jan 2018)
15:35 - Division on Amendment 3 - Ayes: 235 / Noes: 188 - Amendment 3 agreed.
Lord Pannick
Lord Pannick (CB)
My Lords, Amendment 1, which is in my name and that of the noble and learned Lord, Lord Judge, the noble Baroness, Lady Northover, and the noble Lord, Lord Collins of Highbury, is provoked by the very wide discretion which Clause 1 confers on Ministers to make regulations when they think it “appropriate” to do so for defined purposes. It seeks to impose a degree of rigour and control by substituting a test of “reasonable need”.
I am very pleased that the Minister has tabled his own Amendment 9, to which I have added my name. That amendment recognises that apart from those cases where the United Kingdom has a UN or other international obligation, the Minister can make regulations only where he considers there are good reasons to do so and that the imposition of sanctions is a reasonable course of action to take. Amendment 9 would also require the Minister to lay a report before Parliament explaining his reasoning when making the regulations. I am satisfied that this will impose a real discipline on the Minister, backed up of course by the prospect of judicial review, for which I was delighted to see over the weekend that the Government have a new enthusiasm.
The distinction between the requirements in Amendment 9 and a test of reasonable need is more theoretical than practical. The noble and learned Lord, Lord Judge, and I have had a number of productive meetings with the Minister and the Bill team since Committee on this and other issues. I thank them for their patience, courtesy and flexibility in responding to the issues that we raised in Committee and that are the subject of amendments today and on Wednesday.
This group includes Amendment 3 in the name of the noble Lord, Lord Collins of Highbury, to which I have added my name. It identifies further purposes for which sanctions regulations may be made, particularly—and I think importantly—to promote respect for human rights, democracy, the rule of law and good governance. I hope the Minister can be persuaded by the noble Lord, Lord Collins, to accept Amendment 3. There is a reasonable need for it, or at the very least it is appropriate to include that provision in the Bill, if only for its symbolic value that these admirable goals should be recognised in the Bill. To do so would of course not commit Ministers to making any regulations; it would simply give them the power to do so. I look forward to hearing the noble Lord, Lord Collins, explaining the case for Amendment 3. If he decides to test the opinion of the House, he will have my support. I beg to move.
Lord Judge (CB)
My Lords, the noble Lord, Lord Pannick, speaks for me. I am afraid that if I spoke too much today I might have a party political conference problem, so I shall say no more.
Baroness Northover (LD)
My Lords, I support what the noble Lord, Lord Pannick, said. I welcome, as did he, the moves from the Government in this part of the Bill. I shall speak to Amendments 2 and 5 in my name as well as supporting Amendment 3 in the name of the noble Lord, Lord Collins, myself and the noble Lord, Lord Pannick. Our criticism of the Bill in Committee focused on the way in which Ministers were being granted wide powers unchecked by Parliament. The Minister has made moves to address this at certain points in the Bill but we still do not think that the sanctions for foreign-policy objectives are tightly drawn enough. We made the case in Committee as to how this might be abused, and we still seek reassurance. An amendment that would undoubtedly help is Amendment 3 on the definition of the purpose of sanctions, which has been very effectively summarised by the noble Lord, Lord Pannick. We feel this very strongly, and it is surprising that such a definition is not already in the Bill. In our view it is also important that the purpose should include preventing the violation of sanctions regulations, and that is the other amendment here. As the noble Lord, Lord Pannick, has indicated, if the noble Lord, Lord Collins, chooses to vote, we will support him.
Lord Collins of Highbury (Lab)
My Lords, I am particularly grateful to the noble Lord, Lord Pannick, for his comments. He has set me a test here: normally I rely on his powers of persuasion and arguments rather than my own, but on this occasion I will take up the challenge and hope to persuade the Minister why Amendment 3 is important. I was rather hoping that the noble Lord, Lord Faulks, would jump up before me; I am sure he will jump up after me, because he made comments about this in Committee.
I stress that this is not just about adding words for words’ sake; it is not just about being nice, kind and positive. These words are very important in one vital respect. The Bill—we have heard much criticism of this—is heavily reliant on regulation and the Executive taking powers. We have received many assurances from the Minister that they will use these powers wisely and that Parliament will anyway have the opportunity properly to scrutinise secondary legislation.
These words are important because, when Parliament scrutinises secondary legislation, it must know what it is judging the Government’s actions against. It cannot have vague definitions. I heard what the noble Lord, Lord Faulks, said in Committee: that we do not want to limit the powers of the Executive when it comes to foreign policy matters. These words do not limit, they enable. They enable Parliament to do its job of properly scrutinising regulations proposed under the Bill. Is it meeting the clear objectives that we set ourselves, which we all share, particularly, as the noble Lord, Lord Pannick, said in relation to human rights?
The Minister assured the Committee that the Government,
“do not take their human rights responsibilities lightly … the UK has been a bastion and a beacon for human rights. That should and will remain a cornerstone of British foreign policy in years to come”.—[Official Report, 21/11/17; col. 123.]
That is a powerful argument why we should include these words, because it is about being consistent in future. If I were to be slightly partisan—and I am not usually in these matters, as the Minister knows—there have been doubts about the Government’s commitment, and certainly that of the Conservative Party, to the European Convention on Human Rights, and I want to put it beyond doubt that we are wholeheartedly committed to this vital element of our foreign policy. It is, as the Minister said, the cornerstone. I very much hope that he will think hard about accepting the amendment. It would not cause too much pain, because he is already committed to the principle. It is about how these words can help future scrutiny. If he is unable to accept the amendment, I will certainly wish to test the opinion of the House.
Lord Faulks (Con)
My Lords, I do not want to disappoint the noble Lord, Lord Collins, by not intervening, albeit briefly, in this debate. My difficulty comes not with the way that the noble Lord and others have expressed their various objectives, which one would expect to be part of the Government’s approach to sanctions generally. I am concerned by the fact that the noble Baroness, Lady Northover, wants to exclude the specific reference to a foreign policy objective. I return to what I said in Committee, which was that it is important that we accept that foreign policy does not remain entirely stable and standing: there are always changes in the world and foreign policy objectives may vary from time to time. The danger of including these albeit admirable objectives is that there might conceivably be a construction placed on the relevant provision which is that foreign policy is not adequately reflected by the provisions.
I prefer the way the Bill is expressed, which gives the necessary flexibility. While I do not differ on the objectives, I differ on the amendments.
Lord Howell of Guildford (Con)
Can I just ask my noble friend a question, and apologise to your Lordships that I was not involved in earlier stages of this legislation? Was there ever a time when, in deciding on sanctions policy, we did so other than in alliance with other nations? Unilateral sanctions can always be evaded, and even collective sanctions, when they are only from the west, can be nullified by actions by China, Russia and other Asian powers, for instance. Is not the practical situation one in which we have to take account of our allies and the broad consensus of agreement with them on whether sanctions are justified, or are there individual unilateral instances that I may have missed?
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, first, before I go any further, as I said in Committee on the Bill—and I shall come on to the specific question from my noble friend in a moment—I am genuinely grateful for the constructive engagement that we have had on all sides of the House on this very important Bill. The set of government amendments that I tabled last week reflects proposals through discussions and meetings that we have had with Peers and representatives from across the House, from the Opposition Benches and, indeed, from the Cross-Bench Peers. I am also pleased that the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, also felt able, after our constructive discussions, to put their names to some of the government amendments, including the one that I shall present in a moment. It also reflects very strongly that, at a time of great challenge internationally, we reflect the finest traditions of your Lordships’ House, in that we are able to practically demonstrate co-operation across the House in ways to improve legislation.
I fully recognise that sanctions involve significant restrictions and should not be imposed lightly. The standard to be applied by a Minister when introducing sanctions regulations is therefore one of the most important parts of this Bill. I assure noble Lords that I have listened very carefully to the range of views on exactly what that standard should be, with a view to finding the right balance between the Government’s ability to impose sanctions when the relevant conditions are met and the need to guard against excessive use of these powers. I have therefore tabled Amendment 9, which introduces three additional requirements when a Minister is considering making sanctions regulations for a purpose beyond compliance with a UN or international obligation. First, the Minister must have good reasons to pursue that purpose; secondly, the Minister must be satisfied that the imposition of sanctions is a “reasonable course of action” for that purpose; and finally, when making regulations, the Minister must lay a report to Parliament explaining how the above two tests have been met.
These requirements are picked up again in Amendment 6, which is a technical drafting point consequential on Amendment 9. The requirement for the Minister to lay a written report before Parliament when making sanctions regulations reflects Amendment 7, proposed by the noble Lord, Lord Collins, and I am grateful for his suggestion. The principle that unites us here is that sanctions need to form part of a wider political strategy that is properly articulated to Parliament and the wider public. Amendment 9 aims to provide the House with the requested reassurance that sanctions will not be imposed lightly, while at the same time ensuring that the UK can continue to play an active and constructive role in international affairs. On that basis, I hope that noble Lords will be persuaded not to press Amendments 1 and 7.
Amendments 2 to 5 refer to the purposes for which sanctions regulations may be created. The current list of purposes in the Bill is designed to ensure that we can continue to implement sanctions across the full range of purposes currently pursued by EU sanctions. The EU can adopt sanctions for any of the purposes of its common foreign and security policy. The reference to “foreign policy objectives” in subsection (2) seeks to maintain this same scope for the UK when we have left the EU.
In Amendment 2, the noble Baronesses, Lady Northover and Lady Sheehan, propose to remove the ability to impose sanctions for the purpose of advancing a UK foreign policy objective. The amendment would restrict the flexibility of future UK Governments, potentially preventing them from using sanctions, and putting the UK out of step with our international partners, including the European Union. That was a point made well by my noble friend Lord Howell—and again, I appreciate his international experience in this regard. As I have said previously, and noble Lords have acknowledged, sanctions are at their best when they are acting in unison and in co-operation and co-ordination with partners.
Lord Pannick
My Lords, I am grateful to the noble Lord for his contribution to what he called the “constructive dialogue”. I am not persuaded by the too-much-detail response to Amendment 3. There is no dispute about the validity and importance of the purposes set out in the amendment and there is considerable symbolic value in adding such important purposes to a Bill that addresses sanctions. I beg leave to withdraw Amendment 1.
Lord Collins of Highbury
“( ) promote the resolution of armed conflicts or the protection of civilians in conflict zones,( ) promote compliance with international humanitarian and human rights law,( ) contribute to multilateral efforts to prevent the spread and use of weapons and materials of mass destruction, or( ) promote respect for human rights, democracy, the rule of law and good governance.”
Lord Collins of Highbury
My Lords, I welcome the Minister’s response. He has been incredibly positive on a number of concerns that noble Lords have raised and we have tried to co-operate. This amendment sets out very clearly our country’s values in respect of the new situation we will be in—and it is a new situation. It is vital that we send out the message not only to our parliamentarians but to our communities and all countries that we remain firmly committed to these values. The amendment would not restrict the Government’s foreign policy objectives and, in my opinion, would certainly not go out of date. These values have been at the core of our foreign policy activity for many years and it is my hope—and, I know, the hope of all noble Lords across the House—that they will remain so. Therefore, in the light of the noble Lord’s comments, I wish to press the matter and test the opinion of the House.
Lord Ahmad of Wimbledon
“( ) Section (Additional requirements for regulations for a purpose within section 1(2)) contains additional requirements in relation to regulations stating a purpose within subsection (2) above.”
Lord Collins of Highbury
“( ) Regulations under this section must be accompanied by the publication of a humanitarian impact assessment, and such an assessment must be conducted—(a) according to the methodology set out in Chapter 5 of the UN Inter-Agency Standing Committee’s Sanctions Assessment Handbook: Assessing the Humanitarian Implications of Sanctions, published in 2004,(b) in advance of the relevant sanctions regulations being made,(c) again within six months of the date on which the relevant sanctions regulations come into force, and(d) at any time thereafter when the relevant sanctions regulations are subject to any substantial revisions or alterations.”
Lord Collins of Highbury
My Lords, this issue is going to be picked up in a later group, so I do not want to detain noble Lords too much on this particular group. Suffice to say that what we have responded to, following Committee, is the concerns of a number of NGOs in relation to their ability to undertake humanitarian work. What the NGOs are seeking from the Government is clarity. We have had discussions with UK Finance, and the amendments under group 9 are where we should focus the debate. Rather than detain the House with comments on this group, I will reserve them until we come to the later group. I beg to move.
Baroness Northover
My Lords, indeed this deals with some of the complexities faced by those operating for good reasons in areas where sanctions bite, and we will be returning to these issues in a later group. We will then talk about guidance and how to ensure that it is easier for financial institutions to derisk.
Amendment 39 in my name is about the mutual recognition of licences and streamlining humanitarian licensing, while Amendment 42 deals with the problems that NGOs may run into if multiple authorisations are required. Amendment 43 is about reporting, because if there is a requirement for parliamentary reporting, that assists in terms of highlighting the issues that NGOs are running into. As I say, we will be returning to these issues in a later grouping.
Lord Ahmad of Wimbledon
My Lords, the Government are well aware of the concerns in this House about the humanitarian impact of sanctions, and we are committed to finding constructive solutions through close engagement with NGOs and other humanitarian actors. Indeed, I would like to thank the noble Lord, Lord Collins, and the noble Baroness, Lady Northover, for the engagement we have had directly with representatives from NGOs between the Committee and Report stages.
As noble Lords will be aware, in 2016 the UK secured amendments to the EU’s Syria sanctions regime to provide a specific exemption for fuel purchases by humanitarian organisations. This assisted such organisations to carry out their operations in Syria while ensuring that they were still sanctions compliant. Provisions in the Bill as it is currently drafted enable the Government to include humanitarian exemptions in sanctions regulations and to issue licences for legitimate activity that might otherwise be prohibited by sanctions. Currently, EU case law limits our ability to issue so-called general licences for the humanitarian sector, but, as I have said before, the Bill has been drafted to enable us to issue these licences and thus provide greater flexibility. We will also publish additional guidance and ensure, through continued engagement with the humanitarian sector, that any additional sector-specific guidance addresses its concerns.
The process of issuing licences is best handled administratively on a case-by-case basis to respond efficiently to fast-moving events. That means we are cautious about putting too much detail in the Bill. However, I can assure noble Lords that the Government make every effort to prioritise urgent and humanitarian licence application cases where there is a risk of harm or a threat to life, and we will continue to do so going forward. Once sanctions are in place, the Government will remain alert to any unintended consequences for humanitarian operations and make adjustments where appropriate, as we did for Syria.
I turn briefly to the amendments in this group. Amendment 8, proposed by the noble Lord, Lord Collins, would require the Government to publish a detailed, stand-alone humanitarian impact assessment both in advance of sanctions regulations being made and at subsequent points thereafter. There is no precedent for this approach in the EU or among other western countries with national sanctions legislation. It could hamper the UK’s ability to deploy sanctions quickly and make multilateral co-ordination more challenging. It may also have the unfortunate effect of facilitating sanctions avoidance—if we give advance warning that we are considering sanctions, we create the ability for sanctions targets to remove their assets from the UK before sanctions bite. That having been said, I can assure noble Lords that the report that the Government would lay before Parliament when making or amending sanctions regulations, and the guidance issued in respect of those regulations, would explain the approach to mitigating humanitarian impacts, including through exemptions and licensing, which was a concern expressed by NGOs and noble Lords.
Amendment 39 proposes a system whereby licences from other jurisdictions would be recognised in the UK where more than one jurisdiction is involved. While I have sympathy with the desire to simplify compliance procedures for those operating across borders, I am afraid that this amendment poses real difficulties. Licences issued by our international partners may not necessarily align with UK policy objectives or work within UK systems. This is simply because other licensing authorities will not need to consider UK policy, UK law or practicalities before they issue such a licence.
Further, the amendment risks creating legal uncertainty. It is not clear what other jurisdictions may be within scope or which jurisdiction would enforce the sanctions when a licence is breached. Nor is it clear whether a licence issued by an overseas jurisdiction would be recognised by financial and other institutions in the UK without some form of validation by the UK licensing authority. The Government believe that the UK authorities remain best placed to interpret UK sanctions regulations and to determine when and in what circumstances activities or transactions may be licensed.
Amendment 40 calls for the Government to establish a fast-track process for dealing with requests for exceptions and licences for humanitarian purposes. As I have just said, the Government make every effort to prioritise urgent and humanitarian licence application cases and will continue to do so. However, establishing a specific fast-track process could have unwelcome effects in relation to other types of licences. Some other categories of licences, such as those aimed at meeting “basic needs”, may not be strictly humanitarian by definition but may have very serious consequences if not prioritised. The amendment could result in certain humanitarian applications that are not urgent being prioritised over non-humanitarian applications that do require an urgent response.
Amendment 41 would require a consultation to be undertaken on an overarching framework for exceptions and licences. As noble Lords will know, the White Paper consultation that preceded this Bill sought specific feedback on exceptions and licences, and we have considered all the comments very carefully. We will publish an initial framework for exceptions and licences in the near future and will continue to consult interested parties before the Bill enters into force. This will inform the approach that we take to exemptions and licensing provisions in the regulations that set up each individual sanctions regime. I am not convinced of the need to undertake a further consultation after the commencement of the Bill. By then, the relevant sanctions regulations, with the appropriate exceptions and licensing provisions, will have already been made and scrutinised by Parliament.
Lord Collins of Highbury
My Lords, I thank the Minister for his response. He is right: this is a complex issue. The amendments that we tabled represented the genuine concern of a range of NGOs about the need to seek clarity over a complex situation. But in the light of the Minister’s remarks and his commitments, and because we will return to the question of guidance, which I hope will improve the situation in terms of clarity, I beg leave to withdraw the amendment.
Lord Ahmad of Wimbledon
“Additional requirements for regulations for a purpose within section 1(2)
(1) This section applies to regulations under section 1 any of whose purposes (as stated under section 1(3)) is a discretionary purpose. In this section “discretionary purpose” means a purpose which is not compliance with a UN obligation or other international obligation but is within section 1(2).(2) An appropriate Minister may not decide that it is appropriate to make regulations to which this section applies unless, in respect of each discretionary purpose stated in the regulations, that Minister—(a) has considered whether there are good reasons to pursue that purpose and has determined that there are, and(b) has considered whether the imposition of sanctions is a reasonable course of action for that purpose and has determined that it is.(3) In subsection (2)(b) “sanctions” means prohibitions and requirements of the kinds which are imposed by the regulations for the purpose in question (or both for that purpose and for another purpose of the regulations).(4) In relation to any regulations to which this section applies, the appropriate Minister making the regulations (“the Minister”) must at the required time lay before Parliament a report which explains in respect of each discretionary purpose stated under section 1(3) in the regulations—(a) why the Minister considers that carrying out that purpose would meet one or more of the conditions in paragraphs (a) to (d) of section 1(2),(b) why the Minister considers that there are good reasons to pursue that purpose, and(c) why the Minister considers that the imposition of sanctions (within the meaning given by subsection (3)) is a reasonable course of action for that purpose.(5) Nothing in subsection (4) requires the report to contain anything the disclosure of which may, in the opinion of the Minister, damage national security or international relations.(6) In subsection (4)“the required time” means—(a) in the case of regulations contained in a statutory instrument which is laid before Parliament after being made, the same time as the instrument is laid before Parliament;(b) in the case of regulations contained in a statutory instrument a draft of which is laid before Parliament, the same time as the draft is laid.”
Lord Pannick
Lord Pannick
My Lords, Amendment 10 is in my name and those of the noble and learned Lord, Lord Judge, and the noble Baroness, Lady Northover. The amendments in this group are concerned with the powers that the Bill confers for the Minister to make sanctions regulations relating to a person connected to a specified country or to make sanctions regulations that allow for designation of a person by description rather than identification.
I am persuaded by the points made by the Minister in meetings and correspondence on the need to have a power to designate by connection with a specified country. I am sure the Minister will want to say more about that when he replies to this short debate. Designation by description is a more troubling issue. The concern is that if designation is by description, banks and others who have to comply with the designation will find it difficult to identify who is covered by it. Obviously designation by membership of al-Qaeda would be problematic since you cannot find a membership list published on the internet. The concern is that, when persons are designated by description, banks and other institutions will inevitably adopt a cautious approach. Those who then find that their funds are frozen will have great difficulty securing legal redress because the banks and other institutions have, in general, no contractual obligation to maintain a relationship with a client or potential client. That is the problem.
Again, I am most grateful to the Minister and the Bill team because they have responded positively to this concern. Government Amendment 34, to which I have added my name, confines the power to designate by description to those cases where the description is such that “a reasonable person” would know whether a particular individual falls within the description, and that,
“at the time the description is specified, it is not practicable for the Minister to identify and designate by name all the persons falling within the description at that time”.
That government amendment meets my concerns. I am grateful to the Minister and the Bill team for considering this difficult problem and responding so positively.
I find it very difficult to envisage that there will be many circumstances, if any, where it is not practicable for the Minister to designate by name and a reasonable person would know from the designation by description whether a particular person fell within it. It seems there will be very few cases where designation by description can occur, but I am very content with the government amendment. Therefore, I beg to move.
Baroness Northover
My Lords, I too am very glad that the Minister listened to the debates in Committee and engaged, with his team, so effectively with the noble Lord, Lord Pannick, and others. I was slightly amused that, in his letter to us, the Minister described his amendments as technical in nature. I thought that was a phrase he might have avoided, given the trouble he ran into on it before. That aside, I welcome the amendments.
Lord Hain (Lab)
My Lords, I shall speak to these amendments, on which the noble and learned Lord, Lord Judge, and the noble Baroness, Lady Northover, made some persuasive and consensual points about how we uphold our international obligations. I will focus on sanctions in the related context affecting UK-based companies. I would be very grateful for some leeway from your Lordships in this so that we can make progress on the whole Bill, especially on Wednesday, when time will be short.
It should be a matter of shame that companies headquartered here in the UK have so far evaded sanctions for aiding and abetting money laundering, corruption and state capture in South Africa, including Bell Pottinger, KPMG, McKinsey, SAP and banks such as HSBC, Standard Chartered and Baroda, in total betrayal of Nelson Mandela’s legacy. I have just referred Hogan Lovells, the international law firm headquartered here in London, to the Solicitors Regulation Authority—the SRA—for enabling a corrupt money launderer to be returned to his post as second-in-command of the critically important South African Revenue Service, SARS. I have asked the SRA to withdraw Hogan Lovells’ authorisation as a recognised body and to examine what other disciplinary action can be taken against its leading partners, including withdrawing their permission to practise as solicitors.
Hogan Lovells spared two of the most notorious perpetrators of state capture in South Africa, Tom Moyane, head of SARS, and his deputy, Jonas Makwakwa, from accountability for their complicity in and cover up of serious financial crimes. In so doing, Hogan Lovells are complicit in undermining South Africa’s once revered tax-collection agency and thereby effectively underpinning President Jacob Zuma and his business associates, the Gupta brothers and others, in perverting South Africa’s democracy, damaging its economy and robbing its taxpayers. When Hogan Lovells was engaged by the corrupt Moyane in September 2016, it was well known that he and Makwakwa were synonymous with President Jacob Zuma’s capture of the state. Hogan Lovells could therefore not plead ignorance as they walked right into that web of corruption and cronyism for a fat fee.
To help protect himself from 783 counts of corruption, fraud, racketeering and money-laundering levelled against him when he came to power in 2009, President Zuma systematically dismembered and manipulated the once highly functional South African Revenue Service and the National Prosecuting Authority. Zuma’s key man in this process was his long-time comrade, Tom Moyane, whom he appointed as head of SARS, as commissioner, in 2014 and who, from day one, loyally set about obliterating all its investigative capacity, with the assistance of his deputy, Jonas Makwakwa. These two turned the institution, which under the leadership of the highly respected Pravin Gordhan had consistently overdelivered on revenue collection, into one now facing a 51 billion rand, or £3 billion, revenue shortfall.
Makwakwa’s unethical behaviour was quickly exposed in May 2016 when South Africa’s financial crime regulator, the Financial Intelligence Centre, ordered SARS to establish whether several “suspicious and unusual cash deposits and payments” into the accounts of Makwakwa and his lover, a low-level SARS employee, Kelly-Ann Elskie, were “the proceeds of crime and/or money laundering”. About 1.7 million rand—about £100,000, a lot in South African purchasing power—had been paid into their bank accounts over a six-year period. The FIC noted that the amounts flowing out of Makwakwa’s account,
“are of concern as they originate from unknown sources and undetermined legal purpose”.
However, when the FIC reported these suspicious transactions to Moyane, he tried to ignore the request by keeping it a secret. At the same time, the FIC reported the suspicious transactions to the police, known as the Hawks, to investigate the alleged criminality associated with the transactional flows and they opened a case.
Four months later, in September 2016, news of the FIC’s report to Moyane was exposed by investigative journalists and he begrudgingly suspended Makwakwa and later Elskie. This is when Hogan Lovells entered the picture. Moyane appointed the law firm to conduct “an independent investigation” into the Financial Intelligence Centre’s allegations to ensure “transparency, independence and integrity”, and then to recommend and independently facilitate necessary action, including disciplinary action. Hogan Lovells was therefore appointed to investigate the allegations contained in the FIC report and to conduct disciplinary proceedings against Makwakwa on behalf of SARS. To that effect, Hogan Lovells drafted the terms of reference for the engagement, a seven-page roadmap signed and adopted by SARS. However, Hogan Lovells failed to investigate the very reason the firm was appointed; the allegations contained in the FIC report. Hogan Lovells deviated so materially from its own terms of reference, allowing itself to be blindly led by Moyane, who redefined the terms of reference as and when it suited him, that a respected investigative journalist described the outcome as being,
“so tailored that it borders on the realm of being cooked”.
What an indictment of a leading international firm, Hogan Lovells, and its role.
The allegations against Makwakwa involved layers of possible transgressions; these being, first, tax law breaches, linked to whether he declared the transactions; secondly, criminal breaches, linked to whether the suspicious transactions were predicated on corruption or money laundering; and thirdly, whether internal SARS policy breaches had occurred. Moyane also mandated PricewaterhouseCoopers to analyse Makwakwa’s tax compliance, with regards to the “suspicious and unusual” money flows through his accounts. The Hawks were simultaneously investigating the criminality. Hogan Lovells’s mandate was, according to its terms of reference, to institute an independent investigation, partly using the findings of these other processes, to assess the veracity of the FIC allegations against labour and administrative law, and institute a disciplinary process.
But then two things happened. First, SARS declined to provide Hogan Lovells with the PricewaterhouseCoopers investigative report into Makwakwa, citing taxpayer confidentiality—an inaccurate interpretation of the law, which Hogan Lovells accepted without question. Secondly, Hogan Lovells never made contact with the Hawks to assess the status of their investigation—information which would logically be crucial to its assessment of Makwakwa’s fitness as a senior SARS employee. Equally puzzling is that around that time, South Africa’s Parliament got interested in Moyane’s puppet mastery of Hogan Lovells, prompting a parliamentary question about the nature of the engagement between the two organisations.
Lord Lennie (Lab)
My Lords, in relation to the clause on financial sanctions, I add my gratitude to the Minister for the way that he has engaged with us, the Cross-Benchers and those in other parties. We have turned what the noble and learned Lord, Lord Judge, described as a lamentable Bill into something approaching an acceptable Bill. There are some problems with it, but this will not be one of them. The three pre-conditions that the Minister has laid down will make it wholly exceptional that someone can be designated under the sanctions regime without identification, so the Maltese grandchildren that the noble and learned Lord referred to in Committee should feel fairly safe in their beds from here on in. We welcome the concessions made and support this part of the Bill.
Lord Ahmad of Wimbledon
My Lords, once again I thank the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, for their constructive engagement on understanding and then coming forward with appropriate amendments in this regard.
The group of amendments in front of us focuses upon the description of persons who can be subject to sanctions by way of sectoral sanctions and individual designations. Before I come to the main thrust of the amendments—and I use this term advisedly, notwithstanding the contribution of the noble Baroness, Lady Northover—there are two technical government amendments to Clause 2. These amendments will ensure that sanctions regulations can prevent the procurement of funds or economic resources, as well as receiving such funds or economic resources. This will help prevent sanctions being evaded and thus improve their overall effectiveness, which I know is the intent of all noble Lords in respect of the Bill. I hope that this small and technical change will be deemed non-controversial, and would be grateful if your Lordships would support the amendments and enable us to further enhance the Bill’s provisions.
I turn to the amendments tabled by noble Lords, which seek to stop the Government from being able to impose sanctions on persons “connected with” a prescribed country. As I have assured your Lordships during previous stages of the Bill, while I understand the concerns in this respect, I believe the Government have acted to address them where we can and there are good reasons why these provisions are needed. I totally understand the concern raised by the noble and learned Lord, Lord Judge, in Committee that a Minister would be able to define the connection to a country by regulations, and do so in ways that were unacceptable. I assure him that there are safeguards to prevent this power being misused.
As set out in the Bill, sanctions measures can be made in line only with the purposes for regulations set out in Clause 1. The definition of “connected with” must therefore be appropriate for the pursuit of the said purpose. It would not be reasonable or appropriate to create sanctions measures relating to persons that have only a very loose connection with a sanctioned country.
The noble and learned Lord, Lord Judge, said in Committee that it surely makes sense for the Government to define connection now, in primary legislation, rather than at some point in the future. We have considered this suggestion carefully and looked at a couple of types of possible approaches in this respect. The first approach would be to list the connections that sanctions currently impose, but this poses two problems. First, the list would be very long, as there are a great deal of different types of connections. Secondly, an exclusive list would not give us the flexibility that we will need in future when new types of connections need to be made. It is worth remembering that the context of international policy is changing rapidly. This is perhaps best typified by the sanctions regime on North Korea, which has changed three times in the last six months alone. We do not know how much further we will be obliged to act on North Korea; unpredictable world events could make it necessary to have new regimes with measures of increasing complexity.
We also considered whether it might be possible to restrict the power by making sure that certain types of loose connections could not be specified. Again, the vast number and shifting type of these connections make drafting such provisions prohibitively difficult. The situation also changes in each case. I agree with the noble and learned Lord, Lord Judge, that a connection based on familial connection might be very loose and unjustifiable in many circumstances, but in the context of misappropriated wealth spread through the close family of a former head of state, such a connection might be required. I therefore request noble Lords not to press their amendments in relation to connected persons for the reasons that I have given.
On designation by description, I have listened closely to the concerns of noble Lords who spoke in Committee, including those about the practical difficulty that this would present for banks and others responsible for complying with such sanctions. I noted in Committee that it is important for the Government to have the power to designate by description in some circumstances, such as where we do not have the names of members of a terrorist group. I have accordingly sought to strike a balance here by placing restrictions on the use of this power to ensure that it can be used only in limited circumstances.
Based on the debate in Committee, I have tabled government Amendments 33 to 35 to ensure that the use of this power is tightly constrained, as the noble Lord, Lord Pannick, acknowledged. With this amendment in place, the Government must impose sanctions on an individual by name if we have access to their name, as the power to designate by description cannot be used when we do. The description must also be sufficiently detailed that a person can apply it to themselves and decide whether they are subject to sanctions. For example, if we wished to sanction all Ministers of a certain state, we would designate as many as possible by name and would then be able to designate any others of unknown name by the description “Ministers of that state”. A Minister of that state will clearly know that the sanction applies to them, and UK persons, such as banks, will be able to ascertain the position in relation to their own business dealings. This enshrines the Government’s commitment to use this power only when it is not practicable to designate by name, thus easing the compliance burden on industry. I thank the noble Lord, Lord Pannick, for his acknowledgement of the government amendments in this respect.
The noble Lord, Lord Hain, raised a specific issue relating to the work of Hogan Lovells for the South African Revenue Service. The noble Lord has raised various matters during the passage of the Bill, and I am grateful to him for bringing this information to our attention. I assure the noble Lord that, on this matter and the matters he has raised previously, the Government continue to be concerned about the allegations of corruption in South Africa. I further assure him that the British high commission continues to monitor this issue very closely. As the noble Lord said, he has already brought this issue to the attention of the Solicitors Regulation Authority and awaits its reply. Once he has heard from it on that subject, any correspondence could be copied to the Government, although I am sure we will already be informed. It has been helpful to have his interventions in this respect.
We have listened very carefully to the various elements and concerns raised in Committee. I once again thank noble Lords for their engagement in reaching the position that we have on these amendments. As I said at the start of Report, and during Committee and Second Reading, the guiding principle that I have adopted in this regard is that I believe very passionately that legislation is not just made more effective and more practical but enhanced in your Lordships’ House. Through the co-operation we have had on this group of amendments, we have seen that level of constructive engagement.
On the basis of that explanation, I hope I have been able to persuade all noble Lords to support the government amendments and would ask them to withdraw or not move their amendments.
Lord Pannick
I am very grateful to the Minister, who has shown exemplary constructive engagement throughout discussions on the Bill. I am sure all parts of the House are very grateful to him and the Bill team for that.
Amendments restricting Ministers’ powers to designate by description are far from technical, and I simply point out one matter in response to the Minister. I think he suggested that, in relation to government Amendment 34, the issue would be whether the individual himself or herself would be able to identify from the description whether they were covered. In fact, government Amendment 34 goes a lot further than that, because the test under it is whether, from the description, a reasonable person would know whether the individual falls within the description. That is the test. But I am very grateful to the Minister and beg leave to withdraw Amendment 10.
Sanctions and Anti-Money Laundering Bill [HL]
Monday 15th January 2018
(6 years, 10 months ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 69-R-II Second marshalled list for Report (PDF, 88KB) - (15 Jan 2018)
18:23 - Division on Amendment 45 - Ayes: 209 / Noes: 192 - Amendment 45 agreed.
Lord Ahmad of Wimbledon
The Deputy Speaker (Lord Palmer of Childs Hill) (LD)
I must advise the House that if Amendment 27 is agreed, I cannot call Amendments 28 and 29 because of pre-emption.
Amendment 27
Lord Ahmad of Wimbledon
“(3) Regulations under section 1 which contain a designation power must provide that where an appropriate Minister—(a) has made a designation under the power, or(b) has varied or revoked a designation made under the power (see section 18),that Minister must without delay take such steps as are reasonably practicable to inform the designated person of the designation, variation or revocation.(3A) The regulations may include provision, additional to that required by subsection (3), as to steps to be taken as regards notification or publicity where a designation has been made under the designation power or a designation made under the power has been varied or revoked.(3B) The regulations need not require a person to be notified of an intention to designate the person.”
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, I thank all noble Lords again for their constructive engagement on this group of amendments. The government amendments I have tabled have been heavily influenced by the discussions we have had. Amendment 28 would require regulations to include provisions on notifying a person once designated and how to publicise designations. I am happy to say that government Amendment 27 does exactly that. When a person has been designated, or had their designation varied or revoked, the Minister must, without delay, take such steps as are reasonably practicable to inform the person. Sanctions regulations may also include further provision as to the specific arrangements for notification or publicity. In this regard, I am extremely grateful to the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, for their assistance.
Amendment 29 would require a person to be informed of their designation and to be given the fullest possible account of the reasons for designation and the steps required to address the concerns. Amendment 30 covers similar ground, while also requiring that the designated person be given the evidence underlying the designation or a gist of any evidence that is withheld for reasons of national security. In response, government Amendments 32, 37 and 59 make provision across the Bill to provide a statement of reasons to designated persons. When a person is designated, the Government will be obliged to provide a statement of the matters that the Minister knows, or has reasonable grounds to suspect, have led to the designation. I am sure noble Lords will appreciate that the Minister’s statement may exclude some matters, for reasons which I know noble Lords will understand and respect, such as when it is in the interests of national security. If a challenge is made in court, on those rare occasions when sensitive information is used to underpin a designation, the closed material procedure will apply. The courts, such as in the case of AF (No. 3), have long required the gist of sensitive material to be disclosed to enable an individual to understand the case against them. We accept that this is and will continue to be the case and the Bill does not seek to make any changes to the existing disclosure burden on the Government in such cases.
Amendment 38 would insert a new clause into the Bill requiring the appropriate Minister to exercise the power to designate only to the extent that it is proportionate to do so, having regard to the purpose of the designation and the impact on the person concerned. The government amendments I have tabled in response—Amendments 31, 36 and 58—use very similar language. They would require Ministers to consider that a designation is appropriate, having regard to the purpose of the regulations and the likely significant effects of the designation on the person concerned. I am again grateful to the noble Lord, Lord Pannick, and the noble and learned Lord, Lord Judge, for supporting these government amendments. While there seems to be a meeting of minds on this important issue, it may also be helpful if I briefly explain the thinking behind the Government’s revised language.
First, the European Convention on Human Rights entrenches individual rights, obliging the Government to consider the impact on an individual’s rights when making certain decisions. Section 6 of the Human Rights Act 1998 further ensures that the appropriate Minister must act in line with those convention rights, as informed by Strasbourg case law. We consider that this includes satisfying himself that the designation is proportionate, where convention rights are engaged, and I have been clear on this in relation to this Bill, including in Committee. Secondly, given that the Human Rights Act already requires proportionality to be considered where convention rights are engaged, a court might interpret the use of the word in the Bill to mean something different. Our amendments have tried to preserve the spirit of the intention underlying this amendment, without creating any difficulty of interpretation. As a result, the government amendments provide for a balancing test for designations between the purpose of the regulation and the impact on the individual, while avoiding an explicit reference to “proportionality”.
Amendment 50 requires the Government to provide specific guidance produced by the Crown Prosecution Service about the prosecution of sanctions breaches. The Government wholeheartedly support and have publicly committed to producing clear and accessible guidance on sanctions implementation and enforcement, both in this House and throughout our consultation on the White Paper. The Crown Prosecution Service already publishes guidance on how the public interest is taken into account in any decision to prosecute and this test is the same one that will be applied in decisions to prosecute sanctions offences. The procurator fiscal in Scotland and the Public Prosecution Service for Northern Ireland publish similar guidance. The Government’s view is that no additional public interest guidance is necessary simply for a sanctions prosecution decision.
The Bill will provide for the Government to issue guidance on the content and implementation of sanctions. Clause 36 requires Ministers to issue guidance about any prohibitions and requirements imposed by sanctions regulations. There will be a mandatory requirement to provide comprehensive guidance for all those affected by sanctions implementation. Clause 36 is a more comprehensive duty than that specified in the amendment to Clause 16 which I have said is unnecessary. It has been drafted so as to allow comprehensive guidance on all sanctions prohibitions and requirements to be prepared and consulted on by the appropriate sources of expertise. For financial sanctions, the Office of Financial Sanctions Implementation has already published a comprehensive guidance document setting out its general enforcement approach. This will be fully updated to reflect the new sanctions Bill regime.
Amendment 53 requires the Minister to respond,
“as soon as reasonably practical”
to a request to vary or revoke a designation. Government Amendments 56 and 61 are fully in line with this proposal.
Finally, government Amendments 51, 52, 57 and 60 make technical changes consequential on these changes, and I hope they will be accepted. I beg to move.
Lord Pannick (CB)
My Lords, I have tabled, with the support of the noble and learned Lord, Lord Judge, the noble Lord, Lord Collins of Highbury, and the noble Baroness, Lady Northover, a number of amendments in this group on the subjects of procedural fairness and proportionality. The Minister acknowledged in Committee that these were topics that he and the Bill team would need to consider before Report. Given the adverse consequences of being designated, the Bill must provide for procedural fairness and the provisions must be applied in a proportionate manner. Again, I thank the Minister and the Bill team for some very helpful meetings on these subjects, and for tabling these amendments, which address my concerns.
In particular, government Amendments 31, 36 and 58 will require the Minister to be satisfied that any designation is appropriate, having regard to both,
“the purpose of the regulations … and … the likely significant effects of the designation”,
on the person concerned. That addresses the substance of my Amendment 38 on proportionality. It does not use the word “proportionality” but that does not matter. It contains the essence of proportionality and I am grateful to the Minister for confirming in his opening remarks that that is indeed the purpose of these government amendments.
Government Amendments 32, 37, 59 and 61 are also very important in placing in the Bill a requirement of procedural fairness; that is, that the person designated is entitled to a statement of the reasons why he or she has been designated. That is absolutely fundamental to any fair sanctions procedure. I recognise that the government amendments exclude any right to information the disclosure of which would harm interests such as national security, but they rightly provide that these exclusions will not allow the Minister to provide no statement of reasons. I would be grateful if the Minister could confirm that the intention here is to ensure that a person who is designated will always be entitled to at least a statement of the essence of the reasons for the designation, albeit that details which affect national security or other protected interests cannot be disclosed.
In the light of these government amendments, I am satisfied that the Bill now makes it clear that procedural fairness and the substance of proportionality are part of the administrative machinery. The Minister made it clear in Committee that this was always the intention and he made it clear—and I respectfully agree with him—that the courts would in any event hold Ministers to such basic standards of the rule of law. I am pleased that the Minister has recognised that it is appropriate to include these matters in the Bill and I thank him.
Baroness Northover (LD)
My Lords, I apologise if I caused hiccups by not moving Amendment 20. That was deliberate on my part. I did not mean to cause any hiccups, though. I thank the Minister for engaging with these issues. This is yet another example of co-operation right around the Chamber on this part of the Bill.
Lord Lennie (Lab)
My Lords, I am also grateful to the Minister. Clearly, he has listened a lot and has provided a lot of change from the initial version of the Bill. There is a meeting of minds—there is no question about that—but the one issue that I am not sure he addressed was about the requisite steps that persons are expected to take to address the concerns which led to the designation in the first place. I would like the Minister to comment on that, but we support the changes.
Lord Ahmad of Wimbledon
My Lords, again, I thank noble Lords. The noble Lord, Lord Pannick, asked me to confirm that the Bill makes no provision to change the ability of the designated person to be given the reasons for their designation and to be supplied with an irreducible minimum of the evidence against them. The only issue is that we have always said there would be national security elements. The amendment specifically says that,
“the regulations may not authorise the Minister to provide no statement of reasons”,
which I am sure the noble Lord has noted.
Lord Ahmad of Wimbledon
“(b) considers that the designation of that person is appropriate, having regard to—(i) the purpose of the regulations as stated under section 1(3), and(ii) the likely significant effects of the designation on that person (as they appear to the Minister to be on the basis of the information that the Minister has).”
“(7) The regulations must, in relation to any case where the Minister designates a person by name, require the information given under the provision made under section 9(3) to include a statement of reasons.(8) In subsection (7) a “statement of reasons” means a brief statement of the matters that the Minister knows, or has reasonable grounds to suspect, in relation to that person which have led the Minister to make the designation.(9) The regulations may authorise matters to be excluded from that statement where the Minister considers that they should be excluded—(a) in the interests of national security or international relations,(b) for reasons connected with the prevention or detection of serious crime in the United Kingdom or elsewhere, or(c) in the interests of justice(but the regulations may not authorise the Minister to provide no statement of reasons).”
Lord Ahmad of Wimbledon
“( ) The regulations must contain provision which prohibits the exercise of that power except where conditions A to C are met.( ) Condition A is that the description of persons specified is such that a reasonable person would know whether that person fell within it.( ) Condition B is that, at the time the description is specified, it is not practicable for the Minister to identify and designate by name all the persons falling within that description at that time.”
“(b) considers that the designation of persons of the specified description is appropriate, having regard to—(i) the purpose of the regulations as stated under section 1 (3), and(ii) the likely significant effects of the designation (as they appear to the Minister to be on the basis of the information that the Minister has) on persons of that description.”
“(3A) The regulations must, in relation to any case where the Minister provides that persons of a specified description are designated persons, require the information given under the provision made under section 9(3) to include a statement of reasons. (3B) In subsection (3A) a “statement of reasons” means a brief statement of the matters that the Minister knows, or has reasonable grounds to suspect, in relation to persons of the specified description which have led the Minister to make the provision designating persons of that description.(3C) The regulations may authorise matters to be excluded from that statement where the Minister considers that they should be excluded—(a) in the interests of national security or international relations,(b) for reasons connected with the prevention or detection of serious crime in the United Kingdom or elsewhere, or(c) in the interests of justice(but the regulations may not authorise the Minister to provide no statement of reasons).”
Lord Judge
Lord Judge (CB)
My Lords, I am going to add to the trumpet sounds of praise for the Minister and thank him for everything he has done so far. However, I do not want to damage his ministerial career further by not taking him on. I am taking him on in relation to Clause 16.
In the days when there were no regulations but the King thought that he would like to rule the country by proclamation and to create criminal offences by proclamation, the response of Parliament was that it is,
“the indubitable right of the people of this kingdom not to be made subject to any punishment … other than such as are ordained by the common laws of this land, or the statutes made by their common consent in parliament”.
The King sought to be able to make criminal offences by proclamation and Parliament told him he could not. That is a principle to which we should have adhered. We have not. I am not going to try to turn back the last 25 years of history but this is quite a significant moment. Parliament was prepared to tell the King—who could have sent you off to prison and did send people to the Tower when he disagreed with them—that this would not do. My submission to the House is that this current provision simply will not do. I acknowledge that the clause is improved to some extent by the proposed government amendments but it provides a vivid example of what has become unacceptable, for this very simple reason: it vests vast powers in a Minister of the Crown.
In discussions with the Minister, I have been able to understand that he has clearly conveyed his wish to ensure that where sanctions of whatever kind are currently and lawfully in existence, particularly those which emanate from our membership of the EU, they should continue. I agree with him: the EU and our current relationship with it is why we have sanctions against Syria and Russia. I do not for one moment wish to diminish the possibility of those continuing. They should not lapse just because we would cease to have any international obligation with the EU, but I simply do not understand why we cannot make provision to deal with such a situation. I am not trying to row back. I accept the need for sanctions to be continued against Russia and Syria, and against whomsoever we have sanctions, but it should be capable of amendment. This provision, I agree, would do that but it would also do much more—and my concern is with the much more, which is quite unnecessary.
The starting point is that the entire system envisaged in the Bill is about government by regulation. There is in truth no primary legislation here; all of it is regulations. I call it a bonanza of regulations and your Lordships might use any word you like to describe it, but that is what the Bill consists of. In addition, we have two perfectly good provisions for dealing with UN sanctions and sanctions based on our obligations under international law, under treaty. Then we have a whole lot of new regulations to deal with the prevention of terrorism, the interests of national security, the interests of international peace and security, the furtherance of a foreign policy objective of the Government of the United Kingdom and, as a result of today’s debate, four more provisions. All those are domestic issues. The issues relating to UN resolutions or sanctions, EU resolutions and treaty obligations are fine, so far as they go. But as to the rest of it, it is all domestic.
We will end up with a situation in which provision will be made by regulation to enable the Minister to decide what offences should be created to deal with what are in truth domestic matters, which it is unlikely would not be at least matters of controversy. Foreign policy is a matter of controversy. What is “national security”? How should counterterrorism work? These are all issues which we have to grapple with on a daily basis. We would end up with a Minister, by regulations based on regulations, being able to create an offence which would send you to prison, presumably on conviction, for 10 years. That is a major provision.
I can deal with this briefly; I have said my piece more than once in this House on it. This clause is devolving enormous powers. I have no hesitation or worry about it devolving enormous powers to this Minister but we do not know who the next Minister will be, or the Minister 10 or 20 years from now. The Bill will continue in force for 10 or 20 years; I suspect the hope is that it will continue indefinitely. In the wrong hands, these powers are not merely enormous but dangerous. There is no need for them. So my objection to this clause, and the provisions I am addressing, is simply this: we are allowing an accretion of alarming power to a Minister of the Crown—to the Executive. That power in relation to the matters I am raising, which is to say not the United Nations issue or the international treaty issue but all the other issues, should not be dealt with by regulation. I beg to move.
The Deputy Speaker (Lord Brougham and Vaux) (Con)
I must advise the House that if this amendment is agreed to, I cannot call Amendment 46 and that, in the same grouping, if Amendment 47 is agreed to I cannot call Amendments 48 or 49 due to pre-emption.
Lord Pannick
Perhaps I may add one brief point to what was said so powerfully by the noble and learned Lord, which is to remind the House of what was said by your Lordships’ Constitution Committee, of which he and I are members. The committee’s eighth report of this Session, which was on the Bill, stated in paragraph 21:
“We are deeply concerned that the power in clause 16 may be used to create an offence for which a sentence of imprisonment for up to 10 years may be imposed, and that rules on the evidence to demonstrate that the case is proved, and defences to such charges, are subject to ministerial regulation. We consider that such regulation-making powers are constitutionally unacceptable and should not remain part of the Bill”.
The Minister has dealt in Amendment 46 with the second part of that criticism, which is the quite extraordinary suggestion in the original Bill that a Minister, by regulations, should have power to alter defences to charges and to address rules on evidence, such as the burden and standard of proof. This was a quite extraordinary suggestion and I hope that the House will never again see such a provision presented in a Bill by Ministers. However, to his credit the Minister has accepted in Amendment 46 that that provision should be removed. What remains is the suggestion that Ministers should have the power to create offences for which a sentence of imprisonment of up to 10 years is imposed—and on that I entirely agree with what the noble and learned Lord said.
Lord McNally (LD)
My Lords, perhaps I may intervene here as a non-lawyer because I see our lawyers fluttering into their places, rather like that scene in Hitchcock’s “The Birds”. I would like to make a wider point to the House, which is one I have made over the last 20 years in Parliament. It is that one of the crucial roles of this Chamber is to defend the constitution and, above all, to defend it in terms of the relative powers of the judiciary, the Executive and the legislature.
Just over 10 years ago I was on the Cunningham committee, which looked at conventions between the two Houses. If I left a mark on that committee, it was in the clause that states and retains the right of this House to say no. It is the most important power that this House has. It is a nuclear power and something not to be used very often, but it makes the other place come into dialogue and it makes Governments think again. What worries me about the process now under way is that because of the sheer volume of Brexit legislation that will come our way, with a whole flotilla of Bills, it is quite clear that the members of whatever team is looking at this in the Cabinet Office have said, “We can only do this by using secondary legislation and Henry VIII powers on an unprecedented scale”. If they were successful in doing this we would, in my submission, tilt the balance away from the legislature to the Executive in a way that was not intended—and certainly not intended by those who argued for Brexit as a way of returning power to this Parliament.
This is one of the early tests of it. Funnily enough, the earliest test was in the little-noticed Space Industry Bill where there was a whopping great Henry VIII clause which, after the intervention of the noble and learned Lord, Lord Judge, the Government withdrew. By voting for and carrying this amendment today, right at the start of this process, we will send a message that will make the Government think again—and think more imaginatively and more constitutionally—about how they are going to deal with this legislation without adopting these practices, the dangers of which the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, so eloquently explained.
It is a real danger. If we are forced in Bill after Bill to carry amendments, the House of Lords will be accused of exceeding its powers. I do not think that we are exceeding our powers. We are doing what Lord Hailsham referred to almost 40 years ago: trying to avoid the dangers of a democratic dictatorship where the other place simply argues that we must obey. We must not just obey, particularly with clauses such as this which tilt the balance away from the way in which law, and in particular criminal law, is made, in a quite unacceptable way. By voting for this amendment tonight, we will send a message which will avoid a constitutional car crash further down the road.
Lord Lester of Herne Hill (LD)
My Lords, it is a great pleasure on this occasion to speak after my noble friend Lord McNally and to agree with him. I am very glad to do so. Although he does not think much of lawyers, he would make a wonderful lawyer—and I mean that as a compliment.
So far as this amendment is concerned, although the noble and learned Lord, Lord Judge, went back to the proclamations in explaining its origin, I shall add this from my own memory. When I was a student of history, not law, at Cambridge University, my mentor told me to read The New Despotism by Lord Hewart, the Lord Chief Justice, and, especially, Harold Laski and the other members of the Donoughmore committee on Ministers’ powers, which reported in the late 1930s. Anybody who reads those two historic documents will understand perfectly why the amendment moved by the noble and learned Lord, Lord Judge, needs to be supported. It is a matter of the rule of law and of parliamentary democracy. Therefore, I very much hope that the whole House and the Minister, in particular, will be able to accept the amendment. If not, I will certainly be delighted to vote in its favour.
Lord Deben (Con)
My Lords, I remind the House that I was fortunate enough to take part in the Space Industry Bill on exactly this basis. That is the reason I come to this amendment. I hope that my noble friend will recognise that this is about not just this amendment in this Bill but a whole range of ways of looking at taking into our domestic legislation the things that we have to. I choose to speak on this simply because this is not an issue on which I can be accused of having a parti pris position—although I will be perfectly happy to be accused of that when we have the withdrawal Bill, on which clearly I take a very strong view.
On this, I am talking about an amendment to a Bill which has a great danger. If you produce a Bill called the Sanctions and Anti-Money Laundering Bill, it is very easy to put almost anything in it and feel that it is perfectly reasonable to support what you have put in—because none of us is in favour of not having sanctions and all of us are opposed to money laundering. Therefore, this is the moment in which I always become particularly careful. I am worried about this because it seems to be an area in which lawyers have taken a major part. That always worries me, and I feel that one has to make sure that one is not being led astray down some legal path that is other than sensible.
On this occasion, I think that what is being proposed is not acceptable within the constitution. As the noble Lord, Lord McNally, said, this is a constitutional matter. If we are here for anything—and I believe that we are here for a very good purpose—dealing with the constitution is clearly the central part of it, and dealing with it in the detail that we can, when the House of Commons is unable to deal with it in that detail, makes this even more important.
I cannot believe that my noble friend really intends to say that Ministers should have these powers. I know that I have said it before, but I was a Minister for 16 years and I have to tell him that I should not have been given those powers. I do not agree with the noble and learned Lord, Lord Judge, that it does not matter because of the excellence of the Minister. In a sense, it matters more because of the excellence of the Minister. It is very important as a Minister to recognise that there are restrictions on any Minister, however good. In a sense, that is when I particularly want those restrictions to be strong.
I say to my noble friend that there is a reason why this amendment is very important, and it is a constitutional reason. But there is a practical reason, too. It is that we do not want to feel that the Government are not prepared to understand the distinction between constitutional propriety and the urge and necessity to change the law in order to face up to the regrettable effects of Brexit. This is an opportunity for us to say that this is not about this issue; it is about the constitutional concern. I hope that my noble friend will be able to give the House some reassurance that, now that this has been pointed out to him, he will look again at the debates on the Space Industry Bill, think forward to the debates that we will have over the Trade Bill and the withdrawal Bill, and recognise that perhaps this is a moment to find a way of accommodating a very serious criticism.
Lord Collins of Highbury (Lab)
My Lords, I thank the noble and learned Lord and noble Lords for their contributions. I agree wholeheartedly with their comments in relation to the thrust of this legislation. We are here because of another decision. We are here because we are being forced to take action speedily because of the precipice that we will be facing.
I said at Second Reading and will say now that we support this Bill because we are required to have a proper and full sanctions regime. I completely share the concerns expressed by your Lordships’ Constitution Committee. But, as I said in Committee, your Lordships’ Delegated Powers and Regulatory Reform Committee examined these clauses in some detail and did not quite share the view of the Constitution Committee. It referred to its previous memorandum on the subject and said that the reason for this clause related to the enforcement of the prohibitions and requirements set out in the regulations. In Committee, the Minister said that the Government were replicating existing enforcement regimes. He said:
“To be clear: these types of offences already exist”.—[Official Report, 21/11/17; col. 165.]
In Committee, I said that if that was the case, and the Minister was hearing us in terms of the concerns over principles, I hoped that he would come up with something better to address the concerns of the Delegated Powers and Regulatory Reform Committee. I am afraid that, as the noble and learned Lord, Lord Judge, said, I do not think that the Minister has come up with adequate provisions to address these concerns. They are limited, as the noble and learned Lord said, to some of the all-embracing powers such as determining evidence and the process for evidence. I welcome those changes but I do not think that the Government have gone far enough in terms of being very clear how these wide-ranging powers will be dealt with. If the noble and learned Lord presses this issue, I hope that the House will support him.
Lord Ahmad of Wimbledon
My Lords, first, I thank the noble and learned Lord for tabling his amendment. Again, I also thank him for the extensive discussions we have had in this respect.
The amendments seek to remove the ability to make provision in sanctions regulations creating offences for breaches of sanctions. I say from the outset that I sympathise with the concerns that noble Lords have expressed during various parts of the debate, not just today but in previous stages. I am sure noble Lords will also acknowledge that we have done a lot of work to try to respond to these concerns. I have tabled some government amendments in this area, which the noble Lord, Lord Collins, acknowledged.
The powers in question enable offences to be created for breaches of sanctions, in line with our current practice when implementing EU legal acts. They also enable other enforcement tools to be used, such as deferred prosecution agreements or serious crime prevention orders. Having the power to punish individuals and entities for breaching sanctions deters non-compliance and ensures the measures are robust. Sanctions without teeth, as I am sure noble Lords acknowledge, are essentially meaningless. Indeed, we debated earlier an amendment that would have included preventing,
“the violation of sanctions regulations”,
as one of the explicit purposes to be set out in Clause 1. Although I argued against that amendment on technical grounds, I agree with the spirit.
EU sanctions against countries such as Russia and Syria are imposed through EU legal acts that require member states to put in place enforcement measures at a national level. In line with that requirement, the UK routinely creates criminal offences for breaches of sanctions by way of statutory instruments made under powers in the European Communities Act 1972, as well as other legislation such as the Export Control Act 2002 and the Policing and Crime Act 2017. Other EU member states implement similar enforcement measures through their national legislation.
As foreshadowed in the White Paper consultation before this Bill was introduced, the Government want to be in a position to maintain continuity in this area. Whatever one’s views on Brexit, I think there is wide support for the principle that the UK and EU should remain closely aligned on sanctions policy. If the UK’s future sanctions regime against Russia was stripped of any enforcement provisions, I am sure noble Lords would agree that this would send a very unfortunate signal to our EU partners and to other close allies. Amendments 45 and 47 would mean that breaching a sanctions regime would not be an offence. If they are passed, as existing criminal offences in EU retained law fall away when new UK regimes are introduced, we would be unable to replicate those offences in the new regimes.
We have covered some of these issues previously, and I hope that what I have said will persuade the noble and learned Lord to withdraw his amendment. As I have said, I understand the concerns that have been expressed, including today, about the scope of these powers and will set out in a moment the government amendments that I have tabled in response. But the abolition of offences from sanctions regulations clearly undermines the purpose of the Bill and would make the UK a weak link in broader international implementation of sanctions, which I am sure is not noble Lords’ intention. I know and totally accept that this House is concerned about the creation of criminal offences through secondary legislation, a point eloquently made by the noble and learned Lord, Lord Judge, the noble Lord, Lord McNally, and my noble friend Lord Deben. I can provide this House with the following reassurances.
Lord Judge
My Lords, I appreciate the way in which the Minister has put these matters. He has expressed his sympathy for our concerns and he understands them. We are talking about a basic, simple constitutional position. We do not for one moment think that sanctions should not exist, or that there should be some kind of break in the ability to enforce against breaches of sanctions where they currently exist—that is not the purpose of the amendment. Nor is it beyond parliamentary counsel to find a way of making sensible provision to meet the Government’s requirements. If it does, the Government will bring this matter back to the House on Third Reading or take it to the Commons. As it is, we are being asked to sanction a provision that is constitutionally dangerous.
Therefore, although I am willing—assuming that the House agrees with my view—to meet the Minister and indeed parliamentary counsel at any time to discuss how the issues should be addressed, I propose to invite the view of the House on this amendment. I add that I have been addressing the House on the basis that Amendments 45 and 47 run together. That has plainly been the understanding of everyone who has participated in the debate, but for the moment we are concerned only with Amendment 45. If it is carried, I will move Amendment 47 formally. I should like to test the opinion of the House.
Lord Judge
Lord Ahmad of Wimbledon
Lord Pannick
Lord Pannick
My Lords, Amendment 54 is in my name and that of my noble and learned friend Lord Judge, the noble Baroness, Lady Northover, and the noble Lord, Lord Collins of Highbury. It proposes that the obligation under the Bill on Ministers to review a designation every three years should be reduced to one year.
I have reflected on this matter in the light of very helpful meetings with the Minister and the Bill team. In the light of the right of the person concerned to request a review if there are new significant matters and of the duty on Ministers under Clause 26, to be amended by government Amendment 55 in this group, themselves to review regulations every year and to place a report for Parliament, I shall not pursue Amendment 54. Simply to enable other noble Lords to participate in this short debate if they so wish, I beg to move.
Baroness Northover
I am glad that to some extent the Government have moved in this area and I hope that, in the light of the vote that we have just had, that spirit of co-operation around the House will extend to other sections of the Bill that still need addressing.
Lord Ahmad of Wimbledon
My Lords, I thank the noble Lord for his amendment. As he has already indicated, it would oblige the Government to conduct a re-examination of each designation on an annual basis. I agree completely on the need for sanctions designations to be based on solid evidence. The UK has pushed hard for that in the EU, and that is widely recognised—for example, in the recent report of the House of Lords EU Committee. We are committed to maintaining these high standards.
The Bill as drafted includes a robust package of procedural safeguards, which will be further reinforced by the government amendments I have tabled, including Amendment 55. The combined package will provide a high level of protection for designated persons, at least as strong as current EU standards. The Government would review all sanctions regulations annually and present the results in a written report to Parliament. Amendment 55 makes that clear on the face of the Bill; I know that noble Lords raised that point. If the report concluded that there were no longer good reasons for maintaining a UK sanctions regime, we would lift it. Any changes made to the equivalent sanctions regimes of the EU or other international partners would be examined closely as part of the annual review.
Alongside the annual review of the regulations, the Bill requires the Government to put in place a dynamic process to reassess designations upon request; the triennial review is not the only opportunity. A designated person can request a reassessment of their designation at any time, and a further reassessment when there is a significant matter that has not been previously considered by the Minister. I take the point that a designated person, once they had requested a reassessment, challenged it in court, and failed to establish any unlawfulness, would not have a further review until either there was a significant new matter or a triennial review. But what would the purpose of a further review be when the designation has been established to be lawful and nothing has changed since then? If there are new arguments to be tested, or if the passage of time has changed the situation, a further reassessment can be requested. If not, there is no need to do so.
In response to feedback from noble Lords in Committee, I am proposing to strengthen these safeguards through government amendments. The Minister would have to deal with a request for reassessment as soon as reasonably practicable, and inform the person of the decision and reasons as soon as reasonably practicable after a decision had been made. Ministers can also instigate a reassessment at any time—for example, if the person concerned has been delisted by the EU. Ministers would have every interest in initiating reassessments proactively, both in the interests of justice and to minimise the risk and cost of legal challenges. In any case, when the EU decided to revoke the designation of a person also designated in the UK, I would certainly want to reassess the corresponding UK designation.
Taken together, these provisions will ensure that UK sanctions are under constant scrutiny and the Government are obliged to respond swiftly to new information and challenges. The triennial review then provides a further backstop, ensuring that each and every designation is looked at afresh on a regular cycle. This aligns with current practice in Australia and would put us ahead of countries such as the United States and Canada, which have no such process. It does not prevent more frequent reviews, and we have mechanisms in place that oblige us to do so when appropriate. Requiring the Government to conduct these reviews every year would be extremely resource-intensive; we have had those discussions in the bilateral and constructive meetings with the noble Lord. There are finite government resources, and the noble Lord appreciated that that would take away from other important areas. However, the amendments that we have tabled ensure that the protections the noble Lord was after have been afforded. I am thankful for his co-operation in that regard.
Lord Pannick
My Lords, I am grateful to the Minister. I beg leave to withdraw the amendment.
Lord Ahmad of Wimbledon
“Review by appropriate Minister of regulations under section 1
(1) Subsection (2) applies where any regulations under section 1 are in force.(2) The appropriate Minister who made the regulations must in each relevant period review whether the regulations are still appropriate for the purpose stated in them under section 1(3).(3) If a purpose so stated in any regulations under section 1 is a purpose other than compliance with a UN obligation or other international obligation, any review of those regulations under this section must also include a consideration of—(a) whether carrying out that purpose would meet any one or more of the conditions in paragraphs (a) to (d) of section 1(2),(b) whether there are good reasons to pursue that purpose, and(c) whether the imposition of sanctions is a reasonable course of action for that purpose.(4) In subsection (3)(c) “sanctions” means prohibitions and requirements of the kinds which are imposed by the regulations for the purpose in question (or both for that purpose and for another purpose of the regulations).(5) An appropriate Minister who has carried out a review under this section must lay before Parliament a report containing—(a) the conclusions of the review,(b) the reasons for those conclusions, and(c) a statement of any action that that Minister has taken or proposes to take in consequence of the review.(6) Nothing in subsection (5) requires the report to contain anything the disclosure of which may, in the opinion of that Minister, damage national security or international relations.(7) For the purposes of this section each of the following is a “relevant period” in relation to regulations under section 1 —(a) the period of one year beginning with the date when the regulations are made;(b) each period of one year that begins with the date when a report under this section containing the conclusions of a review of the regulations is laid before Parliament.”
Lord Ahmad of Wimbledon
“( ) Regulations made under this section in relation to a request under section 19 , 21 , 23 or 25 must require—(a) the decision on any such request to be made as soon as reasonably practicable after the receipt by the appropriate Minister dealing with the request of the information needed for making the decision, and(b) the person who made the request to be informed of the decision and the reasons for it as soon as reasonably practicable after the decision is made.( ) The regulations may authorise matters to be excluded from the reasons given for the decision where the appropriate Minister who made the decision considers that those matters should be excluded—(a) in the interests of national security or international relations,(b) for reasons connected with the prevention or detection of serious crime in the United Kingdom or elsewhere, or(c) in the interests of justice(but the regulations may not authorise that Minister to provide no reasons).”
Lord Ahmad of Wimbledon
“(b) considers that it is appropriate to give the direction, having regard to—(i) the purpose of the EU provision which relates to persons in that list (see subsections (4) and (5) below), and(ii) the likely significant effects of the direction on the person to whom it relates (as they appear to that Minister to be on the basis of the information that the Minister has).”
“(7A) Regulations made under subsection (7) must, in relation to any case where a direction under section 28 has been given, require the appropriate Minister who gave the direction (“the Minister”) to take without delay such steps as are reasonably practicable—(a) to inform the person to whom it relates that the direction has been given, and(b) where the direction is under section 28(3)(a), to include with that information a brief statement of the matters that the Minister knows, or has reasonable grounds to suspect, in relation to that person which have led the Minister to give the direction.(7B) The regulations may authorise the statement required by virtue of subsection (7A)(b) to exclude matters where the Minister considers that they should be excluded—(a) in the interests of national security or international relations, (b) for reasons connected with the prevention or detection of serious crime in the United Kingdom or elsewhere, or(c) in the interests of justice(but the regulations may not authorise the Minister to provide no such statement).”
Lord Ahmad of Wimbledon
“( ) Regulations made under subsection (5) in relation to a request under this section or section 31 must require—(a) the decision on any such request to be made as soon as reasonably practicable after the receipt by the appropriate Minister dealing with the request of the information needed for making the decision, and(b) the person who made the request to be informed of the decision and the reasons for it as soon as reasonably practicable after the decision is made.( ) The regulations may authorise matters to be excluded from the reasons given for the decision where the appropriate Minister who made the decision considers that those matters should be excluded—(a) in the interests of national security or international relations,(b) for reasons connected with the prevention or detection of serious crime in the United Kingdom or elsewhere, or(c) in the interests of justice(but the regulations may not authorise that Minister to provide no reasons).”
Lord Pannick
“( ) In relation to a decision under subsection (1)(c) concerned with the designation of a person by reason of an obligation of the United Kingdom under a UN Security Council Resolution, the court must proceed in the following manner—(a) if the court concludes that it would otherwise be appropriate to set aside the decision of the Minister, it must give judgement explaining its reasons and make a declaration to that effect but grant no other relief at that stage;(b) on the making of such a declaration, the Minister must use his or her best endeavours to secure that the person’s name is removed from the relevant UN list as soon as reasonably practicable;(c) if the Minister’s best endeavours under paragraph (b) fail to succeed within a reasonable time, the court must then have power to set aside the decision of the Minister.”
Lord Pannick
My Lords, Amendment 62 in my name and the names of the noble and learned Lord, Lord Judge, and the noble Baroness, Lady Northover, raises an important and difficult issue about the rule of law. The Bill provides, by Clauses 21 and 32, that if a person is designated in this country as a result of being placed on a UN sanctions list, the only remedy that the person concerned can obtain from the courts of this country is to require the Secretary of State to use best endeavours at the UN to have that person removed from the UN sanctions list. If those best endeavours fail, the domestic court has no power to quash the domestic designation, however strong the arguments are by the person concerned that she is the victim of procedural unfairness because the UN will not say why her name has been added to the UN list, or however strong the person’s argument that the UN has made a serious error of substance in adding her name to the UN list—for example, by confusing her with another Baroness Northover.
The exclusion of the powers of the domestic court to quash the domestic designation in such circumstances is very troubling. To be designated under this legislation will have a very damaging effect—devastating, indeed—on the life of the person concerned and their family. A number of noble and learned Lords are in the House, as well as a number of noble Lords with an expertise in law. I for my part cannot think of any other comparable context where there is no judicial review remedy in this country to quash action taken by Ministers which is directed at, and imposes a serious detriment on, a specified individual. This is all the more troubling because the person concerned has no remedy before any judicial body, or indeed any quasi-judicial body, at the UN, except in terrorist cases. There is no judicial system at the UN to which you can take your plea. The remedy for procedural unfairness or an arbitrary decision will depend, in almost all cases, on political pressure. The justice of the individual case may not—I put this point as politely as I can—be a matter of the highest priority for the UN. Let us be realistic. We are, after all, talking about an organisation whose Human Rights Council includes Saudi Arabia.
The Minister will say—and there is force in the point—that this country is committed to international law and that, if a person’s name is on the UN sanctions list, this country must faithfully abide by such a ruling until it is changed at international level. The Minister will also say, and again there is substance in the argument, that we need to be very careful indeed about suggesting to other countries that they can pick and choose whether to implement UN resolutions on sanctions. I recognise all of that, and that is why this issue is so difficult.
My answers to these points are as follows. First, under this amendment, a conflict between the UN ruling and the domestic court will occur very rarely indeed; I would hope never. The amendment provides that, if the court here concludes that the listing is a breach of the rule of law, the court in the first instance can do no more than so declare. The Minister will then use best endeavours at the UN to secure change. Only if that fails will the court have a power—I emphasise, a power not a duty—to quash the domestic listing.
Secondly, the very existence of judicial power in this country will help the Minister in using best endeavours at the UN. The risk of a judge here quashing the domestic listing will ensure that the rule-of-law concerns are given proper consideration in the political forum of the UN. Thirdly, the European Court of Justice in the Kadi case asserted its jurisdiction to quash a listing under EU law even though it was based on a UN resolution. I see no reason why the judges in this country should be denied a power which the Court of Justice in Luxembourg enjoys, especially when the very purpose of the Bill is to create domestic procedures to replace EU ones when this country leaves the EU.
Fourthly, the court in this country will take fully into account the importance of complying with international law. It would only be in a very plain case that a domestic designation based on a UN listing would be quashed by our judges. If there is a case where our judges are persuaded that a person has been designated by Ministers in this country because of a UN listing which is in defiance of basic rule-of-law standards of fairness and rationality, the judges of this country must have power to provide a remedy for the domestic designation. Your Lordships’ Constitution Committee, of which I am a member, so recommended in paragraph 27 of its 8th Report of this Session.
It comes to this: the Minister’s reliance on international law cannot take priority over the rule of law. The rule of law in this country cannot be subcontracted to the political processes of the United Nations. I beg to move.
Baroness Northover
My Lords, given that I have been named here and therefore have a key interest, I ought to address this in case I get sanctioned in the place of another Baroness Northover. I am sure my kids would think that was an extremely interesting situation for me, but I am not sure that I would. The noble Lord, Lord Pannick, has made a very powerful case on this matter, as he did in Committee. If an error is made with a designation as a result of UN sanctions being imposed then, as he said, the ECJ could, at the moment, protect that person within the EU and allow it to be challenged. There clearly should be a way of doing this. As the noble Lord said, it is a matter of the rule of law.
We have been told that the rights of British citizens will not be lessened if we leave the EU. This protection should, therefore, be carried over into British law. I clearly have an interest here and I support the amendment in the name of the noble Lord, Lord Pannick.
Lord Faulks (Con)
My Lords, I was present in the Chamber and listened to the debate when this matter was debated in Committee, although the amendment has changed slightly. Since then, I have read and considered the arguments. At the time, I was persuaded that, on balance, the noble Lord, Lord Pannick, was right and the absence of such a power as is envisaged by the amendment was a real risk of injustice. However, I have changed my mind. It is, of course, fundamentally important that we respect our treaty obligations, particularly Article 103 of the UN charter. What higher obligation could there be?
The UN, in common with all international institutions, is not infallible. For example, we know that the European Court of Justice, which we must obey, and the European Court of Human Rights are not infallible. However, sometimes there is a need to subsume individual, national needs into the need for an overall, international understanding. It is vital that we respect the decisions on sanctions that have been made by the UN. As a permanent member of the Security Council, we can influence those. The Human Rights Council, to which my noble friend referred, can of course make mistakes, but it is undesirable that individual countries can pick and choose which sanctions they want to follow. I look forward with interest to hearing what the party opposite says about our relationship with the UN.
The Secretary of State can, and should, use his best endeavours in appropriate circumstances to try to influence matters, and can be told to do so by the court, but this goes further. Although the amendment has precursors to the exercise of the power, it does ultimately give the court the power to set aside the decision of the Minister. The noble Lord, Lord Pannick, says that this is a rule-of-law issue. It is indeed; it is a rule of international law and international comity, so I am afraid I cannot support the amendment.
Baroness Kramer (LD)
My Lords, I have no legal background, but I want to intervene quickly to pick up an issue which has been treated as almost in passing. I understand that the United Nations entirely accepts that the European Court of Justice can provide the kind of protection that the noble Lord, Lord Pannick, has described as being contained within the amendment. If I happen to be Russia, China or some country that wishes to abuse a correct designation by the United Nations, I have the European Union and the ECJ as my example of an entity that does take upon itself the right to provide protection where it believes the UN is in error. Allowing citizens of the United Kingdom to have that same protection adds no particular strength to any such position that might be taken by some other power. We have heard a deep commitment from the Government that exiting the European Union will not reduce the rights and protections that have been provided to British citizens through the mechanism of the ECJ. There can, therefore, be no challenge to the appropriateness of the measure which the noble Lord, Lord Pannick, has put before this House.
Lord Elystan-Morgan (CB)
My Lords, the arguments have been put clearly and attractively by the noble Lords, Lord Pannick and Lord Faulks. Indeed there can, apparently, be a conflict between two very important and sovereign authorities of law—international law and domestic law. However, one has to favour the argument of the noble Lord, Lord Pannick; in other words, however much the attitude of the rule of law in Britain might respect international comity, it would be morally ultra vires to be prepared to perpetrate an injustice in the name of that loyalty. That would be utterly wrong. That, I think, is the answer to the whole question. In other words, as regards the point made by the noble Lord, Lord Faulks, our respect for international comity is very considerable but is not absolute. It is ameliorated and qualified by that condition, save and in respect of a situation of perpetrating a blatant injustice. That would be beyond our authority ultra vires.
Lord Mackay of Clashfern (Con)
My Lords, this is an extremely difficult question which amounts to whether or not the courts of this country have an authority to set aside a decision of the United Nations. We are under a clear obligation to follow a sanction decision imposed by the United Nations. However, I wonder whether the courts of this country, without absolutely challenging the decision of the United Nations, could give force to the Secretary of State’s attempt to change that decision: in other words, a system could be adopted under which the fault that is found with the United Nations procedure is endorsed by our courts in a way which reinforces the attitude of the Secretary of State in seeking to set aside that sanction rather than just going ahead with a decision which seems to fly in the face of our international obligations under the treaty to which my noble friend referred. I would like to believe that it might be possible for our Secretary of State to go to the United Nations in a case of this kind, with support from the courts of this country, to say that, so far as they can see, the decision of the United Nations is incorrect according to the circumstances narrated in a judgment of the courts here. That might be a way of handling this situation.
I understand the position so far as Europe is concerned. I am not sure whether this situation has ever arisen in that context. That can be looked at but I think there is a question about that. A slightly different situation arises for a group bound by treaty—as the European Union is—as against that for single nations, because if we can do it, who else cannot? We do not necessarily think that the rule of law is observed in the same way in every other country in the world but we cannot make a judgment on that point as a justification for this move. I wonder whether something of this sort should not be done.
Lord Collins of Highbury
My Lords, the noble Lord, Lord Faulks, said accurately that there was a balance to be struck here, and there is a debate to be had. I am not legally qualified and therefore wish to address the political and moral issues that have been raised. The noble Lord, Lord Pannick, said that this is an extremely rare situation and that we cannot pick and choose. The noble and learned Lord, Lord Brown of Eaton-under-Heywood, said in Committee:
“I see the force of the Government’s argument that the UK has no alternative under international law but to give effect to our obligations under the UN charter; indeed, Article 103 of the charter expressly dictates that these obligations prevail over any conflicting international law obligations.”——[Official Report, 29/11/17: cols. 703-4.]
The Opposition are concerned about the signal we would send if we adopted the amendment of the noble Lord, Lord Pannick. I hear his comments about the United Nations but this Parliament must uphold international law and the supremacy of the United Nations. It should not undermine that. If we adopt the amendment, we would send the signal to other countries, which may flagrantly flout decisions of the United Nations, that we insist that they should. We judge other countries by our own standards. The noble and learned Lord, Lord Mackay, is absolutely right that there should be provision for the British courts to consider a decision of the Secretary of State. However, ultimately they should support the Secretary of State and the United Nations, not say to the United Nations, “We are not going to accept that decision”. We cannot pick and choose; that is the fundamental point. Therefore, while I totally understand the power of the arguments put forward by the noble Lord, Lord Pannick, and have a lot of sympathy with them, there is one point that trumps all else—I use that word advisedly—namely, we must uphold the decisions of the United Nations.
Lord Ahmad of Wimbledon
My Lords, as Minister for the United Nations, among other things, I echo the sentiments of the noble Lord, Lord Collins, about our commitment to the United Nations. As a permanent member of the UN Security Council, the UK is at the heart of shaping the UN’s response to crises around the world, as we have seen. I know that all noble Lords respect that. The United Kingdom takes this role very seriously, including in our approach to sanctions in the UN Security Council. We are one of the leading voices for UN sanctions where there are good reasons for them, as recently to constrain North Korea’s nuclear programme. At the same time, we place great importance on the need for sanctions to be used responsibly, with proper respect for due process and the rule of law. It is important to remember that as a permanent member of that Security Council, the UK exercises real authority over which sanctions are and are not adopted by the UN.
I thank all noble Lords for their comments, to which I listened carefully. The noble and learned Lord, Lord Mackay, made important points. We have exercised authority by committing that we would never support in the UN Security Council a designation that we considered unlawful. Put another way, we would not support a designation unless we had reasonable grounds to suspect that the person met the relevant criteria. Not only is this the right thing to do, it also reduces the risk of the UK being obliged to implement a UN designation that might be vulnerable to challenge in court.
The Bill recognises that persons designated by the United Nations must have a right of redress, including the ability to bring a legal challenge against the Government in the UK courts. The Bill accordingly contains the ability for such a person to have access to the court, and to obtain a remedy for any unlawfulness that the court uncovers. If the court were to consider the UN designation unlawful, the court could instruct the Minister to use best endeavours to secure a delisting at the United Nations. This is a significant remedy not to be underestimated. As a permanent member of the UN Security Council, the UK is particularly well placed to make representations that a designated person should be delisted.
The Government recognise there may be rare cases in which the Minister’s best endeavours are not sufficient to secure a delisting at the UN, as we discussed with the noble Lord, Lord Pannick, between Committee and Report. The question then is whether the UK courts should have the power to quash a UN designation and thus leave the Government in breach of their obligations under the UN charter. Our view is that this cannot be right.
First, the Bill recognises that the UK is under a duty in international law to designate those persons designated by the UN, and this proposition has not been criticised. Secondly, failure to implement a UN designation would damage the UK’s reputation as a country that stands by its commitments under international law—a point well made by the noble Lord, Lord Collins. Thirdly, it would restrict the ability of the UK to call out other states where they were falling short of their obligations under international law. If it was open to the UK not to implement our legal obligations, irrespective of whether it were following a court decision, it would be impossible to criticise other states where they were not implementing their obligations.
I take the point the noble Lord made that the EU court has very rarely quashed EU legal acts which implement a UN designation on procedural grounds. However, it has never done so where that would leave the EU member state itself in breach of its UN obligations. We should bear in mind that the EU itself is not bound by the charter, but EU states are. The noble Lord mentioned the case of Kadi, which has frequently been cited. In that case the UN had, in fact, delisted the person concerned by the time of the judgment, so EU member states themselves were spared the choice between respecting a decision of the EU courts and abiding by their UN obligations. Had they been forced to choose, I am confident that they would have prioritised their UN obligations as required—as a number of noble Lords mentioned—by Article 103 of the UN charter, which makes it clear that where there is a conflict between obligations under the UN charter and obligations under any other international agreement, the obligations in the UN charter shall prevail. The United Kingdom and all other EU member states are bound by that charter, even if the EU itself is not. That too is part of the rule of law—upholding those international laws where they bind the United Kingdom.
The United Nations has many flaws, but it is crucial to maintaining international peace and security. To allow the UK courts to stop the Government implementing sanctions agreed by the UN Security Council is not the right approach for a country such as ours that seeks to lead by example at the United Nations. I sincerely believe that any Minister, regardless of political persuasion, would share this view. I also believe we are in agreement that by continuing to make the UK’s support for UN designations conditional on fair procedural standards, we can and should do all we can to prevent this problem arising. However, in the unfortunate event that such a case arises, I remain of the view that a “best endeavours” obligation is the right way to square this difficult circle.
I deeply respect the noble Lord’s position. Again, we have had constructive discussions on this, although on this occasion we did not reach agreement. However, I hope that with the reassurances I have given, the noble Lord will be minded to withdraw his amendment.
Lord Pannick
My Lords, I am grateful to the Minister. I recognise, as I said in opening this debate, the force of the arguments in favour of the Government’s approach. However, we have to be clear about what it comes down to. Justice for the individual who is designated, in circumstances where the High Court of Justice in this country regards the designation as arbitrary or as in conflict with the rule of law, must be sacrificed to the interests of the UN, our participation in the UN and the international legal order. There is no right answer to that question. I happen to believe that to obtain justice for the individual in that case, if and when it occurs, who is being designated in this country and who is suffering the consequences—their bank account is frozen, they cannot travel, and they are experiencing whatever the other adverse consequences are—they must have a legal remedy. There is no legal remedy available to them through the UN. There are political processes but there is no judicial procedure and no quasi-judicial procedure other than in terrorism cases. How can this possibly accord with the human rights principles and with the principles of the rule of law, which I know the Minister respects and which the Government are so keen on promulgating, and rightly so?
Baroness Northover
“( ) Where regulations under section 1 make provision as to the meaning of any reference in the regulations to a person “owned” or “controlled” by another person pursuant to section 50(3), the appropriate Minister must issue guidance.”
Baroness Northover
My Lords, I will also speak to Amendment 64. I note the departure of a number of noble Lords at this point. Indeed, we have been considering some important constitutional issues this afternoon, and right now we are returning to the normal fare of legislation in the Lords: the routine matter of improving legislation. So your Lordships are safe to depart. We have been assisted here by UK Finance, for which I am grateful, and we are also grateful for the engagement of Bond and other NGOs. We visited this subject briefly in an earlier amendment.
We are all agreed that it is appropriate to have sanctions regimes in certain countries, and we are agreed that these should be in place against the regime in Syria, for example. We are also agreed that we want to enable humanitarian organisations to be able to operate in places of conflict, as most notably Syria is, where half of the population have been displaced, injured or killed over the last few terrible years. We also realise that it is important to have licence regimes to prevent, as far as is possible, funds deliberately or inadvertently going to groups whom we wish to sanction. However, this is where we can encounter problems. Banks are understandably risk-averse and may not wish to handle funds where they fear that they will not be able to defend their actions. The tightening of legislation in the US and the EU—including the UK—has had beneficial effects in countering corruption and money laundering, for example, but we need greater clarity for the banks. They do not have to assist NGOs, and often they do not.
The Government set up a group to consider this and other issues, but it has met briefly only once, and none of its sub-groups, which will be carrying forward its work, has been set up. That is why we are asking not that the Government “may” issue guidance but that it “must” do so and that it must cover certain areas. The Bill indicates that guidance accompanying new sanction regimes must be issued, but there is no certainty regarding what it will contain, because the Bill specifies “may” include rather than “must” include.
The Office of Financial Sanctions Implementation has recently issued guidance in respect of NGOs and their sanctions obligations, but this guidance deals with legal obligations at a general level and is not regime or programme specific. For example—to me, this is astonishing—to date no guidance has been issued that specifically deals with regimes such as Syria, where broad-based financial sanctions are in place alongside a major humanitarian situation. Since 2012, the banking sector has proactively, and unsuccessfully, called for guidance to help address the very significant challenges of sending funds to Syria in support of humanitarian activity. Considering the billions of international humanitarian funds mobilised to date in support of the Syrian population, the ability to find safe, transparent and dependable banking and payment channels that cover the whole of Syria has become an international imperative priority, and it is astonishing that that situation has not yet been addressed.
Within a situation such as Syria, guidance becomes utterly imperative and vital. It is incredibly encouraging that the banks themselves are seeking this guidance so that they are able to assist the humanitarian organisations and ensure that they are not associated with the kind of risk that currently prevents their involvement.
At this point, I want to return to some of the things that the Minister said on the second group of amendments. I am not sure why, but we sped through that group at great speed. I welcome the fact that reporting to Parliament will cover humanitarian aspects, and I hope that NGOs and the banking industry can engage with the Minister and his department on what this might consist of. However, I thought that his attitude to streamlining licences was not helpful. We are talking here of working with like-minded countries. We usually work in concert with other countries, so it is pretty limiting to seem to indicate that they would not have our foreign policy objectives, for example. If we are working in concert with them—and that is what we are talking about here—they clearly will.
Earlier today, the noble Lord, Lord Howell, made the point that it would be pretty ineffective for us to have sanctions by ourselves. Therefore, I hope that the Minister will rethink this issue with an open mind. Where Governments have aligned objectives that have led them to impose sanctions on a given country, we should ensure that the mutual recognition of humanitarian licences is possible. For example, at the moment processing a humanitarian transaction with Syria is likely to include some type of exposure to multiple sanctions authorities across the EU and the US. If we leave the EU, an option that the Government may wish to consider is a mutual co-operation agreement with agreed EU competent authorities. If we were aligned in that way then, for example, if the French were to issue a licence for a payment under EU sanctions, the UK bank or NGO could rely on the French licence and need not seek a similar licence from UK authorities.
The noble Lord was also doubtful about licences for a whole project, and, again, this needs further thought. The NGOs and UK Finance are concerned about this. Looking at the UK’s and DfID’s role, we often see major humanitarian programmes being majority funded by DfID, but no thought has been given to how the relevant programme will be granted authorisations. For example, a water and sanitation project in Syria is likely to require multiple licences to cover engagement with the ministry of health, Syrian government officials and the export of dual-use parts from the EU to Syria—for example, drilling pipes and payment authorisations for funds moving into Syria. A licence might be issued at the inception of the project, which could save NGOs having to apply for multiple licences.
As Bond has made clear, we need the Government to work to a greater extent globally on licences, to be clearer and to have licences for the duration of the project. Of course, the Government need the tri-sector group, which the Minister mentioned before and which was mentioned in meetings—the group that has met only once and as yet has no sub-committees—to engage, to meet and to work out what the guidance must say, and to give clarity to organisations, including banks, in this area. I beg to move.
The Earl of Dundee (Con)
My Lords, while supporting this amendment, I welcome and recognise the Minister’s continuing resolve to issue guidance—thus the text to that effect, as is already within the Bill. Yet there is no certainty about it, as subsection (2) specifies only what such guidance “may” rather than “must” include.
Also to be welcomed is the recent guidance given by the Office of Financial Sanctions Implementation to NGOs about their sanctions obligations. Nevertheless, this focus is upon general legal obligations. It is not regime or programme specific. So far, it appears that there is no official guidance which deals with regimes such as Syria, where financial sanctions coexist with a major humanitarian situation. Since 2012, the banking sector has repeatedly urged that guidance should be given to address all the many complications in sending funds to Syria in order to assist humanitarian activity. As we know, and as the noble Baroness, Lady Northover, has just said, the process is not working nearly well enough. Therefore, it is now a priority for humanitarian agents and their banks to find safe, transparent banking and payment channels.
It may be objected that the issuing of too much specific guidance might enable sanctions to be evaded by criminals and terrorists. At the same time, appropriate guidance can only help to ensure that the vast humanitarian sums entering Syria are not diverted instead to benefit those who are sanctioned. This can be prevented by a shared view between government, banks and NGOs on how best to risk-manage such payments, and by them as well through a shared identification of viable avenues to make sure that funds arrive safely where they are intended to go.
The Government are also to be commended for setting up a tri-sector group comprising government departments, NGOs and banks. Yet, while supporting that development, all the same we should perhaps appreciate that such arrangements rarely produce the type of outcome that the amendments seek. In fact, as the noble Baroness, Lady Northover, has observed, this particular group has had only one short meeting and none of the sub-groups has as yet met at all. Moreover, as government officials move their positions rather frequently, it can be notoriously difficult to ensure proper traction.
Lord Collins of Highbury
My Lords, I shall be very brief. I have added my name to this amendment and support everything that the noble Baroness, Lady Northover, and the noble Earl, Lord Dundee, have said. Here, we are trying to acknowledge what the Minister has committed to in terms of guidance and ensuring that the licence regime operates efficiently. However, we know from the NGOs that there is still great uncertainty. Certainly, as the noble Baroness, Lady Northover, said, banks are risk-averse, and often urgent humanitarian aid gets halted and is extremely difficult to implement. On the other hand, we have to balance the need to create certainty with the need to maintain an effective sanctions regime. We do not want to see the sanctions regime undermined by any system of licensing. That is why it is important that the Government should move speedily on the guidance situation, which I know the noble Lord is committed to.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords who have participated in this short debate, and in doing so I thank once again the noble Baroness, Lady Northover, and the noble Lord, Lord Collins, for their constructive engagement on this important issue. I agree with the point just made by the noble Lord, Lord Collins, on the importance of balance, but as noble Lords will acknowledge, the Government already publish guidance on the definition of “owned and controlled” and they will continue to do so. That duty is enshrined in Clause 36. We feel that there is no need to make it explicit, as Amendment 63 would require, and that doing so would prompt unhelpful questions about why other aspects of the guidance are not referred to in the Bill. We do not wish to limit the ability of Clause 36 to provide guidance in any of these areas.
I turn now to Amendment 64. It would greatly broaden the scope of guidance to areas such as establishing effective banking and payment corridors, which are clearly beyond the remit of the Government to provide. For example, we cannot require banks to make payments on behalf of particular customers or to open new payment channels. The whole issue of how banks operate and the derisking that we have seen in certain parts of the world is reflective of that. A requirement to provide such detailed guidance would therefore be highly problematic.
However, I do take on board some of the points raised by noble Lords about assuring that we will publish guidance at the earliest opportunity, and I hope that I can offer some degree of further reassurance. While we cannot force banks to make commercial decisions one way or the other, we can certainly encourage them to do so. We can do that through clearly drafted humanitarian exemptions, general licences, guidance and the ability to prioritise flexibly appropriate applications. I assure noble Lords that all of these can be delivered under the Bill as drafted.
If I heard the noble Baroness, Lady Northover, and indeed my noble friend Lord Dundee correctly—I thank my noble friend for his support for the Government’s actions in this regard—they referred to how the Government “may” issue guidance. I can assure noble Lords that Clause 36 makes it clear that the Minister “must issue guidance”. As I said earlier, in the near future we will publish an initial framework for the exceptions and licences.
Perhaps I may make a final point on the issue of NGOs and the humanitarian aspects. I for one have found our dialogue to be extremely constructive on a cross-party basis with NGOs. In that spirit, I certainly look forward to working with both the noble Baroness and the noble Lord to take this matter further. With those assurances, I hope that the noble Baroness will be minded to withdraw her amendment.
Baroness Northover
I thank the noble Lord and others who have taken part in this debate. Yes, he is right: the Bill states that the Minister “must issue guidance”, but the problem is that underneath that phrase it states that the guidance “may” include this, that and the other; in other words, it is not sufficiently specific. However, I thank the noble Lord for his response and his promises; I am sure that both the NGOs and the banking sector will see them. I hope that will move things forward and that the specific guidance enabling the banks to become involved—of course, the Government cannot instruct them to do so—is issued. If the Government are clear about what they are expecting, that is what the banking sector needs, while the NGOs need that clarity so they can get on with their work. I am sure this issue will be discussed further in the Commons, but in the meantime, I beg leave to withdraw the amendment.
Lord Ahmad of Wimbledon
“(2) The condition referred to in subsection (1)(b) is that the appropriate Minister making the new regulations—(a) considers that the regulations being amended will, as amended, be sanctions regulations within the meaning given by section 1(4) that are appropriate for the purpose stated in them under section 1(3), and(b) if any purpose stated in the regulations being amended is a purpose other than compliance with a UN obligation or other international obligation, considers in respect of each such purpose—(i) that carrying out that purpose would meet one or more of the conditions in paragraphs (a) to (d) of section 1(2),(ii) that there are good reasons to pursue that purpose, and(iii) that the imposition of sanctions is a reasonable course of action for that purpose.(2A) In subsection (2)(b)(iii) “sanctions” means prohibitions and requirements of the kinds imposed by the amended regulations for the purpose in question (or both for that purpose and for another purpose of those regulations).In this subsection “the amended regulations” means the regulations being amended as those regulations will be when amended.”
Lord Ahmad of Wimbledon
My Lords, government Amendments 65 and 68 build on the new requirements for making sanctions regulations that we have already debated. They extend these requirements to situations where a Minister is amending sanctions regulations that are not based on a UN or international obligation. In this regard, I am grateful to the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, for co-signing these government amendments. When amending regulations, the Minister would have to ensure that they continue to meet the relevant purposes, that there are good reasons to pursue those purposes, and that sanctions are a reasonable course of action. The Minister must also lay a written memorandum explaining why these tests have been met.
Government Amendments 67 and 102 are technical in nature—I use that word again—and enable us to implement the obligations more efficiently. I can assure the noble Baroness, Lady Northover, that they reflect the fact that UN sanctions regimes are often based on a series of Security Council resolutions. I hope noble Lords agree that these amendments are uncontentious and feel able to support them. I beg to move.
Lord Ahmad of Wimbledon
“(4A) Where the purpose stated under section 1(3) in any regulations under section 1 is or includes compliance with a specified UN obligation or other international obligation, regulations made by virtue of this section may amend that purpose so as to—(a) add a reference to a UN obligation, or other international obligation, to which the United Kingdom is for the time being subject,(b) substitute such a reference for another reference to a UN obligation or other international obligation, or(c) remove a reference to a UN obligation, or other international obligation, to which the United Kingdom is no longer subject.(4B) The requirements of section 1(1) and (3), section (Additional requirements for regulations for a purpose within section 1(2)) and section 26 do not apply in relation to regulations made by virtue of this section.”
“Report where regulations for a purpose within section 1(2) are amended
(1) This section applies where—(a) by virtue of section 38 regulations under section 1 are amended by further regulations under section 1 (“new regulations”), and(b) the regulations being amended state under section 1(3) a purpose other than compliance with a UN obligation or other international obligation.(2) The appropriate Minister making the new regulations must at the required time lay before Parliament a report which explains why that Minister is of the opinion mentioned in section 38(2)(b).(3) Nothing in subsection (2) requires the report to contain anything the disclosure of which may in the opinion of that Minister damage national security or international relations. (4) In subsection (2) “the required time” means—(a) where the new regulations are contained in a statutory instrument which is laid before Parliament after being made, the same time as the instrument is laid before Parliament;(b) where a draft of a statutory instrument containing the new regulations is laid before Parliament, the same time as the draft is laid.”
Lord Ahmad of Wimbledon
“(a) which are not for the time being authorised by Chapter 1 (ignoring section 7), but(b) which are kinds of prohibition or requirement that the United Kingdom—(i) has any UN obligation or other international obligation to impose, or(ii) has at any time had any UN obligation or other international obligation to impose.”
Lord Ahmad of Wimbledon
My Lords, Clause 39, to which this group of amendments refers, has been included to allow the UK to impose new types of sanction measures in response to new, unforeseen circumstances. Let me summarise why we think it is needed and then explain the government amendments that I have tabled. I note that this was one of the issues highlighted in the report of the Delegated Powers and Regulatory Reform Committee, and I know that several noble Lords have received and considered carefully my letter of last week specifically responding to the committee’s recommendations.
The familiar types of sanctions include asset freezes, travel bans, arms embargoes and prohibitions on aviation and maritime transport. These types of sanctions are included in the Bill. It is not possible to predict all the types of sanctions which may in the future be useful or necessary. We all know that as technology advances and those who wish to do us harm find ever more sophisticated ways of doing so, we may need to be able to react in an agile manner. The Government intend to continue to play a leading role in the development of sanctions as a foreign policy tool. Wherever possible we will do this through the UN to ensure that the measures have global impact. On occasion, however, we will need to work with like-minded partners outside the UN framework and may need to adapt our own sanctions toolkit to keep pace with allies. On both Iran and Russia, for example, transatlantic co-operation resulted in sanctions that were substantively different from anything previously agreed.
The power in Clause 39 is designed to provide the necessary flexibility in cases where we are acting outside the UN framework. Regulations under this clause would be subject to the draft affirmative procedure as befitting a Henry VIII power of this kind. However, having listened to the concerns expressed in this House and having reflected carefully on them, I have tabled government Amendment 69, which would further restrict the use of this power by stipulating that it may be used to create new types of sanctions only where the UK is or has been subject to an international obligation to put in place sanctions of that type. This means that the new types of sanctions created by this power can only be those developed by the international community. This power, as amended, will no longer enable the UK unilaterally to put new types of sanctions in place, which was a concern that was expressed.
Government Amendment 70 also makes it clear, as requested in Committee, that Clause 39 cannot be used to alter the purposes of the sanctions regulations specified in Clauses 1 and 2. We think that this was the effect of the original drafting, but we are happy to make it explicitly clear in the Bill. I believe that this is a substantial move forward on the Government’s part, and I hope noble Lords will acknowledge this and support it. I beg to move.
Lord Pannick
Again, I am very grateful to the Minister and the Bill team. Government Amendments 69 and 70 respond positively to the concerns that I and others expressed in Committee. Therefore, I will not move Amendment 71.
Lord Ahmad of Wimbledon
“( ) For the avoidance of doubt, regulations under this section may not add to or amend the purposes mentioned in section 1(1) or amend section 1(2).”
Data Protection Bill [HL]
Wednesday 17th January 2018
(6 years, 10 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 77-I Marshalled list for Third Reading (PDF, 71KB) - (16 Jan 2018)
Lord Taylor of Holbeach (Con)
My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Data Protection Bill, have consented to place their prerogatives and interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Lord Berkeley (Lab)
Can the Minister explain what interests the Prince of Wales has in this Bill?
Lord Taylor of Holbeach
I will write to the noble Lord.
Clause 2: Protection of personal data
Amendment 1
Lord Keen of Elie
The Advocate-General for Scotland (Lord Keen of Elie) (Con)
My Lords, when we debated the right to data protection on Report, the House decided to opt for a declaratory statement, as opposed to the creation of a new right enshrining Article 8 of the European Charter of Fundamental Rights into UK law. In that debate, my noble friend Lord Ashton committed to consider further a number of points made by noble Lords, in particular the suggestions of the noble Lord, Lord Pannick.
Government Amendments 1 and 2 are the result of our further consideration of this matter. Amendment 1 concerns fairness. Data must be processed fairly. We previously took the view that this is clear and does not need repeating. The requirement for processing to be fair can be found in article 5(1)(a) of the GDPR and Clause 35(1) of the Bill. None the less, Clause 2 is entirely declaratory and, if it helps understanding, there is little to object to in this repetition, and our amendment inserts a reference to fairness.
Amendment 2 concerns the right to rectification. The right to rectification is in article 16 of the GDPR, which will soon be part of our domestic law. It is also found in Clause 46 of the Bill. As with the previous amendment, if it helps, we have no objection to covering this matter, and the amendment inserts the reference.
The data subject rights and the controller-processor obligations set out in the Bill are subject to specific limitations, restrictions and exemptions and in this clause and these amendments to the clause we do not change that, but hope that these amendments add to the value the declaratory clause has, as we previously agreed.
It was suggested to us on Report that we should also add reference to “proportionality”. I am grateful to the noble Lord, Lord Pannick, for taking the time to discuss this with me, and to the noble Lord, Lord Stevenson, who has also had several conversations with my noble friend Lord Ashton as well as the Bill team. I am sure that the noble Lord, Lord Stevenson, will speak more fully on this point in the context of his Amendment 3 but it may help the House if I say a few words on this now.
The GDPR takes effect in May and will be part of domestic law when we leave the European Union. There are 26 references to proportionality in the GDPR. In resisting this amendment we are not saying that proportionality is irrelevant or a concept we are avoiding, but we cannot simply say that the restriction of personal data rights must be proportionate. That oversimplifies a complex issue with unintended consequences. I will sit down but I will return to this once the noble Lord has spoken to his amendment.
Lord Stevenson of Balmacara (Lab)
My Lords, I have signed up to Amendments 1 and 2 in the name of the noble Lord, Lord Ashton of Hyde, and do so in support of the position that we reached after considerable discussion and debate. The noble and learned Lord, Lord Keen, mentioned a few of the occasions on which we discussed these matters but did not refer to—perhaps it would be embarrassing to do so—the flurry of paper that accompanied those discussions, when drafts were traded back and forth as if they were some bitcoin or equivalent, and people snapped at them in excitement and feverishly opened emails when a new draft appeared. That is not overstating the case.
I jest slightly but stress that, as noble Lords will be aware, this issue was raised on day one of Committee. That signified a sense on our side of the House that this matter was so important that it needed to be addressed early on in the Bill. We have moved our position considerably during the discussions; we were wise to listen to the voices raised at that time. I look at no one in particular but the general voice to which we listened was that more time was needed to think through the implications of this amendment and try to come to an appropriate conclusion on it. That time has been well spent. We have looked at various ways of doing what we set out to do, we have thought hard about the Government’s response, and we have been happy to have meetings and discussions and, as I said, we traded possible options. The conclusion we reached—in keeping with the main thrust of the Bill, which has a large amount of detail in it that is of a signposting nature so that those who read it understand correctly where the source documentation and source principles can be found—was that it would be appropriate to have at the head of the Bill a statement around the basic rights which personal data processing involves and for which the protection and privacy issues are so important.
Therefore, in support of both the original amendment placed by the Government on Report, which was voted in after debate and discussion, and in full support of the amendments to that, which would include “fairly” and,
“and to require inaccurate personal data to be rectified”,
we are happy to sign up and support this amendment today. However, as the Minister said, a couple of other issues were raised in the context of those debates, one of which is this question of proportionality. He has given a sense of why the Government have resisted our approach, and I will spend a couple of minutes just to make sure that we have explored this properly in the context of this Third Reading.
The point about proportionality is that it can, as I think he has argued and will argue again, be brought into the very drafting of the Bill. It is suffused throughout the GDPR and exists alongside a number of other documents to which we will still be bound, both while we are in the EU and should we leave, in the light of current legislation that is going through the other place and is soon to come to this House. It is therefore possible to argue—I hope that the Minister will reflect a little on that when he speaks again—that proportionality is a matter of fact to be determined by the readings that one makes of the Bills that pass through this House. I am sure that there is a better way to express that in legal language but that is the sensibility I take from it.
However, the point made by the noble Lord, Lord Pannick, which is reflected in our amendment, is that at times in the future adjustments may be made as a result of changes in legislation itself or perhaps because of judgments made by courts that hear data protection cases, and that other strands of thinking, points and issues may come to bear on the relationship which an individual subject has to the data controller and on the relationship which the whole has to the law. In that sense, Amendment 3 in my name is an attempt to try to add to the present signposting amendment—that is all it is trying to do—that proportionality is not just fixed as of today’s date or the date the Bill receives Royal Assent but that it is to be brought forward on all fours with the Bill and the Act as that Act progresses. On Report the noble Lord, Lord Pannick, observed that Her Majesty’s Government’s amendment on Report made no mention of the principle of proportionality, despite it being an important element of the European Charter of Fundamental Rights, and noted that it featured in the wording we are putting forward. The response “We don’t need to do this because it is already well cooked into the Bill, the GDPR and the applied GDPR” may not take into account the issue I have been raising, which is about what will happen in the future. If the Minister can reassure us on that point, I would have little difficulty in not pressing the amendment, but at the moment I would like to hear his comments before I respond.
Lord Keen of Elie
My Lords, I take this opportunity to further reassure noble Lords that proportionality is a concept that has a continuing role in the Bill. Not only will the obligations in the GDPR carry over to domestic law but they will continue to apply to the Government. If Ministers are minded to use the powers in Clauses 10 or 16, for example, that allow new processing conditions or exemptions to be created in the future, they will need to continue to be proportionate. Further, the courts will continue to apply a proportionality test where appropriate. The Human Rights Act ensures that any public body must act compatibly with the convention, and as data protection is within Article 8 —the right to privacy—the public authority must act proportionately.
Clause 6 of the EU withdrawal Bill has the effect that any question as to the validity, meaning or effect of any retained EU law, including the GDPR, is to be decided, where relevant, in accordance with any retained case law and any retained general principles of EU law. Proportionality is one of those retained principles, so it will live on for as long as this legislation is in force.
Indeed, leaving the EU will not shake proportionality out of our legal system—it has worked its way into public law. Any public body acting disproportionately must be at risk of being challenged. Whenever any public body acts, it must act compatibly with the convention rights. Where qualified rights are concerned, such as Article 8 of the convention, which has been held to encompass personal data protection, there exists a requirement for that action to be a proportionate means of achieving a legitimate aim. So to that extent it is implicit that the Executive as well as data controllers must act in a proportionate manner. With that explanation, I invite the noble Lord, Lord Stevenson, not to press his Amendment 3.
Lord Keen of Elie
Baroness Howe of Idlicote
““children” means people under the age of 18;”
Baroness Howe of Idlicote (CB)
My Lords, I am pleased to speak to my Amendment 4, which I regard as small but important for the purposes of clarification.
Last month, there was universal support from your Lordships when my noble friend Lady Kidron introduced her excellent amendment on the age-appropriate design code, which is now the subject of Clause 124. At the time, I raised a question about the intention regarding the scope of the amendment, as there is no definition of “children” either in the amendment or in the Bill. I said that, as the amendment refers to the United Nations Convention on the Rights of the Child,
“I assume that the intention is that the age-appropriate design code of practice will cover all children up to the age of 18”.—[Official Report, 11/12/17; col. 1430.]
During the debate, my noble friend Lady Kidron said:
“The code created by the amendment will apply to all services,
‘likely to be accessed by children’,
irrespective of age and of whether consent has been asked for. This particular aspect of the amendment could not have been achieved without the help of the Government. In my view it is to their great credit that they agreed to extend age-appropriate standards to all children”.—[Official Report, 11/12/17; col. 1427.]
I was reassured by this statement about the intent of the clause but I remain concerned that there is no explicit definition in the Bill to indicate that we are indeed talking about any person under the age of 18, especially as the reference to the requirement to engage with the UN Convention on the Rights of the Child in Clause 124(4) is an obligation only to “have regard to”.
The truth is that there is no clear or consistent reference to a child or children in the Data Protection Bill. Clause 9 defines the right of a child to consent to their data’s use and says that this right starts at 13. Clause 201 covers children in Scotland, suggesting that there the right commences at the age of 12. These different approaches open up the door for arguments about the age at which the rights conferred by Clause 124 are operational for children. I would hate us to find ourselves in a position where, once this Bill was passed, a debate began about the ages at which the benefits of Clause 124 applied to children. This could result in a narrowing of the definition of children benefiting from Clause 124 so that it related only to some people under 18, rather than to all those under 18, on account of the Bill not being clear.
Years of experience have taught me that it is best to be crystal clear about what we are talking about, and that is why I have tabled this amendment. If the Government do not think it necessary, I hope the Minister will clearly state in his reply that the Government intend that Clause 124 should indeed relate to all persons under the age of 18. I look forward to hearing what he has to say. I beg to move.
Baroness Kidron (CB)
My Lords, I thank my noble friend for bringing this issue to the attention of the House. It is my understanding that, by invoking the UNCRC, we are talking about children being people under the age of 18. I would very much welcome the Minister’s saying that that extends beyond Clause 124, which we brought forward, to everywhere in the Bill that “children” is mentioned.
Lord Swinfen (Con)
My Lords, can the Minister tell the House at what age the United Nations considers that a child ceases to be a child?
Lord Paddick (LD)
My Lords, Clause 124(4)(b) refers to the United Nations Convention on the Rights of the Child, which defines a child as a person under the age of 18, so we can assume that that is the working principle. Clause 124, introduced at a previous stage by an amendment from the noble Baroness, Lady Kidron, talks about age-appropriate design, and so presumably that means appropriate at different ages—for example, safeguards for those aged 12 will be different from those for people aged 16 and 18. Bearing in mind the United Nations convention definition, will the Minister confirm that that is the working principle for this Bill?
Lord Stevenson of Balmacara
My Lords, I do not wish to detain the House. I thank the noble Baroness for raising the point; clarity is always important, as we have learned, and she is right to put her finger on it. However, the point made by the noble Lord, Lord Paddick, is correct.
We run the risk in this Bill of pouring fuel on an already raging fire: the more we try to focus on children as a group, the more we demonise and make difficult the Bill’s attempts—through an amendment we all supported on Report—to raise our sights and find a way of expressing how all people are dealt with in terms of internet access, with particular reference to those with developmental or other support needs to whom the word “child” could well be applied. But that does not mean that we want the more generic approach to fail because it did not mention vulnerable adults, the elderly who may be struggling with internet issues, those with special needs or others. These groups all need to be considered in the right way, and I am sure that, in time, “age appropriate” may not be the most appropriate way of dealing with it. It does get us to a particular point, however. It was a historic decision that we took on Report to do it this way, but we need to have an eye on the much wider case for a better understanding of under what conditions and with what impact those of us who wish to use the internet can do so safely and securely.
The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Lord Ashton of Hyde) (Con)
My Lords, I feel confident that I will be able to reassure the noble Baroness and other noble Lords who have spoken this afternoon.
Child online safety is an issue close to the heart of the noble Baroness, Lady Howe, and everyone in this House. It is right that children in the UK should be granted a robust data regime so that they can access online services in a way that meets their age and development needs. It was with this goal in mind that the Government, with a great deal of support from a number of Peers from all sides of the House, led by the noble Baroness, Lady Kidron, agreed and supported her amendment. It introduced a requirement on the Information Commissioner to prepare an age-appropriate design code. This amendment was the product of many hours of discussion and days of drafting and redrafting, and I am glad that it was accepted with no dissenting voices in this House. The code will contain guidance on standards of age-appropriate design for relevant online services which are likely to be accessed by children.
The aim of Amendment 4, as explained by the noble Baroness, is to add a definition to the age-appropriate design code to define “children” as those under the age of 18. We are determined to ensure that children of different ages are able to access online services in a way that is safe and takes into account their different needs. For that reason, we included in Clause 124(4) a requirement that the commissioner must have regard to the fact that children have different needs at different ages, and in Clause 124 (4)(b) that the commissioner must have regard to the United Kingdom’s obligations under the United Nations Convention on the Rights of the Child. So I maintain that it is explicitly included in the Bill.
Article 1 of the United Nations Convention on the Rights of the Child defines children as,
“every human being below the age of eighteen years unless under the law applicable to the child, majority is attained earlier”.
As such, the existing age-appropriate design code, which requires the commissioner to have regard to the convention, already addresses the point that the proposed amendment is making.
Article 2 of the convention obliges state parties to respect and ensure the rights in the convention to each child—all those under 18. By requiring the commissioner to have regard to the convention, Clause 124 ensures that in order to comply with the requirements for the code on age-appropriate design, children up to 18 would need to be considered. Therefore, the existing age-appropriate design code already ensures that the commissioner must have regard to the different needs and rights of children under the age of 18, and as a result this amendment is not necessary.
Not only is the amendment unnecessary, it is potentially unhelpful. One of the key features of the existing age-appropriate design code is that it recognises that children have different needs at different ages. The proposed amendment risks undermining this important point by presenting children as a homogenous group. The needs of a child aged 17 are very different from the needs of a child aged 10 and it is right that the requirements of the age-appropriate design code reflect that.
The noble Baroness asked—the noble Baroness, Lady Kidron, also alluded to this—whether the Bill is consistent in its approach to children. As I said, children are human beings under the age of 18. That is the consistent approach we are taking on this legislation. But the Bill works in tandem with the GDPR and we cannot amend the GDPR. Nor does the GDPR allow member states to come up with their own definitions, so we interpret the GDPR as adopting the definitions from the UN Convention on the Rights of the Child.
There are of course differences between young children and older children, and the provision needs to be age appropriate. A child who is 12 years old may consent to having their data processed in the offline world. Clause 201 ensures that is consistent in Scotland as well as England and Wales. A child who is 13 years old may consent to having their data processed online. That is provided by Clause 9. Any website or app maker providing services for children—meaning everyone under 18—will have the benefit of the code of practice on age-appropriate design provided by Clause 124. Of course, the law generally makes different provision for older children and for young children—for example, the age of sexual activity, marriage and serving in the Armed Forces.
There is a risk that the proposed amendment to the clause on age-appropriate design could also have serious unintended consequences. The Data Protection Bill contains numerous references to “children”. We cannot agree to an amendment that could have implications for issues elsewhere in the Bill.
Finally, it is worth emphasising that the existing wording of the age-appropriate design code is completely consistent with the wording of the general data protection regulation, which itself does not define children. I hope I have reassured the noble Baroness and as a result she feels able to withdraw her amendment at this late stage of the Bill.
Baroness Howe of Idlicote
My Lords, I thank all those who have spoken, particularly the Minister for his considerate reply, which he will appreciate I nevertheless find somewhat disappointing. I hope that when the Data Protection Bill reaches the other place the issue will be debated again—and even that the Minister might by then have changed his mind. Nevertheless, in the meantime clearly I must do as requested. Therefore, I beg leave to withdraw the amendment.
Lord Ashton of Hyde
“( ) An information notice does not require a person to give the Commissioner information to the extent that requiring the person to do so would involve an infringement of the privileges of either House of Parliament.”
Lord Ashton of Hyde
My Lords, I turn now to an issue that is pertinent to us all: parliamentary privilege. I am sure that noble Lords will agree that it is paramount that both this House and the other place continue to be safeguarded in their processing of personal data in connection with parliamentary proceedings.
This issue was raised in previous debates by the noble and learned Lord, Lord Brown of Eaton-under-Heywood, to whom I am very grateful. Those debates influenced our thinking on how the Bill currently provides for parliamentary activity, and I am pleased to announce that the amendments in this group have been tabled to ensure that privileges under the current law will not disappear when we enter the new data protection framework.
I will start with Amendments 5 to 8. Amendments 5 to 7 restrict information, assessment and enforcement notices served by the commissioner from requiring a person to comply with the notice if compliance would involve infringing the privileges of either House of Parliament. Put simply, the commissioner’s notices are “switched off” where there would be an infringement of parliamentary privilege. Amendment 8 prevents the commissioner giving the House a penalty notice with respect to the processing of personal data by or on behalf of the House. These amendments have been tabled to ensure that parliamentary proceedings will not be impeded by the commissioner and that Parliament will maintain the freedom to do its work that it currently enjoys.
Amendments 9 to 13 relate to criminal liability and seek to prevent corporate officers of either House of Parliament being liable to prosecution as a data controller. This is the current position in the Data Protection Act 1998, and our amendments seek to clarify the Government’s intention to maintain the effect of Section 63A of the 1998 Act. The amendments also make equivalent provision for government departments and data controllers for the Royal Household. It should be noted, however, that these provisions do not prevent corporate officers being liable for their own conduct when acting as data controllers on behalf of either House, for government departments or for the Royal Household. This maintains the current position, and we believe that it is an important safeguard that allows full parliamentary privilege while balancing the rights of data subjects.
Amendments 14 and 15 revert to the current position under the Data Protection Act 1998 in relation to the processing that is necessary for the functions of the Houses of Parliament or for the administration of justice by removing the additional “substantial public interest” test. On reflection, we could not see how such processing would not be in the substantial public interest, so the test appeared redundant. On that basis, the Houses of Parliament will have to consider simply whether processing is necessary for the purposes of their functions, as is the position now.
Amendments 20 and 21 make a corresponding amendment to Schedule 8, where processing is necessary for the administration of justice under the provisions in Part 3 for law-enforcement processing, to maintain a consistent approach across the Bill.
Amendment 18 is to Schedule 2 and extends the exemptions from the GDPR relating to parliamentary privilege to include an exemption from article 34(1) and article 34(4) of the GDPR. Article 34 requires controllers to communicate a personal data breach to the data subject where the breach is likely to result in a high risk to the rights and freedoms of the subject. The amendment excludes this requirement from applying to parliamentary proceedings and also restricts the ability of the commissioner to oblige either House to comply with it.
I hope that the House will agree that these amendments, taken as a package, will ensure that there will be no chilling effect on the functions of Parliament and will restore the regime that applies under the Data Protection Act 1998. It has the approval of the House authorities. I beg to move.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, I strongly support this group of amendments, perhaps unsurprisingly given that they have now been brought forward in place of a series of broadly similar amendments which, as the Minister has mentioned, I tabled on Report. They achieve the same basic objective, which is to safeguard parliamentary privilege and thereby ensure that this House, along with the other place, can continue to go about its business and fulfil its vital constitutional role without inappropriate inhibitions and concerns with regard to the protection of data and privacy, which of course the Bill as a whole is rightly designed to protect.
As I made plain on Report, I was prompted to table the original amendments by and on behalf of the officials of both Houses, that is to say, the clerks and counsel, because of their concern about how, unamended as it then was, the Bill risked infringing parliamentary privilege in the various ways that the Minister has recounted. These concerns were raised and over recent months they have been discussed extensively between officials and the Bill team. Again I express my gratitude and pay tribute to the Bill team for its hugely constructive help and co-operation throughout. As now formulated, these amendments substantially and realistically meet the concerns of officials, and accordingly I welcome them.
Lord Clement-Jones (LD)
My Lords, we should all thank the noble and learned Lord, Lord Brown, together with officials of the House, for having prompted these amendments. In thanking the Minister I want also to mention in dispatches my noble friend Lady Hamwee. She highlighted this point early on in Committee, I think to the incredulity of the House at the time because it was thought that it was only Members of Parliament who should have the exemptions in the Bill. These elegant solutions demonstrate that parliamentary privilege covers both Houses.
Lord Stevenson of Balmacara
I too thank the noble and learned Lord, Lord Brown of Eaton-under-Heywood, for his stalwart work in bringing forward these important amendments. What he did not say but we should also recognise is that on a couple of occasions he had to stay late in order to do that, I am sure far beyond his normal bedtime.
Unfortunately, squeezed out in the second group of amendments which I also supported but which did not find favour with the Government, was an effort to try to retain the current arrangements under which noble Lords of this House who wish to speak about individual cases would be able to do so on the basis that they would be treated as elected representatives. That did not win the support of the Government and therefore will be left to the other place, which I am sure will immediately seize on it and see the injustice reversed. In due course it will come back to us. With that, I support the amendment.
Lord Ashton of Hyde
My Lords, I am grateful for most of the comments. It is a pity that the noble Lord, Lord Stevenson, had to bring up the one bit that did not quite go through, but as he says, I am sure that we can rely on the other place.
Lord Ashton of Hyde
“( ) An assessment notice does not require a person to do something to the extent that requiring the person to do it would involve an infringement of the privileges of either House of Parliament.”
Lord Ashton of Hyde
“( ) An enforcement notice does not require a person to do something to the extent that requiring the person to do it would involve an infringement of the privileges of either House of Parliament.”
Lord Ashton of Hyde
“( ) The Commissioner may not give a controller or processor a penalty notice with respect to the processing of personal data where the purposes and manner of the processing are determined by or on behalf of either House of Parliament.”
Lord Ashton of Hyde
“(5A) As regards criminal liability—(a) a government department is not liable to prosecution under this Act;(b) nothing in subsection (4) makes a person who is a controller by virtue of that subsection liable to prosecution under this Act;(c) a person in the service of the Crown is liable to prosecution under the provisions of this Act listed in subsection (6).(6) Those provisions are—”
Lord Ashton of Hyde
“(4A) As regards criminal liability—(a) nothing in subsection (2) or (3) makes the Corporate Officer of the House of Commons or the Corporate Officer of the House of Lords liable to prosecution under this Act;(b) a person acting on behalf of either House of Parliament is liable to prosecution under the provisions of this Act listed in subsection (5).“(5) Those provisions are—”
Lord Ashton of Hyde
“6A_ This condition is met if the processing is necessary—(a) for the administration of justice, or(b) for the exercise of a function of either House of Parliament.”
Lord Ashton of Hyde
“13A(1) This condition is met if the processing—(a) is necessary for an insurance purpose,(b) is of personal data revealing racial or ethnic origin, religious or philosophical beliefs or trade union membership, genetic data or data concerning health, and(c) is necessary for reasons of substantial public interest,subject to sub-paragraphs (2) and (3).(2) Sub-paragraph (3) applies where—(a) the processing is not carried out for the purposes of measures or decisions with respect to the data subject, and(b) the data subject does not have and is not expected to acquire—(i) rights against, or obligations in relation to, a person who is an insured person under an insurance contract to which the insurance purpose mentioned in sub-paragraph (1)(a) relates, or(ii) other rights or obligations in connection with such a contract.(3) Where this sub-paragraph applies, the processing does not meet the condition in sub-paragraph (1) unless, in addition to meeting the requirements in that sub-paragraph, it can reasonably be carried out without the consent of the data subject.(4) For the purposes of sub-paragraph (3), processing can reasonably be carried out without the consent of the data subject only where—(a) the controller cannot reasonably be expected to obtain the consent of the data subject, and(b) the controller is not aware of the data subject withholding consent.(5) In this paragraph—“insurance contract” means a contract of general insurance or long- term insurance;“insurance purpose” means—(a) advising on, arranging, underwriting or administering an insurance contract,(b) administering a claim under an insurance contract, or (c) exercising a right, or complying with an obligation, arising in connection with an insurance contract, including a right or obligation arising under an enactment or rule of law.(6) Terms used in the definition of “insurance contract” in sub-paragraph (5) and also in an order made under section 22 of the Financial Services and Markets Act 2000 (regulated activities) have the same meaning in that definition as they have in that order.”
Lord Ashton of Hyde
My Lords, I am very pleased to be able to set out the Government’s reasoning in tabling this group of amendments in response to valid concerns from the insurance industry. There are three amendments in the group; one technical matter and two addressing processing for insurance purposes. Regarding Amendments 16 and 17, I am grateful to the noble Earl, Lord Kinnoull, and the noble Lord, Lord Clement-Jones, for raising the challenges facing the insurance industry in previous stages of the Bill’s progress through the House and in discussions with me and my officials.
The Government recognise the fundamental importance of insurance products. They are vital to the public at large, who rely on insurance daily to protect them from financial loss due to an unfortunate emergency, accident or other unforeseen event. The industry is an important sector in the economy. On Report, we made clear our intention to propose an amendment addressing the noble Lords’ concerns at Third Reading. These amendments make good on that promise. Amendment 16 therefore replaces the three narrow conditions currently included in Schedule 1 with a single, more holistic condition permitting the processing of certain types of special category data where it is necessary for an insurance purpose.
There is a need to balance such processing with appropriate safeguards, and Amendment 16 provides these. First, as I have just said, processing must be necessary for a defined insurance purpose. For example, this condition will not be met if the organisation could achieve the purpose by some other reasonable means that did not require the processing of special categories of data, or if the processing was necessary only because the organisation has decided to operate its business in a particular way.
Secondly, processing must be necessary for reasons of substantial public interest. We consider that ensuring the availability of insurance at a reasonable cost to members of the public through risk-based pricing, the ability to detect and investigate fraudulent claims and the efficient administration and payment of insurance claims are matters of substantial public interest. Nevertheless, as this processing condition for insurance purposes is drawn more widely than those previously included in the Bill, we consider it reasonable to ask data controllers to consider whether, in respect of a particular processing activity they propose to undertake, it is necessary for a purpose that is in the substantial public interest.
Thirdly, the processing condition has been designed so that it affords additional safeguards to those data subjects who do not have rights or obligations in respect of the insurance contract or insured person. For example, a witness to an event giving rise to an insurance claim or a parent of a person seeking health insurance might fall into this category. Processing of data relating to these data subjects is permitted only if the data controller cannot reasonably be expected to obtain the consent of the data subject and they are not aware of the data subject withholding their consent.
Fourthly, data controllers relying on this new insurance condition will be required to have an appropriate policy document in place, as set out in Part 4 of Schedule 1 to the Bill.
Amendment 17 extends paragraph 13A so that the processing of criminal conviction and offences data is also permitted for an insurance purpose, which is clearly essential. Taken as a whole, we think that the processing condition set out in the new paragraph 13A provides the necessary balance between the rights of data subjects and the benefits that members of the public derive from the efficient and effective provision of insurance products.
Finally, Amendment 19 is a minor and technical matter. It merely deletes a reference to a provision elsewhere in the Bill that no longer exists. I am grateful to the helpful staff of the Public Bill Office who spotted this error when preparing the current print of the Bill last week. I am pleased that we have achieved what we agreed to do at the earlier stages of the Bill and I acknowledge the help of the Association of British Insurers and the Lloyd’s Market Association in reaching this solution. On that note, I beg to move.
The Earl of Kinnoull (CB)
My Lords, I strongly support this excellent group of amendments. I declare my interests as set out in the register, particularly those in respect of the insurance industry. I am enormously grateful to the Minister for being so generous with his time in the process that has led to the birth of these amendments. His Bill team has been quite outstanding—I see some of them sitting over there—and I thank them as well. I also thank three other Members of your Lordships’ House: the noble Lord, Lord Clement-Jones —who yet again was emailing me at 11 o’clock last night —and the noble Lords, Lord Hunt of Wirral and Lord Stevenson of Balmacara, who have been great supporters in trying to make sure that the ordinary man in the street can continue to buy insurance at a good price.
I have one tiny point of clarification, which will be very easy for the Minister to answer. He talked about insurance and I have talked about insurance, but it is important that reinsurance is understood, as well as retrocession and all the other words. We are talking about the whole concept of insurance and if he could confirm that reinsurance, retrocession and other things are included, that would be very helpful.
Anyway, with this change the man in the street will be able to buy personal and business insurances that involve special category personal data and yet the GDPR will have arrived. Insurers will have to improve their game somewhat—never a problem for the good, and important for the back-markers in the industry.
Lord Clement-Jones
My Lords, I congratulate the noble Earl on the assiduous way in which he has pursued these issues on behalf of the insurance industry, and thank the Minister for his close engagement on them. We very much welcome these amendments but I have a couple of clarificatory questions for the Minister, the answers to which would be helpful in making sure that we all understand the exact position of the insurance industry relative to these new provisions.
The proposed derogation to paragraph 13A of Part 2 of Schedule 1 does not specifically address the processing of data relating to criminal convictions or offences. First, can the Minister confirm that paragraph 28 of Part 3 of Schedule 1 may be read in conjunction with paragraph 13A of Part 2 to permit the processing of data relating to criminal convictions or offences where it is necessary for an insurer to process this data for policy underwriting and claims management or related money laundering and anti-fraud activities? The reference in paragraph 13A to,
“racial or ethnic origin, religious or philosophical beliefs or trade union membership, genetic data or data concerning health”,
would appear to preclude this, but we assume that this is not the intent.
Secondly, can the Minister confirm that the processing of special category data or data relating to criminal convictions or offences by insurance companies and related intermediaries, such as reinsurers and brokers, for the purposes of conducting insurance-related business and managing claims will be regarded by the Government as purposes that are in the “substantial public interest”?
Lord Stevenson of Balmacara
My Lords, I welcome these amendments and it is nice to hear the story that has come through of a listening Bill team and a listening Minister, and the way in which the industry has organised itself to make sure that the perceived faults were remedied.
If it is of interest to the House, a lot of us have been doing events with professional bodies and others interested in this whole area since the Bill started. I was reflecting just before this Third Reading debate that there were really only three things that came up time and again at these sessions, after the presentations by the experts and others such as us who were trying to keep up with what they were saying. The first was Article 8 of the European Charter of Fundamental Rights—that came up time and again. People did not understand the basis on which their rights would be retained, but we have dealt with that.
The second was the—unpronounceable—re-identification of previously anonymised data. I suspect that was because there are one or two very active persons going around all these groups—I seemed to recognise their faces every time it came up—who were anxious to make sure that this point was drilled back to Ministers. We have found a way forward on that, which is good.
The third item was the insurance industry time and time again raising points similar to those raised by the noble Earl, Lord Kinnoull, by suggesting that there was a problem with efficient markets and the operation of customer good, and that the Government had to look again. We are very glad that the Government have done so. I have now ticked off all my list and it is done.
Lord Ashton of Hyde
My Lords, I am grateful to the noble Earl, Lord Kinnoull, and to the noble Lords, Lord Stevenson and Lord Clement-Jones. The noble Earl is absolutely right that there are various names for different insurance contracts, including reinsurance and retrocession, but they are all contracts of indemnity. The schedule absolutely covers all types of insurance, including reinsurance and retrocession contracts.
As for the clarificatory questions asked by the noble Lord, Lord Clement-Jones, they are very reasonable because this is not an easy part of the Bill to understand—even for people who have been looking at it for many weeks, as we have. First, he asked whether the provision permits processing of data relating to criminal convictions or offences where it is necessary for an insurer to process this data for policy underwriting and claims management, and for insurance purposes. Technically speaking, paragraph 13A, introduced by Amendment 16, does not permit the processing of criminal convictions data because it exercises the derogation provided by article 9(2)(g) of the GDPR. Criminal convictions data is regulated by a separate article of the GDPR, article 10, but the noble Lord will be pleased to know that Amendment 17 extends paragraph 13A so that it also covers criminal convictions and offences data.
Secondly, as for the processing of special category data by insurance companies and related intermediaries such as reinsurers and brokers, which are important, as is managing claims, the noble Lord asked whether that will be regarded by the Government as purposes that are in the substantial public interest. The answer is that the Government have introduced paragraph 32A because they believe that the provision of core insurance products is in the substantial public interest. However, the world of insurance is an exciting and dynamic one—no, really it is—and controllers must be accountable for their own particular processing activities. I hope that answers his questions.
Lord Ashton of Hyde
“32A_ This condition is met if the processing—(a) would meet the condition in paragraph 13A in Part 2 of this Schedule (the “insurance condition”), or(b) would meet the condition in paragraph 32 by virtue of the insurance condition,but for the requirement for the processing to be processing of a category of personal data specified in paragraph 13A(1)(b).”
Lord Ashton of Hyde
Lord Ashton of Hyde
Lord Ashton of Hyde
“1A_ This condition is met if the processing is necessary for the administration of justice.”
Lord Ashton of Hyde
My Lords, in moving that the Bill do now pass, I shall say a few words about it. The Bill has been central to my life and the lives of a number of noble Lords for many weeks now. It was accepted right from the word go as a necessary Bill, and there was almost unanimity about the importance and necessity of getting it in place by next May, taking into account that it still has to go through the other place. I am very relieved to have got to this stage. Despite that unanimity, we have managed to deal with 692 amendments during the passage of the Bill, which is a very good indication of unanimity as far as I am concerned. I have to admit that of those 692, 255 were government amendments, but that is not necessarily a bad thing. The GDPR takes effect in May and many of the things that would have been put into secondary legislation have been dealt with in the Bill. I think most noble Lords would agree that that is a good precedent. Data protection is so pervasive that the previous Data Protection Act, passed 20 years ago in 1998, is referred to around 1,000 times in other legislation, so a lot of the amendments were to make sure that when we repeal that Act and this Bill becomes law it will be consistent with other legislation.
I am very appreciative of what we achieved and the way that we did it. One thing we managed to achieve was to accept a number of recommendations from your Lordships’ House, so we changed the way that universities, schools and colleges can process personal data in respect of alumni relations; we ensured that medical researchers can process necessary personal data they need without any chilling effect; we agreed that patient support groups can process health data; we ensured a fair balance between privacy and the right to freedom of expression when journalists process personal data; and we have talked about insurers today. The noble Baroness, Lady Kidron, one of the heroes of the Bill, helped us protect children online, which we all agreed with—in the end. We amended the way that some of the delegated powers in the Bill are effective and subject to the right parliamentary oversight.
I thank the Front Benches for their co-operation. This is meant to be the last Bill for the noble Lord, Lord Stevenson. I doubt that. Every time he says that, he comes back. He had a good team to help him: the noble Lords, Lord Kennedy and Lord Griffiths of Burry Port. It was the first Bill for the noble Lord, Lord Griffiths; if he can survive this, he can survive anything. I am sure we will see a lot of him in future. I thank the noble Lords, Lord Clement-Jones and Lord Paddick. I should have mentioned the noble Baroness, Lady Hamwee, and acknowledged her position on the privilege amendment. I must say that the way she withdrew her amendments one after the other on Report is a very good precedent for other legislation that might be coming before your Lordships’ House soon.
The Bill team has been mentioned several times, not only today but all through the passage of the Bill. The members of the team have been outstanding. They have worked incredibly hard. I should like to mention Andrew Elliot, the Bill manager, Harry Burt, who worked with him, Jagdeep Sidhu and, from the Home Office, Charles Goldie. They have all done a tremendous job and been great to work with.
Lastly, I have had a galaxy of talent to help me with large parts of the Bill. My noble friends Lady Williams, Lady Chisholm and Lord Young of Cookham and my noble and learned friend Lord Keen have made my life very easy and I am very grateful to them. I beg to move.
Lord Clement-Jones
My Lords, I will just slip in for a couple of minutes in the light of the Minister’s very shrewd appraisal of the progress on the Bill. I had not quite realised that the Bill team were treating the Digital Economy Bill as a dress rehearsal for the Data Protection Bill, but that is really why this has gone so smoothly, with very much the same cast on the Front Benches.
We on these Benches welcomed many aspects of the Bill on its introduction last October and continue to do so. Indeed, it has improved on the way through, as the Minister pointed out. I thank my noble friends Lord Paddick, Lady Hamwee, Lord McNally, Lady Ludford and Lord Storey for helping to kick the tyres on this Bill so effectively over the last four months. I also thank the noble Lord, Lord Stevenson, and all his colleagues for a generally harmonious collaboration in so many areas of common interest.
I very much thank the Minister and all his colleagues on the Front Bench and the excellent Bill team for all their responses over time to our particular issues. The Minister mentioned a number of areas that have been significant additions to the Bill. I thank the Minister for his good humour throughout, even at late hours and on many complicated areas. We are hugely pleased with the outcome obtained by the campaign of the noble Baroness, Lady Kidron, for age-appropriate design, which many of us on these Benches think is a real game-changer.
There is just a slight sting in the tale. We are less happy with a number of aspects of the Bill, such as, first, the continuing presence of exemptions in paragraph 4 of Schedule 2 for immigration control. Solicitors need the facts to be able to represent their clients, and I am afraid these immigration exceptions will deny access to justice.
Secondly, the Minister made a pretty good fist of explaining the way the new framework for government use of personal data will operate, but I am afraid, in the light of examples given, for instance by the noble Earl, Lord Clancarty, in relation to the Department for Education’s approach to the national pupil database, and now concerns over Public Health England’s release of data on 180,000 patients to a tobacco firm, that there will be continuing concerns about that framework.
Finally, one of the triumphs of debate in this House was the passing of the amendment from the noble Baroness, Lady Hollins, calling for, in effect, Leveson 2. The response of the Secretary of State, whose appointment I very much welcomed at the time, was rather churlish:
“This vote will undermine high quality journalism, fail to resolve challenges the media face and is a hammer blow to local press”.
On Sunday he did even better, saying it could be the “death knell” of democracy, which is pretty strong and unnecessary language. I very much hope that a sensible agreement to proceed is reached before we start having to play ping-pong. I am sorry to have to end on that slightly sour note, but it is an important amendment and I very much hope that it stands.
Lord Stevenson of Balmacara
My Lords, from this side of the House, I also thank the Bill team, as I think I can call them. What we faced when we first came across the Bill was a beast—a beast dressed up as legislation but a beast in many ways. As the Minister said, we got round most of it but then discovered there were another 250 amendments coming down the track from the Government. Although they were dressed up as being small, trivial things, you have to read them and understand them, and they add a little to one’s workload.
If we did not learn to love the Bill, we certainly at least respect it. It is a good Bill, now much better than it was before. I hope it will have the longevity of its predecessor, the 1998 Act. It has the same aspirations and aims but, because of the inclusivity of the age-appropriate design and other matters that the noble Lord, Lord Clement-Jones, mentioned, it also begins to shape the debate that we still need to have about how and under what conditions we as a mature democratic society wish to engage with those who provide information, data, statistics, facts, communications and other things in relation to the electronic world in a way that is, if not comparable to, at least as effective as what is applied in the current non-virtual world. That is not the subject of the Bill, I am afraid, but it is something that will trouble this House now and in the future. We should not shy away from it because at its heart lies the future of our society. Morality and ethics are dimensions that we have not yet touched on in the Bill; they are still to come. They may well be foreshadowed for us by the creation of a data ethics commissioner of some kind. I welcome that and hope it will come forward quickly. Without it, we really are not in a very good place, despite the strength of the Bill.
For my part I am grateful to my noble friend Lord Kennedy and to my apprentice—if I can call someone of such distinguished age and experience that—my noble friend Lord Griffiths of Burry Port, who is going to take over my responsibility here in the main, although, as the Minister said, I am not leaving the Front Bench; I am simply moving sideways to accommodate those with greater skills and abilities than I have myself.
I have enjoyed the Bill tremendously. It is the sixth Bill that I have done with DCMS, and five of those have been with the current team. With familiarity comes a certain ability both to see through the artifices as they come at you but also to recognise a true offer when it comes, and both sides have benefited from that. We understand some of the pressures a bit more, particularly the difficult time that any Bill team has when it is agreed to move forward but the processes and procedures in Whitehall are so slow that they cannot keep pace with our aspirations for doing it. That is very frustrating for all concerned.
On that point, but not related to the mechanics, there is a question that the House must address at some point in the near future. What happens when it is agreed around the House, through Second Reading and Committee and approaching Report, that a desired amendment would bring public good but it cannot be moved because it falls outwith the narrow scope of the Bill, is a frustration that we have all encountered on this Bill and the previous Bill that I was involved with. There is a solution to that which should be discussed by the Procedure Committee. I hope it will do so in the near future, and I will be writing to it to that effect.
The Bill team have been absolutely fantastic. I gave them a rousing welcome when they first arrived because they have a trick at DCMS, which I recommend to all departments, of bringing together in one place at the very beginning of the process all the documents that you need to work out what you are talking about. If only every Bill team did that, we would all have much easier lives. They did it again this time, and it was fantastic. I have enjoyed working with them; their professionalism and efficiency were wonderful and a great help to us. Our support is minuscule in comparison; effective and efficient though Nicola Jayawickreme and Dan Stevens are, there are only two of them to support all our work. I wish to ensure that our sincere appreciation is on the record.
This has been an enjoyable ride. I have had a great time, waxing lyrical on things I did not think I would ever want to talk about. I hope that the Bill passes, and that when it comes back we will be able to deal with it expeditiously and appropriately.
Sanctions and Anti-Money Laundering Bill [HL]
Wednesday 24th January 2018
(6 years, 10 months ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 78-I Marshalled list for Third Reading (PDF, 72KB) - (23 Jan 2018)
Lord Ahmad of Wimbledon
“(a) enabling or facilitating the detection or investigation of money laundering, or preventing money laundering;(b) enabling or facilitating the detection or investigation of terrorist financing, or preventing terrorist financing;”
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, it is a pleasure to stand before the House once again, and to speak to Amendments 1, 2, 5, 6 and 7. Although these are tabled as government amendments, they have been prepared through close collaboration with noble Lords. In particular, I convey my thanks for the collaborative and constructive engagement that we have had with the noble Baronesses, Lady Bowles and Lady Kramer.
I said at Second Reading, and have said throughout the Bill’s progress through your Lordships’ House, that I intended to co-operate and work constructively with all noble Lords as this important Bill progresses through the House. I am pleased—and I am sure that the sentiment is shared by all noble Lords—that we have been able to conduct debate on the Bill in this very spirit and that the noble Baronesses have been able to sign these government amendments. They improve the Bill, and I hope that the amendments which we will discuss today will further satisfy all those in your Lordships’ House that the powers in the Bill are appropriate for the UK’s future anti-money laundering regime.
In brief, Amendment 1 requires that future regulations made under Clause 43 can only make provision which enables or facilitates the detection or investigation of money laundering or terrorist financing. Power remains within Clause 43 to make regulations that prevent money laundering or terrorist financing and to implement the standards of the Financial Action Task Force. This clarifies the purposes for which regulations can be made and addresses concerns that have been raised by noble Lords.
Amendment 2 is a technical change which extends the definitions of money laundering and terrorist financing contained within Clause 43(4) to the proposed new clause that would be introduced in connection with the register of beneficial ownership of overseas companies that own UK property through government Amendment 3, which I will speak to later today. This amendment is necessary to ensure that the definitions already contained within Clause 43 are consistently applied throughout the sections of the Bill that relate to anti-money laundering.
Concerns have been raised over the breadth of paragraph 2 of Schedule 2. Amendment 5 addresses these concerns by limiting the ability of regulations made under Clause 43 to require only relevant government departments, anti-money laundering supervisory authorities, and persons carrying on a relevant business to identify and assess risks relating to money laundering, terrorist financing or other threats to the integrity of the international financial system. This also clarifies the scope of the power and essentially reflects the current position within Regulations 16 to 18 of the money laundering regulations 2017. This narrowing of the scope of potential duties to carry out such risk assessments is consistent with the approach currently taken by the United Kingdom’s anti-money laundering framework.
Baroness Bowles of Berkhamsted (LD)
My Lords, I start by thanking the Minister, the Bill team and other officials, who have all played their part in getting this suite of amendments to Clause 43, as it now is, and Schedule 2 on to the Marshalled List. We had a flurry of meetings following the Recess and, once we got down to detailed discussion with papers and checklists, good progress was made. As has been said, I have added my name to the amendments because they deliver the understandings reached in our meetings—and that is also the view of my noble friend Lady Kramer.
I thank the noble and learned Lord, Lord Judge, and the noble Lords, Lord Pannick and Lord Collins, who on Report added their names to my amendment, which paved the way for today’s amendments and for the undertaking given on Report regarding tighter language in the potential modification of the definition of terrorist offences. That yet-to-be amendment depends on achieving resolution in the other place on how to deal, on the face of the Bill, with any necessary extension of criminal offences. I remain ready to assist with that on the anti-money laundering aspects.
When we started out with the Bill, there was no policy in Part 2, yet it gave sweeping powers to amend, rewrite or revoke the anti-money laundering legislation. There were no safeguards, save for the Minister saying, “Trust me—and all my successors—in all circumstances”. Clause 43—Clause 41 as it then was—could have resulted in too little in future, and Schedule 2 could have allowed too much. It took a bit of a journey to elucidate that the problems lay as much with what was not in the Bill as with what was in it, and I thank your Lordships for bearing with me in my endeavours to explain and then distil the main essence of the missing parts.
The words “enabling or facilitating” in Amendment 1 to Clause 43 will further define the detection or investigation of money laundering and terrorist financing purposes for which regulation may be made. This means that the scope and effectiveness of the present rules cannot be undermined—that would hardly be “facilitating”—but it gives some leeway for change, such as updating thresholds or removing redundant measures that perhaps other vocabulary such as “maintaining” or “strengthening” would have prevented.
My concerns with Schedule 2—apart from criminal offences by regulation—were that it was not at all limiting, potentially covering anyone and everyone, with unlimited scope to the burden imposed and no provision for relevance or guidance. Now, Amendment 6 narrows the scope of who can be covered and reflects far better that it is a shared process where the assessments are made at the three levels of Home Office and Treasury, supervisors and relevant businesses. Along with the protective effect of amended Clause 43, this provides the framework we sought and that, in the context of the current regulations, I described as the cascade of responsibility. No longer can it be read that an individual or business takes on the whole burden.
Amendment 7 is now clearer in its drafting and, very importantly, businesses will be subject only to a burden that is appropriate having regard to the size and nature of the business that the person carries on—now defined as “relevant businesses”—and those businesses also have to be of a kind that entails risks relating to money laundering, terrorist financing or other threats to the integrity of the financial system, which now appears in Amendment 8 and was part of the Report stage concessions.
Together with other amendments from Report, with the statement by the Minister that, despite the without prejudice wording, Schedule 2 is limiting, and with the agreed pending matters to be dealt with in the other place, I hope we can all agree that this is a much improved Bill with regard to the administrative anti-money laundering aspect of Part 2.
More generally, I hope that the Government will take note, as other Brexit power-transferring Bills come along, that they do require policy to be stated or restated alongside empowerments, especially when they give sweeping powers to redo everything by regulation. In particular, the twin spectres of permissions to do too much and permissions to do too little need laying to rest.
Lord Judge (CB)
My Lords, I had not intended to speak again—your Lordships have been patient with me already—but there is a slight problem. Someone in the Minister’s office must have had a Homeric nod, because Clause 43 makes the express provision that regulations under subsection (1) may not make provisions that create new criminal offences. That was consequent on the vote in the House last week. Unfortunately, criminal offences remain in Schedule 2. Regulations under Section 43, in paragraphs 18 and 19, provide for the creation of criminal offences. Something has gone wrong and I look forward to the Minister telling the House how he proposes to deal with it.
A similar point arises in connection with Clause 17. The original clause made provision for the creation of criminal offences punishable by up to 10 years’ imprisonment. That proposal was defeated in this House and does not appear in Clause 17, which is the former Clause 16. However, in Clause 17(6) there is a provision that:
“Regulations may provide that a particular offence which is … created by virtue of this section”.
There is no such power, so I wonder whether the Homeric nod extended to both parts of the Bill.
Baroness Northover (LD)
My Lords, I thank the Minister for the amendments he has tabled. I support the noble and learned Lord, Lord Judge. One has to think that the continued inclusion we have just heard described was inadvertent and that the Minister will make sure that it is cleaned up immediately in the Commons—otherwise we will have to address the issue when the Bill returns to this House so that it is consistent throughout.
Lord Hain (Lab)
My Lords, I rise briefly to thank your Lordships’ House for allowing me to speak at length on three occasions to spell out the corruption and money laundering involving some British companies. I am told by those involved that, when the leadership change took place in South Africa just before Christmas, these interventions had some effect on the margin, and I am grateful for that. I thank in particular the Minister. When last Monday I spoke on Report, I think that I may have strayed outside order, narrowly—or not, as the case may be. I am grateful to him and to those involved for their tolerance. I have thanked him personally but I wanted to put it on the record.
Baroness Kramer (LD)
My Lords, I will speak exceedingly briefly because so much has been said. In fact, it has all been said, but it has not been said by me—and I refer of course to the thanks. I thank in particular the Minister, who took the view from the beginning that, if we worked together, we could improve the Bill. I appreciate so much that approach to this piece of legislation. It has been reflected in his Bill team, which, I may say, is made up of people of exceptional quality. They understood the issues we raised and recognised that we were not being either party political or pernickety but, rather, that our points touched on fundamental issues. They also understood that changes could be made to the Bill that would meet the requirements not only of the Government but also of those of us who thought that the way the Bill had been drafted achieved a transfer of power from Parliament to the Executive that was not appropriate—and I suspect in this case was probably not intended. Members of the Bill team also responded with very creative language rather than casually accepting our wording. They did not take what we provided and simply print it; they went back and looked closely at the issues, and came forward with very satisfactory language.
Like others in the House, I thank the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, for leading the charge on removing the powers for Ministers to create criminal offences—something that is so fundamental to our underlying constitution. I hope that the Minister has taken on board that there seems to have been a slip, so that consequentials have remained in the Bill when they should have slipped out. I hope that it will not be necessary for this House to have to deal with them. When the whole issue of criminal offences is considered in the Commons, I hope that it will be dealt with in the appropriate way and in the spirit in which the Bill has moved forward.
I have one last set of particular thanks. Obviously my noble friend Lady Northover will make formal thanks to everyone later, but a key player in all of this has been my great friend and colleague, my noble friend Lady Bowles. The attention that she has paid to the detail of the Bill, and her assiduity, have unlocked everyone’s thinking by demonstrating that you could use reasonable language and sensible approaches to shape the Bill into something better. It has been an exceptional example of the work that this House does in an extraordinary way. I know that my noble friend is relatively new to the House—although she is not new to politics or to Parliament—and I am grateful to her and I really appreciate the fact that the Minister has recognised the contribution that she has made.
Lord Collins of Highbury (Lab)
My Lords, I will save my thanks for later, when we consider the Motion that the Bill do pass. Before then, I want to echo the comments about how this Bill has proceeded in terms of the concerns of noble Lords which, of course, have turned on how we as a Parliament can constrain the Executive when they are seeking powers. Of course, this is the first Brexit Bill that the House has considered, and we heard earlier that we have another Bill on its way here. It is my intention to speak in the debate on Second Reading of that Bill to raise again our concerns about an Executive power grab, in particular when it concerns the important issue that the noble and learned Lord, Lord Judge, raised about powers to create criminal offences.
In one of those debates, the noble and learned Lord—of course, the noble Lord, Lord Pannick, also raised these issues—gave us a history lesson about Henry VIII. What struck me was when he said that not even Henry VIII had the nerve to take these powers. Not only have this Government had the nerve, but even when the House spoke overwhelmingly on this subject, we still have errors creeping into the Bill as it has been presented to us today. I hope that this is an error and that, when the Bill goes to the other place, we will not see an attempt to grab power back and that we will get this sorted out in accordance with the wishes of this House.
On the anti-money laundering provisions, as I said, this House, across the board, has done an excellent job of scrutiny, and I think the Minister has done an excellent job of listening to our concerns.
Lord Ahmad of Wimbledon
My Lords, I once again thank noble Lords for their support on these amendments. I have listened very carefully, as I always have, to the noble and learned Lord, Lord Judge, on the issue of criminal offences. I think he referred to Clause 17 and Schedule 2. I assure him that we will return to this in the other place to ensure the consistency of the drafting. I will certainly take this up, but I can give him that reassurance.
Apart from that, I wish again to extend my thanks to all noble Lords who have engaged constructively. To pick up on the point made by the noble Baroness, Lady Kramer, I understand that the noble Baroness, Lady Bowles, was out in New Zealand. It is a good example for all of us that, if you have a 23-hour or 24-hour flight, drafting amendments is one way of utilising that time. I beg to move.
Lord Ahmad of Wimbledon
Lord Ahmad of Wimbledon
“Reports on progress towards register of beneficial owners of overseas entities
(1) The Secretary of State must, after the end of each reporting period, publish a report explaining the progress that has been made during that period towards putting in place a register of beneficial owners of overseas entities.(2) For the purposes of this section, the following are reporting periods—(a) the period of 12 months beginning with the day on which this section comes into force; (b) the period of 12 months beginning with the day after the end of the period mentioned in paragraph (a);(c) the period of 12 months beginning with the day after the end of the period mentioned in paragraph (b).(3) The first and second reports under this section must include—(a) a statement setting out the steps that are to be taken in the next reporting period towards putting the register in place, and(b) an assessment of when the register will be put in place.(4) The third report under this section must include a statement setting out what further steps, if any, are to be taken towards putting the register in place.(5) Where a report is published under this section the Secretary of State must lay a copy of it before Parliament.(6) For the purposes of this section “a register of beneficial owners of overseas entities” means a public register—(a) which contains information about overseas entities and persons with significant control over them, and(b) which in the opinion of the Secretary of State will assist in the prevention of money laundering.”
Lord Ahmad of Wimbledon
My Lords, this amendment seeks to set down in legislation the commitment I made on Report that the Government would make regular reports to Parliament on the progress being made on its proposal to create a register of beneficial owners of overseas entities that own or buy property in the UK or participate in UK government procurement. The new clause requires the Secretary of State to publish and lay before Parliament three reports on the progress made to put in place the register. Each report will be due after the expiry of a 12-month reporting period. The first and second report must set out the steps that will be taken in the next reporting period towards putting the register in place and an assessment as to when the register will be put in place. The third and final report must also include a statement setting out what further steps, if any, are to be taken towards putting the register in place.
Noble Lords will have noted that my noble friend Lord Henley, the Business Minister, this morning laid a Written Ministerial Statement before the House confirming the Government’s intention to publish a draft Bill for scrutiny this summer, as I said on Report, and to introduce a Bill in the second Session—an assurance I gave on Report—and for the register to be operational in 2021.
I also reassure my noble friends, particularly my noble friend Lord Naseby, that the amendment places a duty on the Government to report on progress against implementing a public register of beneficial ownership of overseas legal entities involved in property or procurement within the UK, and will not cover the overseas territories. It would be fair to say that the House had quite a frank debate on this subject only last week. As the House decided, it is for the legislatures of the overseas territories to implement a public register. I reassure noble Lords that we will continue to work with our overseas territories. Indeed, the review periods of 2018 and 2019 that I highlighted will also reflect our continued co-operation with the overseas territories concerning their obligations.
I therefore hope that this covers the assurances that noble Lords, particularly my noble friends, sought, and that my noble friend Lord Naseby will be minded not to press his amendment. I beg to move.
Amendment 4 (to Amendment 3)
Lord Naseby
Lord Naseby
My Lords, when I studied the amendment that my noble friend on the Front Bench tabled, I was concerned about the expression “overseas entities”, so I went to the dictionary and looked up “entities”. The Bill does not use the terminology “overseas entities” anywhere, nor do any of the proposed amendments, so it is unclear what it means except in the ordinary meaning of the words; that is, they may apply to structures or arrangements that have legal personality and are not formed in the United Kingdom. My noble friend on the Front Bench made it clear that the Bill does not intend to single out the overseas territories but would apply to all entities registered in all jurisdictions around the world.
I do not believe that it is the United Kingdom Government’s intention to allow the power in proposed new subsection (6)(b) to be infinitely broad. My interpretation is that it is an attempt to refer to entities for which the Government launched a consultation in April 2017. It was called the OCBO register at one point; it has also been called the register of OLEs. This extends to overseas entities that are legal owners of UK real estate or that enter into contracts with UK public authorities. As such, it seems aimed primarily at entities used by certain Middle Eastern investors to purchase London real estate.
However, as I understand it, the Government have yet to respond to that consultation with details as to precisely which activities should or should not be captured. There seems still to be degree of indecision. As a result, I hurriedly put down an amendment, which is why it is starred on the Marshalled List.
There is a concern on my part and, I imagine, that of others, that the Government may be attempting through this amendment to give themselves latitude to decide the precise definition at a later date. I hope that that is not the case, but there seems a possibility as the Bill stands at the moment. Either I will withdraw the amendment if I receive a reassurance from my noble friend or it may be left to the Commons to put down a precise amendment to cover this slight difficulty that I and others foresee. I beg to move.
Lord Faulks (Con)
My Lords, I was responsible for putting down the amendment which I think provoked this amendment to the Bill. As many noble Lords may remember, the background was anxiety expressed around the House about the fact that large parts of central London and outside London were being bought up by legal entities and companies, often with money laundered proceeds of crime and corruption—it is an increasing problem. Although the Government had committed to set up a register, they were taking some time about doing it and the attempt was to bring matters forward.
I am glad that my noble friend was able to give reassurance to the House that the register would be coming forward and that a Bill would be drafted, and indeed went further by promising that there would be regular reporting about progress. That, as I understand it, is the purport of proposed new subsection (3).
I am sorry that I have banged on about this issue for some time—throughout the passage of Criminal Finances Act, through Questions and through the course of this Bill—but I remain unrepentant. I was particularly reassured about this when I attended a lecture given by the distinguished author and journalist Misha Glenny on Monday. He has spent 10 years or so studying international crime and money laundering and is the author of the book McMafia, which is now the basis of a successful television series. He outlined for the audience the scale of money laundering throughout the world, principally following the collapse of communism, and how it has spread to all sorts of jurisdictions, the United Kingdom being one in principle. He showed the audience a map of central London showing the extent to which prime London property is now owned by kleptocrats: let us not beat about the bush—that is the position. He said, however, that worldwide there is a feeling that we should be fighting back against this appalling scourge of money laundering. He identified the most effective way this country could do this as being to set up a register to make sure that nobody could hide behind the cloak of anonymity and thus be able to launder the proceeds of crime through central London property. This is why this remains an important procedure.
I am very glad that the Government are committed to doing what they said they will do. I will be keeping the Government up to the mark, as I am sure other noble Lords will. My noble friend Lord Hodgson has one query about the amendment. Subject, of course, to the clarification that my noble friend Lord Naseby seeks, I join others in thanking the Minister and his Bill team for their co-operation on this issue and on all issues. My real sense in dealing with the Bill is that it is not a party political exercise at all; there is a real cross-party endeavour to make sure that this is as effective as possible.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I have put my name to various amendments on this issue, going back to the Criminal Finances Act last April, and I add my thanks to my noble friend for having listened so intently and for having tabled Amendment 3, which we are debating this afternoon. As I prepared for this discussion in Committee, I raised a couple of points with his office. As ever, he and his office were punctilious in responding, but some clarification might be helpful for those of us who are not as accustomed and learned in the law as others are.
The first issue concerns commencement. Originally, reading this through, it appeared to fall under a clause where the commencement was set by the Secretary of State and that was the trigger for the 12-month clock. I was concerned that we might have a delay in the Secretary of State triggering this clause: it was not in Clause 54. The commencement of each clause is set down, but the commencement might be delayed. The Minister’s office pointed out that Amendment 5 triggers the clock on Royal Assent. It would be helpful if he could make that clear. It would also be helpful if he could say when he expects Royal Assent to take place, although I quite understand that he cannot give a commitment. If Royal Assent is delayed, let us say through the summer, it might be nearly two years before we get the first report: if commencement were to start in August or September, it would be September 2019 before we get news of any progress whatever. So it would be helpful to the House if my noble friend, either now or by writing to those of us who have been involved in the proceedings on this Bill, will say how and when he expects the clock to start ticking.
My second point concerns an omission in the words of Amendment 3, which we are debating. When my noble friend Lord Faulks and I tabled Amendment 75 —and earlier amendments—it did not cover just a register of companies and other legal entities registered outside the UK that own or buy UK property but also covered those which,
“bid for UK government contracts”.
Those words do not appear in the amendment before us today. My noble friend’s officials have drawn my attention to, and indeed he has mentioned, the Written Ministerial Statement, tabled today, that commits the Government to dealing with a public register of beneficial owners of non-UK entities that own or buy UK property or which participate in UK government procurement. So, that is covered in the statement, but it is disappointing that we do not have it in the Bill, which is where we started and what we hoped for when we set out on this long and rather stony road.
Baroness Kramer
My Lords, I want to make a short intervention on this issue. Your Lordships will remember that the amendment, moved with great energy and skill by the noble Baroness, Lady Stern, to extend public registers to overseas territories—by order, if necessary—was defeated in this House by a narrow margin. It was notable in the speeches of those who stood up to support the government position that we should focus on central registers and that public registers would not be part of that agenda. Speaker after speaker—the majority—spoke against public registers of every kind. I noticed a lot of nodding on some Benches because the arguments were around the importance of privacy, non-intrusion and the protection of identity. Anyone listening to that debate would have assumed that this House was taking a stand against public registers. It is crucial that we see urgent action by the Government on this public register, which the noble Lords, Lord Faulks and Lord Hodgson, have so eloquently described as necessary to expose and, presumably, drive out the abuse of property and government contracts in the UK by those who see them as excellent mechanisms for laundering money obtained through corruption or other nefarious activity.
I hope the Government will understand that they need to defend public registers—I was somewhat stunned that the Minister did not do so in his response—and demonstrate to all of us that this is the mechanism that can deal with this problem. I hope that other locations will understand that and will take up the baton, but one of the best ways to make sure that happens is to demonstrate the change it can deliver for us in the UK.
Lord Collins of Highbury
I will be very brief. I congratulate the noble Lord, Lord Faulks, on pushing this issue. I do not think he owes anyone an apology for doing so because it is vital that we tackle this. This amendment is about the commitment that was made but has been delayed for a long time. My concern, and that of the noble Lord, Lord Hodgson, is that the wording of the amendment potentially takes us to 2022 before we see something. I think all noble Lords will be behind the noble Lord, Lord Faulks, in putting pressure on the Government to ensure that they properly meet their commitment.
Still on public registers, I agree with the noble Baroness, Lady Kramer. I am glad to see that the noble Baroness, Lady Stern, is in her place. She made a powerful case for public registers in overseas territories. The front page of today’s Guardian has an article about Appleby and FBME Bank, which was banned from the US financial system. Appleby is a Cayman Islands-registered holding company. Anyone who reads that article will know that this issue will not go away and we will have to come back to it.
Lord Ahmad of Wimbledon
My Lords, I am grateful to noble Lords. I reiterate my thanks to my noble friends Lord Faulks and Lord Hodgson for pressing the Government and holding us to account in this respect and ensuring that we move forward. I am also grateful to my noble friend Lord Naseby, who sought clarification. I have looked carefully at his amendment and I think what the Government have tabled and his amendment have the same intent. However, in the interests of ensuring thoroughness and completeness, I have asked officials to look again to make sure that the intent behind his amendment is achieved.
The Government have committed to the new Bill establishing the register. It will be primary legislation and will pass through your Lordships’ House, so I am sure there will be further discussions and plenty of opportunity to ensure that all issues, particularly those raised by my noble friend, are addressed. I assure him that we feel the intent behind his amendment has been achieved. I will, however, look at this again, and if there is a need to do anything further, we will seek to do that in the other place.
My noble friend Lord Hodgson asked me when Royal Assent might be granted. It is not within my gift as the Minister at the Dispatch Box to confirm that, but we are expecting Royal Assent at the end of this Session. On accountability, I reassure my noble friend that through the additional ministerial Statement laid today, I have sought to provide as much detail as I can at this juncture in the parliamentary timetable. However, as I said to him in our bilateral meetings—I believe this was communicated to him subsequently in other meetings we had—we have worked back, and as the Written Ministerial Statement again confirms, we are looking to have the register operational by 2021. I am sure there will be other opportunities. As for the Government laying a report, I confirm that the 12- month clock—the countdown—will commence as soon as Her Majesty has signed off on the Bill. However, it would be beyond the scope of my responsibilities to give an absolute, cast-iron guarantee as to when Royal Assent will be. I am sure my noble friend appreciates and respects that we have to follow due process. However, the Government are committed to the register being operational in 2021. From the points made by other noble Lords, I appreciate that wherever one is sitting in your Lordships’ House, there is no disagreement on the need to move forward on this and to do so as rapidly as we can.
My noble friend raised another issue, about procurement. Again, to reassure him on that, I draw his attention to the Written Ministerial Statement laid today by my noble friend Lord Henley, which says:
“I am today confirming to Parliament the Government’s timetable for implementation of its policy to achieve greater transparency around foreign entities that own or buy property in the UK or participate in UK Government procurement”.
As the Bill is drafted and pre-legislative scrutiny takes place on it—if that is the process which is agreed—that will allow further discussion to address the very points my noble friend raises in that primary piece of legislation.
The point about local government is well made. As someone who served 10 years in local government, I am acutely aware of how procurement works. It will reflect the very policies adopted by the UK Government. With those reassurances, I hope my noble friend will be minded to withdraw his amendment.
Lord Naseby
My Lords, having listened to my noble friend, I am most grateful to him for the patience he has shown and the care he has taken over the Bill and this amendment. In light of the commitment he has made—as he says, if necessary, some amendment could be made in another place—it is my pleasure to withdraw the amendment.
Lord Ahmad of Wimbledon
“( ) section (Reports on progress towards register of beneficial owners of overseas entities);”
Lord Ahmad of Wimbledon
“(1) Require—(a) the Secretary of State or the Treasury, or both of them acting jointly,(b) supervisory authorities (within the meaning given by paragraph 23), and(c) such persons carrying on relevant business (within the meaning given by that paragraph) as are prescribed for the purposes of this paragraph,to identify and assess risks relating to money laundering, terrorist financing or other threats to the integrity of the international financial system.”
“3_ Require any person carrying on relevant business who is of a description prescribed for the purposes of this paragraph (“a relevant person”) to have policies, controls and procedures which—(a) are policies, controls and procedures for mitigating and managing risks relating to money laundering, terrorist financing or other threats to the integrity of the international financial system,(b) are of prescribed kinds, and(c) are appropriate having regard to the size and nature of the business that the person carries on.”
““relevant business” means business of a kind which entails risks relating to money laundering, terrorist financing or other threats to the integrity of the financial system;”
Lord Ahmad of Wimbledon
My Lords, I stand before your Lordships’ House to reiterate my thanks to all noble Lords who have put a lot of time and energy into making sure that we reached the position that we have today. I would like to take this opportunity to say a few words about the progress achieved in recent months. As many noble Lords acknowledged at Second Reading, this has been the first Bill related to the UK leaving the EU to pass through this House. It has rightly, and I fully respect this, been subject to close scrutiny.
I hope noble Lords recognise the need for legislation. Indeed, I acknowledge that the noble and learned Lord, Lord Judge, notwithstanding our differences and the bridges that have been built in reaching agreement, has consistently recognised the necessity for such a Bill because it allows us to ensure that we can update and lift sanctions, as well as address—here I am grateful to the noble Baroness, Lady Bowles—the issue of an anti-money laundering framework after we leave the EU. I said at Second Reading, and indeed at all stages as progress was made on the Bill, that getting this right will enable the UK to continue to work closely with international partners—yes, our European partners as well—to ensure that we uphold our legal obligations and promote and protect our shared interests and values.
To offer the House some perspective, so far we have dealt with a total of 214 amendments. I am told that we have spent 24 hours and 24 minutes on the Bill in your Lordships’ House—someone has clearly been timing us down to the minute. Noble Lords have listened carefully to the arguments put forward on all sides, and I hope that is reflective of the Government’s attitude. In my opinion, that demonstrates your Lordships’ House at its best. I am confident that the interventions by noble Lords have led to an improved piece of legislation. I am also satisfied that we have been able to agree a range of government amendments, and I am delighted that in several cases these have been supported by noble Lords from across the House, reflecting what I believe is a convergence of views on a number of issues, such as the policy framework for anti-money laundering measures that we have debated today.
I and my officials have engaged closely with noble Lords, both ahead of the Bill and during its passage. In this regard, I put on record my particular thanks to the Opposition Benches, particularly the noble Lord, Lord Collins. We have joked with our respective partners that we have probably seen more of each other than we have of our other halves. Perhaps, with the moving of the Bill, we will be able to provide them with some adequate time. That said, I very much welcome the constructive nature with which the noble Lord has engaged in this, well supported in this regard by the noble Lord, Lord Lennie, with the constructive proposals that he has put forward, and which are now reflected in the Bill, to make absolutely sure that these powers are exercised by future Governments in a spirit of transparency and accountability.
Equally, I am pleased to acknowledge the support, constructive dialogue and exchanges that I have had with the noble Baroness, Lady Northover, for which I am grateful. As I said earlier, I am also grateful to her colleagues, the noble Baronesses, Lady Bowles and Lady Kramer, who have engaged constructively both directly with myself and with real impact, as the noble Baroness acknowledged, on the anti-money laundering part of the Bill.
On my own side—this shows that we are tested from all sides of your Lordships’ House—as I look over my shoulder, I see three noble Lords who have engaged on this, particularly my noble friend Lord Faulks, who has really pushed on the important issue of beneficial ownership, which we have just discussed. I use the term quite directly: he has ensured that the Government’s feet have been held to the fire on that issue. I also thank my noble friend Lady Goldie, who has supported me from the Government Front Bench throughout the passage of the Bill. I am also grateful to other Whips who have supported in this regard.
It would be remiss of me not to thank the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, who, I am told, tabled a total of 50 amendments between them, with a particular focus on strengthening procedural safeguards. I acknowledge and recognise their great expertise and thank them for their collaborative and collegiate approach, which has done so much to improve the Bill.
I would like to thank my Bill team. We have heard from various noble Lords that my team has devoted a huge amount of time and energy to making this work. I thank in particular Louise Williams, the Bill manager, who has also been planning her wedding while working on the Bill; Adam Morley; Jennifer Budniak; and the Bill lawyers, particularly Luke Barfoot and Michael Atkins. There has been a team of more than 50 officials from across government who have supported them, and it has been a truly cross-Whitehall effort. This Bill has played a large part in my life over the past three months but it is only part of my portfolio. The Bill team has been working on it only since last April, but they will continue in their role as a team to shepherd the Bill through the other place. As I move on to other challenges I believe that, with our team, the Bill remains in good hands.
Baroness Northover (LD)
My Lords, when the Minister introduced the Bill at Second Reading, he described it as “technical”. It was, of course, about issues on which we all agree: enabling us to have a sanctions regime and to counter money laundering. No sooner were those words out of his mouth than he and all of us registered how important the Bill was in constitutional terms. It is indeed a forerunner of the massive legislation coming our way in the European Union (Withdrawal) Bill, and much else besides.
I therefore thank the Minister for his mental and political flexibility in realising the significance of the way in which this Bill has been drawn up, but above all for being so ready to engage. I thank him today for his latest statement that he will address the inconsistencies on criminal offences immediately in the Commons. My thanks, too, to the Bill team for its equal readiness to engage with us, even responding to emails on Sundays—I think that was Jonny and Louise—when it was clearly beyond the call of duty.
Issues in the Bill included the usual kind of areas where we sought improvements. We failed to take forward the amendment tabled by the noble Baroness, Lady Stern, but I am sure we will return to that. In other areas we have made progress, either in the Bill or through promises that the Minister made in regard to actions that the Government will take; for example, in relation to NGOs working in fragile states and those who may or may not bank them.
However, of most importance were the constitutional issues. Here we are absolutely indebted to the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, for the clarity of their thinking and their determined engagement. I also think that we owe a huge debt to my noble friends Lady Bowles and Lady Kramer—I thank the Minister for that acknowledgement—for spotting quite how much needed to be addressed on the anti-money laundering side of Bill, and setting about reconstructing it. The best result is indeed when the Government bring forward amendments in response to such concerns.
I am extremely grateful to those in my group who have engaged on this Bill. I can hardly describe myself as leading them—they are far too experienced and knowledgeable to need leading. My special thanks go to my noble friends Lord McNally and Lady Sheehan as well as to my noble friends Lady Kramer and Lady Bowles for the extraordinary amount of work they put in. I also thank the noble Lord, Lord Collins, who has been his usual wonderful self throughout this Bill, and his colleagues, the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Lennie. The Bill signals much beyond what it aims to cover, and we have worked collectively around the House, including with the Government. I thank the Minister for ensuring that that work was in the end so productive. He is now temporarily liberated from the Bill—the Bill team, of course, is not—until it returns to us in due course, hopefully in a very sound fashion.
Lord Pannick (CB)
My Lords, I add my thanks to the Minister and the Bill team for what the Minister accurately described as the collaborative co-engagement on the Bill. It has been quite remarkable and exceptional, and I am very grateful to him. My only regret is that, personally, I prefer a good argument—it may be my professional training—but I realise we are not here for my personal gratification. I very much look forward—perhaps the Minister may communicate this to his colleagues on the Front Bench—to the same collaborative engagement, co-operation and desire to accommodate concerns when we consider any other Bill that may come before this House in the weeks ahead.
Lord Patten (Con)
My Lords, your Lordships may need reminding that, before this excellent Bill was introduced, between April and June last year, some 30,000 people and companies were asked for their views. Just 34 responded with any views in writing. Since its introduction, however, the Bill has received the line-by-line scrutiny expected of your Lordships’ House in Committee. Even I had a go, once or twice.
No one could fairly say that it has not been scrutinised thoroughly before it journeys to another place. There certainly have been some tussles but, below the surface, it has received broad all-party support. This is welcome from the Opposition Benches and Cross Benches, of course—just as some of us, a few years back, in opposition, spoke in equally strong support of the eventual Bribery Act 2010, when ably introduced to Parliament by the then Justice Secretary Jack Straw, whose contribution certainly should not be forgotten. I believe the Bribery Act is still the toughest anti-corruption legislation anywhere in the world, raising the bar far above the earlier US Foreign Corrupt Practices Act. Similarly, if passed by another place and then passed by us again, the Sanctions and Anti-Money Laundering Bill will become its absolute twin, as it were, giving us again another globally tough measure to match the Bribery Act, and marching in step with it.
We must remember that bribery, sanctions breaking and money laundering are very often in practice very closely intertwined. One key test of the legislation before your Lordships’ House is its ability to go beyond the big or top players, right down through the supply chains of corruption via intermediaries, and then down through them to minor actors and mere runners—indeed, that cascade of responsibility referred to so aptly by the noble Baroness, Lady Bowles of Berkhamsted. How right she was. The Bill as amended by your Lordships does just that, as globally we work against terrorism and in favour of maintaining and strengthening the integrity of our financial system, as we have since 1989, when the UK as a key player was one of the G7, which first set up the Financial Action Task Force.
Lord Collins of Highbury
My Lords, I add my thanks to everyone involved in the Bill. I start by thanking my own team, my noble friend Lord Lennie and my noble and learned friend Lord Davidson. These people do not often get thanked publicly, but I thank also the team in the Labour opposition office, including Catherine Johnson, who did a particularly good job in helping me to be well prepared for my numerous meetings with the Minister.
I also thank the Lib Dem Benches, particularly the noble Baronesses, Lady Northover, Lady Kramer and Lady Bowles. We, again, had numerous meetings. One thing that the Minister omitted to mention—he mentioned all the time that we spent in Committee, in the Chamber, scrutinising the Bill—was that we spent substantial time in meetings outside the Chamber. In fact, the Minister got quite anxious at one point when I turned up to meetings with the noble Lord, Lord Faulks. I am sure he felt that I was in the wrong meeting at the time. We had very good cross-party and cross-Bench support, and I add my thanks to the noble Lord, Lord Pannick, and the noble and learned Lord, Lord Judge. We now have a better Bill. It is not necessarily a good Bill in all respects, but it is a much better one than what was originally delivered.
I also pay tribute and thanks to the Bill team, particularly Louise Williams, Adam Morley and Jennifer Budniak, and of course the lawyers. I think I had the most pleasure dealing with the lawyers, and I hope Luke Barfoot and Michael Atkins enjoyed those exchanges as well. They did a terrific job; they are great public servants and, again, they deserve our thanks and gratitude. Obviously, as the noble Baroness, Lady Northover, said, their work will continue.
One thing that surprised me was that at one of the lengthy meetings I had with the Minister, the BBC fly-on-the-wall cameras were there. I hope to God it is better than the programme it did on the House of Lords. I certainly hope I come across much better than some noble Lords did, but let us wait and see—I do not know when it will come out.
My final thanks, of course, go to the Minister. He said at the beginning of this Bill, “I am in listening mode” and I know we joked about that, but honestly, he has listened and his responses prove how much he listened. I am very grateful to him for dealing with us so well on this Bill.
Sanctions and Anti-Money Laundering Bill [Lords]
Tuesday 20th February 2018
(6 years, 9 months ago)
Commons ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 78-I Marshalled list for Third Reading (PDF, 72KB) - (23 Jan 2018)
The Secretary of State for Foreign and Commonwealth Affairs (Boris Johnson)
I beg to move, That the Bill be now read a Second time.
I should begin by paying tribute to my noble Friend Lord Ahmad for piloting the Bill through the other place with such skill and finesse. The aim of the Bill is to grant Her Majesty’s Government full power over British sanctions policy after we leave the EU and, in a memorable phrase, to take back control.
This Government’s driving purpose is to strengthen Britain’s global role and widen the horizons of our foreign policy in order to advance the interests and promote the values of the British people, but if our diplomacy is to be effective, it cannot be solely declaratory: we must have the means to impose a price on those who would threaten to do us harm. In the last resort, that will sometimes mean the use of force—this Government will not resile from acting when necessary—but more often, we back our diplomacy through sanctions. Today, the UK enforces 36 sanctions regimes, targeted on countries such as North Korea, Syria and Russia and terrorist organisations including al-Qaeda and Daesh. In total, about 2,000 individuals and entities are listed for sanctions, varying from asset freezes and travel bans to trade restrictions and arms embargos. At this moment, assets worth £12.5 billion are frozen in the UK.
Our powers to impose those sanctions and measures against money laundering derive almost entirely from the European Communities Act 1972. I am delighted to say that Parliament will soon repeal that Act by means of the European Union (Withdrawal) Bill, which is now before the other place. When that Act comes into force, it will freeze Britain’s adherence to the existing sanctions regimes, but if we do nothing, we will lose the ability to impose new sanctions or remove current ones. That is why the Sanctions and Anti-Money Laundering Bill is necessary. It will give any British Government the power to impose, amend or lift an independent battery of UK sanctions, and update measures against money laundering and terrorist financing, thereby restoring our sovereignty over a vital tool of foreign policy.
The House will readily understand the freedom of action that all British Governments today and in the future will regain. If, for example, there is an international crisis and we judge that sanctions are the best response, we will no longer be compelled to wait for consensus among 28 members of the EU. The Bill will give us the freedom to decide on national sanctions as we see fit, bearing in mind that Britain possesses the fifth biggest economy in the world and the largest financial centre in Europe.
Hon. Members will know that sanctions are most effective when jointly enforced by many nations. Nothing in the Bill will stop us concerting our sanctions with any measures imposed by the EU, but if there is no agreement in the EU, as there often is not, Britain can act independently or alongside other allies. If the EU shares our position, we can act together. The outcome will be that Britain enjoys both freedom of manoeuvre and the option of working alongside our European friends. In the main, I hope that the latter will continue and that we can act in tandem, because the truth is that Britain and our European neighbours will always confront the same threats and defend the same values.
As my right hon. Friend the Prime Minister has said, Britain’s unconditional and immoveable commitment to the security and defence of Europe will not change one iota when we leave the EU, and this country has always played a leading role in devising EU sanctions—it is thanks to our national expertise in this field that the UK proposed more than half of all the individuals and entities currently listed for EU sanctions. The EU will have every reason to concert its sanctions policy with us in future, just as we will be happy in principle to work hand in glove with the EU. The Bill will place this British Government and our successors in the strongest possible position. We will be equipped with the power to impose sanctions independently, but without prejudice to our ability to co-ordinate with our European allies.
The Bill is also necessary for the UK to continue to play its full part in the struggle against money laundering and terrorist financing. Without the Bill, we should soon find ourselves in breach of international standards. I am proud to say that Britain was the first G20 country to introduce a public register of beneficial owners of companies, thanks to the Conservative-led Government. We are now going further by creating a public register of the beneficial owners of any non-UK entities that possess or buy property in this country, or that participate in UK Government procurement. No other state is compiling such a register, which will be the first of its kind in the world.
Mr Jonathan Djanogly (Huntingdon) (Con)
May I ask my right hon. Friend to confirm this: when he says property, is that all property or just real property?
Boris Johnson
I am grateful to my hon. Friend for that intervention—I was referring to real estate. As I am sure he knows, the proposal has the same intention as the tax on enveloped dwellings that was introduced by the former Chancellor of the Exchequer, which has proved, to the best of my knowledge, to be extremely lucrative for the Exchequer.
Dame Margaret Hodge (Barking) (Lab)
Given the Secretary of State’s commitment to the EU’s action on money laundering, is he saying that the Government will implement the fifth EU anti-money laundering directive, which requires that we all have public registers of beneficial ownership by the end of 2019?
Boris Johnson
As the right hon. Lady will be aware, the UK is already out in front of the rest of the world in insisting on public registry of beneficial ownership, irrespective of the implementation of the fifth EU anti-money laundering directive. As I will explain to the House, we already ask the overseas territories to do far more than other jurisdictions that offer financial services advantages.
Dame Margaret Hodge
I would be most grateful if the Secretary of State would give way again.
Dame Margaret Hodge
I am extremely grateful to the Secretary of State. The reason I asked the question is that the EU’s anti-money laundering directive would have an impact on the UK and Gibraltar. I am interested in whether the Foreign Secretary will implement the directive, given that implementation is required by 2019.
Boris Johnson
I do not know the exact stage of the directive at the moment. To the best of my knowledge, we are in the process of implementing it. It should creep in under the wire and will, I hope, have the beneficial effect that the right hon. Lady desires.
Boris Johnson
I will not, if the right hon. Gentleman will forgive me.
As sanctions have serious consequences for the individuals and entities that are singled out, they should be employed only in accordance with the rule of law, so it may be helpful to the House if I describe the scrupulous procedure laid out in the Bill.
Whenever the Government intend to impose a new sanctions regime, a statutory instrument will be laid before Parliament. When selecting targets, we will apply the legal threshold of “reasonable grounds to suspect”, which is the standard that we currently use for UN and EU sanctions. Both the British Supreme Court and the EU’s general court—the former court of first instance—have endorsed the use of that threshold in recent cases, and it is vital that the UK and our international partners continue to employ the equivalent threshold so that our sanctions policies and theirs can be co-ordinated.
The Bill contains safeguards allowing those listed for sanctions to challenge their designation and receive swift redress if it is warranted. Sanctions are not ends in themselves; they must not be maintained simply out of inertia or force of habit once the necessity for them dies away. The Bill will entitle any designated person to request an administrative reassessment by the Secretary of State, who will have a duty to consider any such request as soon as reasonably practicable. The Secretary of State can amend or revoke the designation in response to new information or a change in the situation. As a last resort, the designated person can apply to challenge the Government’s decision in the courts under the principles of judicial review, and the Bill provides for classified evidence to be shared with the court as appropriate.
Britain is obliged by international law to enforce any sanctions agreed by the UN Security Council. If a court in this country believes that such a designation is unlawful, the Secretary of State can use his or her best endeavours to remove a name from a UN sanctions list, bolstered by the fact that Britain has permanent membership of the Security Council. If a Secretary of State declines to seek a delisting at the UN, the relevant individual could challenge that decision before the courts. In addition, the Bill obliges the Government to conduct an annual review of every sanctions regime and place a report before Parliament. The Government are also required to review each individual designation under all regimes every three years.
The Bill allows the Government to grant licences to allow certain activities that would otherwise be prohibited—for instance, to permit any individuals subject to asset freezes to pay for essential needs such as food or medicine. The Bill will also give the Government the power and flexibility to issue general licences that could, for example, allow aid agencies to provide humanitarian supplies in a country subjected to sanctions.
Nigel Mills (Amber Valley) (Con)
Where assets have been frozen—for example, in the case of Libya and its support for the IRA—does the Secretary of State see any scope for a licence to allow that money to be used to help the victims of such outrageous crimes?
Boris Johnson
I completely concur with the objectives espoused by my hon. Friend. Many people would like to see some compensation flowing from a more prosperous Libya to the victims of IRA terrorism and, indeed, to other victims of terrorism. Given what we have done so far with Libya, it would be very difficult to unfreeze the assets; they are not our assets and it would be difficult for us to procure them. On the other hand, there is scope—working with the Libyan Government as Libya gets back on its feet, which is what we are currently working for —to set up a fund for the victims not just of IRA terrorism in this country, but of terror in Libya as well. That is the way forward: the UK and Libya working together to address that historical injustice. I am grateful to my hon. Friend for raising that subject, on which there are strong feelings both in this House and in the other place.
We must never lose the ability to keep pace with the criminals and terrorists who strain every nerve and sinew to confound and evade our efforts. The Bill provides the Government with the power to make, amend or repeal secondary legislation to combat money laundering and terrorist financing. Behind all this lies our primary goal: to restore the independent power of a global Britain to defend our interests and to exert our rightful influence on the world stage, acting in concert with our European friends whenever possible, sure in the knowledge that we are a force for good. I commend this Bill to the House.
Helen Goodman (Bishop Auckland) (Lab)
This is one of many Bills that we need because of our impending departure from the European Union. We agree that sanctions are a crucial lever in our foreign policy armoury. Indeed, their use and usefulness is demonstrated by the fact that we have 36 sanctions regimes on countries ranging from Afghanistan to Zimbabwe, and covering terrorist organisations such as Daesh and al-Qaeda. We accept that the repeal of the European Communities Act 1972 in the EU (Withdrawal) Bill means that the Government must replace it with domestic powers. However, we have a number of questions, criticisms and challenges for the Government about the way in which they are doing that in the Bill.
Money laundering through the City of London is now estimated at £100 billion a year, and the two clauses in the Bill devoted to the matter are wholly inadequate to tackle this massive problem, which is illegal in itself and also hides and enables other crimes, perverts justice, distorts the economy and is seriously undermining our reputation. International standards to prevent it are set out by the Financial Action Task Force and translated—currently via the EU—to national level. We agree that legislation is needed so that we can continue to honour our international obligations.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
Does my hon. Friend agree that if we tackled tax evasion and avoidance, we would not see such modest levels of overseas development? Countries around the world—in Africa and Asia—would be able to finance their own basic services. Those places do have the money, but companies are stealing it via evasion and avoidance.
Helen Goodman
My hon. Friend is absolutely right. Quite a lot of the money that is hidden is hidden by corrupt regimes, particularly in Africa.
A major criticism of the Bill as first drafted was of its Henry VIII clauses. Throughout, the Bill was giving Ministers the power to make regulations—in other words, to make law that cannot be amended by Parliament and is sometimes made without even any debate. In our consideration of the EU (Withdrawal) Bill, Members across the House complained that the level of the Henry VIII powers was so excessive that the Government agreed to a sifting Committee in order to limit the concentration of the power of the Executive. Arguably, with no sunset clause, this Bill is even worse in this respect. Speaking in the other place, the well-named and noble Lord Judge described it as a “bonanza of regulations” and the “Regulation Bulk Buy” Bill. Their lordships defeated the Government twice in votes on this. I hope that the Government will not now seek to undo those changes to the Bill. If so, we will oppose them.
It is surely obvious to everyone that sanctions regimes are effective only when they are co-ordinated internationally, as the Foreign Secretary acknowledged, and we need maximum support across the world and agreed implementation mechanisms to enforce them. However, he did not really answer some of the questions as to how that is going to be done post Brexit. Half our sanctions emanate from the EU. I am not saying that this is necessarily a matter for legislation, but surely the Government should have a plan for how we are going to be involved in EU decision making on sanctions regimes and the implementation of those regimes. Ukraine is a good example of where that is needed. What specific plans has the Foreign Secretary developed for a framework to provide for continued co-operation with the EU on foreign policy issues after we leave? What discussions have been held on that particular issue in the Brexit talks? What are the Government seeking to achieve in their negotiations with the EU on that matter? We were warned last week by the three spy chiefs that, without co-operation with our EU partners in intelligence sharing, policing and judicial matters, it would be difficult to enforce compliance on sanctions, which are vital for dealing with terrorism and proliferation.
Labour’s view is that the core principles of sanctions policy should be that sanctions are targeted to hit regimes rather than ordinary people; minimise the humanitarian impact on innocent civilians; and have clear objectives, including well-defined and realistic demands against which compliance can be judged, with a clear exit strategy. There should be effective arrangements for implementation and enforcement, especially in neighbouring countries, and sanctions should avoid unnecessary adverse impacts on UK economic and commercial interests. We will seek to amend the Bill to ensure that those principles are adhered to throughout.
One very big and obvious hole in the Bill is its failure to incorporate Magnitsky clauses, which the House has repeatedly supported and voted for. Sergei Magnitsky was a Russian lawyer who uncovered large-scale tax fraud in Russia. For his pains, he was imprisoned and tortured throughout a whole year, finally dying having been brutally beaten up while chained to a bed. We will be tabling a Magnitsky clause that would enable sanctions to be made in order to prevent or respond to gross human rights violations. Such provisions have been adopted in the United States and Canada, and they were also reflected in the Criminal Finances Act 2017. I cannot understand how or why the Foreign Secretary has missed this opportunity; perhaps he has been too busy designing bridges. Such a step is not just about Russia. We are now in the strange position that the United States has tougher sanctions than we do on Myanmar.
Boris Johnson
I hesitate to accuse the hon. Lady of failure to read the Bill, but clause 1(2) makes it absolutely clear that sanctions can be imposed to promote human rights. A fortiori, that obviously involves a Magnitsky clause to prevent the gross abuse of human rights. The measure that she seeks is in the Bill.
Helen Goodman
I am afraid that I do not think the Bill makes that clear. First, it does not include the phrase, “gross human rights abuses”, which the Foreign Secretary just used, and furthermore, it does not refer to public officials. This is a matter that we can debate upstairs in Committee, and I will be happy to do so with the Minister.
Another key area that the Government have failed to address properly is the position of refugees and victims of human trafficking. Last month, the House unanimously resolved:
“That…conflict resolution…and the protection of human rights should be at the heart of UK foreign policy and that effective action should be taken to alleviate the refugee crisis”.
There are now 66 million refugees—more than there have ever been and more than the population of the United Kingdom. The flow of desperate people across the Mediterranean and through Turkey is continuing. Yet the Bill gives no impression that Ministers have given any thought whatsoever to the plight of these people, who are seeking refuge from desperate and protracted conflicts around the world.
The Minister for Europe and the Americas (Sir Alan Duncan)
May I draw the hon. Lady’s attention again to clause 1(2)? Paragraph (e) mentions exactly what she is talking about—promoting
“the resolution of armed conflicts or the protection of civilians in conflict zones”.
Paragraphs (f), (g) and (h) refer exactly to the human rights abuses that my right hon. Friend the Foreign Secretary mentioned in response to her earlier comments.
Helen Goodman
That is absolutely true, but if the Minister reads a little further into the Bill and looks at clauses 6 and 7 on aircraft and shipping, he will see that there are some problems at that point. Again, we can come back to this in Committee.
The Bill states that prohibitions can be applied to UK nationals and companies based in the United Kingdom, but not against companies based or incorporated in the British overseas territories. Recent reports from UN monitors implicate territories such as the British Virgin Islands in the setting up of front companies that helped North Korea to evade the sanctions imposed on it. The problem of sanctions avoidance is very serious. Last week, I was told in answer to a written parliamentary question that the total cost of financial sanctions reported as having been breached last year was £170 million. This afternoon, I received a letter from the Treasury, which has looked at the numbers again and says that the number is £1.4 billion. We need to look at this in more detail in Committee.
I now turn to the anti-money laundering provisions—what one might call the McMafia section of the Bill. To set this in context, the Home Affairs Committee report of June 2016 found:
“Money laundering is undoubtedly a problem in the UK…It is disgraceful that at least a hundred billion pounds is being laundered through the UK every year. If the UK is to remain the centre of global finance, this must be addressed.”
It pointed out that
“money laundering takes many…forms…from complex financial vehicles and tax havens around the world through to property investments in London…and high value jewellery. It is astonishing that just 335 out of some 1.2 million property transactions…were deemed to be suspicious. This suggests to us that supervision of the property market is totally inadequate”.
At the moment, it is far too easy—
Layla Moran (Oxford West and Abingdon) (LD)
Is the hon. Lady aware of the geographical targeting orders piloted by the USA that we were told about in the Public Accounts Committee during our trip to Washington last week? Does she know that 30% of the properties investigated were found, in the end, to be owned by nefarious people?
Helen Goodman
That is very shocking. I did not know about it. I hope that the hon. Lady will dilate on the matter further during the debate.
It is obviously possible for people to buy a property, take in rent in perpetuity and have a clean income. In evidence to the Home Affairs Committee, the surveyor Henry Pryor said:
“we do have the equivalent of a welcome mat out for anybody to come if you want to launder your money.”
Money laundering enables the corrupt to live in comfort and security. It is also used to finance other serious and organised crime such as drug dealing, human trafficking, terrorism and even the illegal arms trade and WMD sanctions busting. The click of a computer mouse in London or the overseas territories can mean untold misery across the globe. The Government’s own impact assessment for the Bill says:
“As a global financial centre, the UK is particularly exposed to the threat of being exploited as a destination or transit point for illicit funds”.
Ministers know that this is a problem. Between 2013 and 2016, David Cameron’s Government issued increasingly strong statements and promises, culminating in the May 2016 global summit. There were three specific proposals: a transparent register of beneficial owners of all companies registered in the UK, similar registers in the British overseas territories and Crown dependencies, and a public register of foreign owners of UK property. However, the implementation has been halting, under-resourced, partial and confused. Currently we have at least 25 different regulatory bodies. It is true that we can now see on the Companies House register who the person is with significant control, but last year 400,000 companies failed to submit the information. Companies House has no due diligence procedure and employs only 20 people to supervise 4 million entries.
Lloyd Russell-Moyle
Does my hon. Friend share my concern that, when one of my constituents reported a fraudulent entry in the Companies House register, the response from Companies House was that it does not do the enforcement, but is just the registry? This fraud is a mockery of the whole registry system.
Helen Goodman
My hon. Friend has brought precisely the point to the House in highlighting that unfortunate episode.
Registers have been introduced in some of the British overseas territories, but they can be accessed by the authorities in London only when the authorities have a reason to be suspicious. The inadequacy of that approach was demonstrated by the publication of the Panama papers and the Paradise papers. According to the Guardian investigators, the law firm Mossack Fonseca, operating out of Panama, acted for 113,000 companies incorporated in the British Virgin Islands, which hosts 950,000 offshore companies. That is a country with a population of 30,000. This is public interest journalism at its best—fearless, determined and forensic. Had it not been for the excellent investigatory journalism, we would not have known that Britain’s high street banks processed $740 million from a vast money-laundering operation run by Russian criminals through anonymously owned firms, nor that Mukhtar Ablyazov, who fled Kazakhstan in 2009 after $10 billion went missing from the bank he chaired, had a Cayman Islands trust set up by law firm Appleby.
Significantly, HMRC has been able to use the information revealed in Panama and Paradise to open civil and criminal investigations into 66 people and pursue arrests for a £125 million fraud, tackle insider trading and place dozens of high net worth individuals under review. Imagine how much more effective it could be if transparency were the rule and not the exception.
Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)
My hon. Friend makes a good series of points about the nature of the British overseas territories and Crown dependencies. Given that the Bill considers the whole nature of our governance structures after Brexit, does she agree that we should look in a broader sense at the curious structure of British overseas territories and Crown dependencies? We should perhaps follow the example of France, which has incorporated its overseas territories into its metropolitan country and given them a democratic place in its legislature. We could consider the same thing.
Helen Goodman
My hon. Friend is right that the situation is complex—we have one legal regime for the overseas territories and another for the Crown dependencies—but I think that that would be beyond the scope of the Bill.
The all-party parliamentary group on responsible tax, led by my right hon. Friend the Member for Barking (Dame Margaret Hodge), has been pursuing this agenda energetically for several years now, and across the House, Members want effective action.
Another scandal is the use of London property by oligarchs, corrupt officials and gangsters from across the globe. I am talking about people like Karime Macías, the Mexican wife of the former Veracruz Governor Duarte. He has been imprisoned and charged with corruption, money laundering and involvement in organised crime. His years in office saw a spike in disappearances and murders, while she claims to be a fugitive in London.
When I was young, if you drove through Chelsea at night, it was full of light because people actually lived there. Now, swathes of London are pitch black, as properties are bought simply as money safes. Meanwhile, in the outer boroughs, which the Foreign Secretary never visits—
Boris Johnson
As the hon. Lady may recollect, I was never out of the outer boroughs when I was Mayor of London, and the former Mayor of London visited Havana more often than he visited Havering.
Helen Goodman
I wish the Foreign Secretary was as energetic in his pursuit of the corrupt in this Bill as he is concerned to defend his own record on travelling around the London underground.
In the outer-London boroughs, new buildings are bought off plan and some never even have the cellophane unwrapped. Global Witness has found that 86,000 properties in this country are owned by companies in secrecy jurisdictions. The Cayman Islands representatives told me, when they came to see me in preparation for the Bill, that they were responsible for 11% of the property investment in Britain, pushing up prices so that they are unaffordable, and young people’s home ownership in this country is now at an all-time low.
The new register promised by the Government in 2015 has been put back by six years. There must be a suspicion that this secrecy continues because some senior Tories use it. Just one example will suffice. Lord Sassoon was revealed by the Paradise papers to have been a beneficiary of a Bahamas trust fund that has sheltered a family fortune worth hundreds of millions of dollars, yet he was a Treasury Minister and the man charged with presiding over the Financial Action Task Force—the very body tasked with setting the standards to combat money laundering.
We are going to pursue all these issues over the coming weeks. I cannot do better than quote the global summit communiqué, which said:
“Corruption is at the heart of so many of the world’s problems. It erodes public trust in government, undermines the rule of law, and may give rise to political and economic grievances that…fuel violent extremism. Tackling corruption is vital for sustaining economic stability and growth, maintaining security of societies, protecting human rights, reducing poverty, protecting the environment for future generations and addressing serious and organised crime…We need to face this challenge openly and frankly”.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
I draw the House’s attention to my entry in the Register of Members’ Financial Interests.
I want to start by making it clear that I think this is a very good Bill. It is clearly the right approach to take in these circumstances and a good administrative measure. It delivers sensible and orderly governance and addresses quite rightly the post-Brexit situation and the new framework for implementing sanctions. My purpose in this debate is to suggest two ways in which the Bill can be improved further.
First, I draw the Foreign Secretary’s attention to an area of the Bill that the Minister for Europe and the Americas understands extremely well. Sanctions regimes inevitably affect the peace-building work that humanitarian agencies do in some fragile and difficult places, and in particular key NGOs operating in sanctioned countries. I pay tribute to the remarkable work that is being done by British NGOs in some very difficult parts of the world; I am thinking, for instance, of Syria and Yemen.
Clare Short, the distinguished former International Development Secretary—she set up DFID—and I gave evidence to the Select Committee on the difficulties that can arise for the agencies on occasion. They can fall foul of terrorism measures, which adversely affect their life-saving work. There are difficulties in working in lawless areas, which inevitably involves negotiating with some extremely bad people. Under the regime that the Foreign Secretary is ushering in, the Bill will bring much greater clarity for donors who deliver via NGOs and for banks worried that they may fall foul of the regulations. It will help to reduce bank de-risking—I have heard of NGOs not being able to maintain access to their bank accounts or to transfer funds because of the regulations—when banks fear that they may breach sanctions by providing banking services. I hope the Bill will reduce banks’ concerns, assist transport and logistics companies in their work, help NGOs to access formal banking channels, and reduce or eliminate possibilities for remittancing, which, as Members on both sides of the House will know, involves a far bigger transfer of funds to the poor world than international aid.
The Geneva convention states that humanitarian aid be provided to those most in need, without discrimination. The Bill has the capacity to empower leading UK and experienced international charities to carry out our international obligations under such conventions yet more effectively. Building on that, we want to see a general licensing system for financial transactions for the provision of goods and services, which are essential to the delivery of critical aid, for individuals and entities that may be located in areas covered by sanctions.
My first point is that, while accepting that the Government have international obligations in respect of sanctions regimes that inevitably have an impact on the Government’s ability to deliver those commitments in full and on all occasions, the Bill nevertheless has the power to improve this area greatly. I hope the Minister for Europe and the Americas—as I have said, he has a very strong understanding of these matters from his time as an International Development Minister—will say a word or two about that tonight.
My second point is also about an area in which the Bill can be improved. This was mentioned by the hon. Member for Bishop Auckland (Helen Goodman), who led for the Opposition. It builds on the important comments made recently by David Cameron, the former Prime Minister, about the Magnitsky rules and the Magnitsky amendment, and I hope that the Bill is susceptible to improvement in that respect.
In spite of our self-image as a country that lives by the rule of law, the reality is that officials from autocracies around the world who are guilty of appalling crimes come to London to live safely and comfortably without much interference from us. There is now a mechanism to prevent this, which is used by the United States and other countries, called the Magnitsky Act. It is named after the Russian whistleblower Sergei Magnitsky, the appalling treatment of whom was described by the hon. Lady. The Magnitsky Act freezes the assets and bans the visas of human rights violators from around the world. The State Department recently published its Magnitsky list, which includes the son of Russia’s general prosecutor, a general from Myanmar implicated in ethnic cleansing, the ex-dictator of Gambia, a shady international fraudster from Israel and a retired Pakistani colonel suspected of organ trafficking. Alarmingly, every single person on that list is able to travel to the United Kingdom.
Last year, Parliament took an important step to combat this impunity by passing the Magnitsky amendment to the Criminal Finances Bill, under which human rights violators can now have their assets frozen by the Government. Unfortunately, the law is narrowly defined and does not match the standard of other Magnitsky laws around the world. For example, it does not address the issue of visas, and it places a huge burden on the Government in going to court to obtain an order to freeze assets, rather than giving my right hon. Friend the Home Secretary the power to do so by decree.
The Magnitsky amendment to this Bill—I very much hope it will be considered in Committee or, if not, on Report—would bring our legislation into conformity with Magnitsky Acts around the world. Any amendment would define precisely the types of human rights violators to be sanctioned, and most importantly, it would follow an example set by the United States and other countries by placing a requirement on the Government to report annually to Parliament on how effectively the sanctions regime is being used. In my judgment, we should not allow the Government to declare victory over human rights violators with the passage of a law that never gets implemented. I believe that such an amendment may well attract support from all right hon. and hon. Members on both sides of the House. I submit that, if passed, it would bring this aspect of UK law up to international standards.
John Penrose (Weston-super-Mare) (Con)
As the Prime Minister’s anti-corruption champion, I am listening very carefully to what my right hon. Friend is suggesting. He mentioned existing legal powers. Does he have any sense of how often they are being used at the moment, even though he believes they are relatively narrowly defined?
Mr Mitchell
It is early days, but I think the existing powers are being used rather less than my hon. Friend and I would wish, and I have read out a list of people who are sanctioned by other countries, but not sanctioned by the UK. That was my second point.
My final point relates to the much discussed issue of open registers and the overseas territories. The House will recall the actions of the coalition Government and Britain’s leadership at the G8 in tackling tax evasion and tax havens. I thought the hon. Member for Bishop Auckland was a touch too curmudgeonly in acknowledging the extent to which the coalition Government made real progress on those matters. The UK has introduced publicly accessible registers of people with significant control, abolished bearer or anonymous shares and introduced unexplained wealth orders, while the anti-bribery law was finally introduced by the coalition Government. Britain has a proud record of world leadership on this under a Conservative-led Government.
This is the fourth occasion on which I, along with my right hon. and hon. Friends—under the able, cross-party leadership of the right hon. Member for Barking (Dame Margaret Hodge)—have tried to coax the Government into visiting on the overseas territories the same level of openness and transparency as we have in this country. Let us be clear on the constitutional position, which the Government set out in 2012:
“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”
The overseas territories themselves recognise that they gain hugely from their relationship with the United Kingdom.
The overseas territories have been resistant to this argument for three reasons. The first—let us call it the Dutch Antilles argument—is that if they have open registers, all the hot money will head off to other less law-abiding jurisdictions. Leaving aside the issue of whether any decent person should wish to handle hot money obtained through corruption or worse, the fact is that the international consensus is to bear down on such havens, and their footprint is narrowing. Indeed, havens that embrace such transparency will secure a business advantage precisely because their legitimate business will no longer be tainted by fears of the reverse. There is an understanding of this point in at least some of the overseas territories, which, if I may put it this way, camp on the prayer of St Augustine: “O Lord, make me chaste, but not yet.”
The second argument, which we must address head-on, is that the overseas territories’ private registers are already available to lawmakers and regulators such as the Inland Revenue. The territories proudly say that they can turn around inquiries from HMRC within hours. This is commendable, but it completely misses the point. That fact is underlined by the recent release of information by journalists, which the hon. Member for Bishop Auckland mentioned. Registers must be open—to civil society, the media, journalists, non-governmental organisations—if all the relevant dots are to be joined up, as the release of the Paradise papers so clearly shows. With the best will in the world, the regulatory authorities are not in that business, and narrow questions from regulatory authorities simply do not suffice.
Finally, I come to the point made movingly by the Foreign Secretary that many, although not all, overseas territories suffered an existential calamity from the recent hurricanes. The whole House will share his concern. I am sure the whole House can assist by agreeing, in any amendment, a longer but definitive period of time in which this reform in the overseas territories should take place.
Around the world, the UK is looked to and respected for its leadership on international development. Helping the poorest in often far-flung places is written deep into this country’s DNA. It is who we are as a Parliament. The appalling but temporary crisis afflicting Oxfam will not change that. We have an obligation, not least to our own taxpayers, to champion transparency and openness, and to have zero tolerance towards corruption. The highly respected Africa Progress Panel has shown that in the Democratic Republic of the Congo more than £1.5 billion of stolen funds and taxes have disappeared. These are funds stolen from some of the poorest people on the planet, who by contrast live in one of the richest mineral and resource-endowed countries in the world. As the World Bank has made clear, the money stolen from the people of Africa through unpaid taxes or concealment dwarfs all the foreign direct investment and international development money that flows into Africa each year. Much of that money ends up salted away in the tax havens I have described. We owe it to the poor of Africa, as well as to our own taxpayers, to take the action we can to bring about an end to this scandal.
I urge the Government, on this fourth occasion, to look very seriously at the amendment that will undoubtedly be tabled by the right hon. Member for Barking (Dame Margaret Hodge) on Report, if not before. Four times we have been around this track. There is significant support on both sides of the House for that amendment. I urge those on the Treasury Bench to look very seriously at whether they can accommodate the House of Commons on this point.
Alison Thewliss (Glasgow Central) (SNP)
This is another Bill that has been caused by Brexit. EU co-operation has been crucial to sanctions and anti-money laundering, and we have moved quite far along the road together as friends, neighbours and colleagues. A lot of concerns about the Bill have been voiced in relation to the justification of proportionality, and whether it takes us in the right direction to give us the opportunity to correct the flaws in our own systems.
Sanctions, as other hon. Members has said, are effective when we have co-operation, particularly as an EU block. That reflects the limitations of sanctions from the UN Security Council, because there is not always agreement among its permanent members. We need to find our place. Our place is not in the EU, as it was, but it is not entirely as other states are in the world. We need to find out where we are. Tom Keatinge from the Royal United Services Institute has said that we may have greater flexibility, but we will certainly have less influence. Ministers need to be reminded of that. I see that the Foreign Secretary has scuttled off without hearing me, which is kind of him. Without the active co-operation and engagement of Ministers with the EU, we will not be able to be the most effective at imposing sanctions. We should not pour our own collective efforts over the years down the stank just because we are leaving the EU. Unilateral sanctions bring with them a recognised risk that while we might want to do the right thing there may be repercussions. Being a part of EU collective action cushions us to an extent from that risk. We do not want to be marginalised in the world. We must take care to make sure that does not happen.
Jim Shannon (Strangford) (DUP)
The hon. Lady makes a valid point, although I have a different opinion on Brexit. Does she not agree that our ability to implement sanctions and address money laundering are essential components of our exit from Europe and that it is vital we have the same protections in place in the international market? We must look at the possibility of even enhancing them and making them even stronger.
Alison Thewliss
I agree that we perhaps can and should enhance what we do, but we must take care not to lose what we have so far. We must not lose that co-operation and sense of common purpose against evils in the world, which we have had as a part of the EU.
I support the points on human rights made by the hon. Member for Bishop Auckland (Helen Goodman). Ministers did not quite recognise the point that paragraphs (e), (f), (g) and (h) in clause 1(2) are in the Bill because they were put there by a Labour Lord. She may have made that point, but I did not want to let it pass without having recognised it. The Government should not be taking credit for things they did not do and did not put in the Bill. Those paragraphs should be in the Bill. Anything that can enhance the importance of human rights in the Bill should be there.
The NGO sanctions and counter-terrorism working group, chaired by Bond and the Charity Finance Group, has asked for protection in law for humanitarian and peace-building work, as that is, to a degree, currently inhibited by the EU regulatory framework on sanctions. As the right hon. Member for Sutton Coldfield (Mr Mitchell) set out, aid operations in parts of the world that are extremely dangerous and under sanctions from the UN and the EU still have to have aid workers. They have to build up relationships on the ground. They may not be comfortable with them and they may be difficult, but aid would not happen without them.
Currently, there is not sufficient protection in the Bill. There is reference to general licences with a bit more focus on guidance. Clause 37(1) states that the Minister who makes the regulations must issue guidance, but clause 37(2) states only that guidance “may” include guidance about compliance enforcement and disregards. That is not concrete enough. The guidance should be more certain, so that people know the regime they are working under, know the risks involved in what they are about to do and know if there will be any comeback from the actions they take. I do not think that that is clear enough, and I would like to see improvements in this area of the Bill. More concrete assurances are required.
That concern is shared by the banks. The UK Finance briefing on the Bill says that there is a fear of misuse, but there has to be a way to get around that. It provides the example of banks avoiding any transactions whatever with Iran, due to the risk of being sanctioned by the US—its sanctions regime is far-reaching. That risk alone has a chilling effect on its transactions in that area, regardless of any actual certainty. Sanctions will have an impact on such countries for many years to come, even after sanctions have ended. Banks need to have the confidence that they can deal with a country consistently over a number of years without falling foul of sanctions that suddenly reappear. The people working in such countries need to interact with donors, banks and transport and logistics companies. They need comfort on that. They need to buy fuel. They need to buy mobile phones. They need to make payments to move about the country and to let aid flow. For example, it is not possible to move around Yemen because there are different forces imposing different visa regimes. Moving around the country may involve making payments that fall foul of sanctions.
Stephen Kerr (Stirling) (Con)
Is the hon. Lady in effect agreeing with the Law Society of Scotland’s interpretation of the need in clause 1 for a list of all sanctions, including descriptions of any designated person and types of sanction imposed, and exemptions from such sanctions? Is that the thrust of the point she is making, because I agree with that?
Alison Thewliss
I thank the hon. Gentleman for agreeing with me. It is very rare and very nice, and I thank him for it. Yes, there has to be a good deal more clarity. I welcome the Law Society’s view, because that is not clear in the Bill. If people are working in that environment, they need certainty. For aid to flow and for banking transactions to flow, there has to be clarity.
UK Finance seeks further detail in clause 18 on extra-territorial application. It wants to know exactly what a UK element constitutes and what its reporting obligations might be under that regime, because it is not entirely clear.
Scrutiny and transparency are somewhat lacking. There is a lot of scope in the Bill for Ministers to create significant new criminal offences through secondary legislation, some of which would carry a sentence of 10 years in prison under clause 17(6). It is constitutionally unacceptable for that type of thing to be created by Ministers, and it is not just me saying that. The House of Lords Constitution Committee wants beefed-up parliamentary scrutiny, and the House of Lords Delegated Powers and Regulatory Reform Committee states that the provisions
“confer exceptionally wide powers which are capable of being applied to a very wide range of persons, with a very wide discretion being given to Ministers to determine the persons against whom sanctions measures may be applied.”
We should be concerned about that and seek corrections later in the process.
The Secretary of State, who has left his place, may not make decisions in haste, but we have to be concerned about the future. This is not a Bill for just now, but for many years to come, so the powers that we put in it are very important. The European Scrutiny Committee currently looks at EU sanctions that go through. We need to know what scrutiny process in this place will replace that, because it is important to ensure that things are being done properly and are above board.
At clause 21(4)(a) and (b) and clause 25(3)(a) and (b), a review process of three years from the laying of a sanction is mentioned. I would like clarity from the Government about why that is three years, because I understand that in the EU process it is only one. The Secretary of State said that a person who has been subject to a sanction has the ability to request from him that it is reviewed. Given that circumstances change and given the way of the world today, perhaps three years is a little too restrictive. We might want to push that down a bit further, or at least give scope for it to be varied, given the circumstances.
Clause 41—a Henry VIII clause, which has the power to authorise additional sanctions—is very like the other clause that I just mentioned, and again, the Lords Constitution Committee had concerns when it looked at it. The clause allows the amending of the definition of sanctions and puts a lot of powers into the hands of Ministers. What is the mechanism, the clause or the parliamentary check on that? Where is the means for Parliament and Committees of the House to have their say on the scrutiny of that? It is fundamentally important to have checks and balances in the system.
I am a member of the all-party parliamentary group on responsible tax, as is the right hon. Member for Barking (Dame Margaret Hodge), and I am pleased to see her amendment on beneficial ownership. I look forward to hearing her later on in the debate hopefully talking about that a wee bit more. There are a lot of issues about working with overseas territories and Crown dependencies. Much as I do not wish the House to legislate on Scottish matters, I do not want us to legislate for overseas territories or Crown dependencies without consent. That is very important. If we want to get buy-in and compliance, imposing things upon people may not necessarily be the best way to do it.
Sammy Wilson
The hon. Lady has hit on a very important point. If changes are to be made in the Crown dependencies and overseas territories, it must be by persuasion, rather than imposition. Does she agree that so far, by using persuasion, significant changes have been made in transparency in those countries? That should perhaps be the thrust of future Government policy to ensure that these areas do not become places where money can be hidden and laundered.
Alison Thewliss
We have to be very careful. To an extent, we push people and give them a carrot, and in a sense, we have a stick. We have to weigh up in all of this where exactly they are on that continuum and with compliance. Will Ministers tell us what conversations they have had with the likes of Guernsey and Jersey? Do they have confirmation of a permissive extent clause? I am very keen to see open registers. The right hon. Member for Sutton Coldfield laid out some points on that excellently. If the registers are there, they should be publicly available. We want to see transparency everywhere, but we also need to bear in mind that we have a long way to go on ensuring that everything that we do is absolutely correct and proper.
There are clearly issues and disputes among people about their interpretation of the proposals. Having read a submission from Jersey and Guernsey, I know that their account of affairs is quite different from other people’s. Perhaps we will have time in Committee to discuss this a wee bit more, take evidence and see in more detail exactly what needs to be done, how far people can be pushed, cajoled or brought along, or whether or not we need take this action and the extent to which it has a different force.
Dame Margaret Hodge
I am intrigued by the hon. Lady’s contribution. We all want to move forward on the basis of consent, but I slightly disagree with her about how fast the overseas territories are moving. It has been five years since David Cameron first encouraged them to develop public registers of interest. Will she give us some indication of when she thinks that the broader interest of having those public registers and the role that they could play in tackling financial crime would override her absolutely instinctive desire to seek consent in moving forward?
Alison Thewliss
I agree. That is the point I was trying to make, fairly badly I suppose: how long do we leave it? Has it been five years with no sign of anything, or five years with some sign of something? We need more conversations to see exactly where things are, but I am keen to support the right hon. Lady’s amendment.
There is slightly more concern about overseas territories such as the British Virgin Islands and Bermuda. When we look at the extent of the Panama papers and the Paradise papers, we cannot fail to be deeply concerned by the extent of nefarious transactions, out-and-out theft and money laundering, particularly when it involves, as other Members have said, the siphoning—the guzzling —of funds from countries whose populations can least afford it. We should be deeply concerned about that, and there seems to be little indication that they will comply at all. Perhaps there is a different approach from the Crown dependencies and the overseas territories on how willing they are to comply with what has to be done to make things transparent and open.
Moving on to part 2 and clauses 43 and 44, on the progress towards beneficial owners of overseas entities. This is very encouraging, but again the thing with the Bill is that action is required. Action is required to check up on all these companies and registrations. Action is required on enforcement and prosecution, and enforcement action requires agencies, intelligence, people and boots on the ground to make sure that it is done. It is fine to have law, but if we do not have anybody to enforce it, there is absolutely no point at all.
Scottish limited partnerships are a particular example of where things are not being enforced. This was bequeathed to me by Roger Mullin, and I am very grateful. It is estimated by Richard Smith and David Leask, who have been working hard on this issue—hon. Members will have seen some of David’s reports in The Herald—that an estimated 20,000 to 28,000 SLPs are of concern. The Herald recently reported that a former president of Peru has been accused of taking £4 million of bribes that have been funnelled through a shell firm based in Scotland. These things should be checked up on and enforcement action should have been taken, but SLPs have become a cover for all manner of murky and dubious behaviour.
As Transparency International and others have said, the missing link in all this is Companies House, because it does not have the duty to refuse a company’s registration; it has to register the company. It does not check up on whether it is legitimate, or whether the people who are registering it actually exist, and it is less compliant than the agents who use it, so there is no benefit to someone going through an agent if they can go through Companies House and avoid all the scrutiny. We have an opportunity in the Bill to close that loophole, because for me, Companies House is ignoring its money laundering duty.
There are wider concerns about shell companies. I invite the Minister to look at New Zealand, which was in a similar situation. However, its regulations have seen a near eradication of its 5,000 shell companies, which were registered to only about a dozen addresses in New Zealand. Part of the solution was a requirement for a New Zealand-based director, which made a huge difference almost overnight.
Mr Sweeney
Another interesting example from the recent Labour Government in New Zealand is the idea that they could ban the overseas ownership of property. Given the huge inflationary pressure in the UK housing market, usually from the opaque overseas ownership of UK property, perhaps we ought to consider that measure in this country as well.
Alison Thewliss
Yes, that would be a very useful addition. The Secretary of State did not answer the questions on the fifth money laundering directive: how it will be transposed; how it will be scrutinised; if there is a transitional phase; what that transition will look like; how we will prevent any loopholes; and how we will make sure that criminals do not exploit that transition.
Sir Alan Duncan
Perhaps at this stage I can give the hon. Members for Glasgow Central (Alison Thewliss) and for Bishop Auckland (Helen Goodman) the answer they are seeking on the fifth money laundering directive. It will be published in the summer of 2018 and member states will have 18 months to implement it. That will be after we leave the EU, so whether we or Gibraltar are legally required to transpose will depend on the terms of the implementation period, which of course are under negotiation.
Helen Goodman
Perhaps the hon. Lady would like to ask the Minister whether the powers he is taking in chapter 3—temporary powers in relation to EU sanctions lists—will not give him the power to enforce the fifth money laundering directive.
Alison Thewliss
That is a very good question. I do not know whether the Minister wants to take this opportunity to answer it—perhaps not. He has heard the question, so I need not repeat it.
Finally, I want to refer to the Scottish Government, because aspects of the Bill reflect some of the powers that lie within Scotland. The Court of Session is referred to in clause 33(2) and clause 34(2). What consultation has there been with the legal profession in Scotland and with the Scottish Government on that? On clause 47 —“Regulations: general”—the power to change devolved legislation under the negative procedure is really not cool. It is not just I who object to this; the Library briefing states that this will
“enable ministers to make supplemental, incidental, consequential, transitional or saving provisions repealing or otherwise amending existing legislation, including devolved legislation.”
Lord Judge referred to this clause as “monstrous”. Has the Scottish Government been consulted on this provision? What has the Minister got to say about this? This power grab, hidden on page 35 of the Bill, is something that I will seek to amend in Committee.
I support any moves to improve the scope of the Bill, and I look forward to hearing the rest of the debate.
Mr Jonathan Djanogly (Huntingdon) (Con)
The Bill constitutes one piece of a patchwork of laws that are currently going through Parliament to create a post-Brexit framework of legislation, but it is potentially much more than just an enabler for the UK to implement sanctions post Brexit. Thinking about the Bill, it became clear to me how many scenarios it will actually cover, from sanctions used as an alternative to military or technological warfare to sanctions used to express the protection of national sovereignty or to counter financial corruption or human rights abuses, and in each case at state or individual level.
In short, I think that this is a good piece of legislation that will address the mechanical issues that we need to implement. As the Foreign Secretary has said, it recognises that the majority of sanctions implemented by the UK are derived from UN Security Council resolutions or EU multilateral agreements. In practice, our EU and domestically derived powers to implement multilateral sanctions and any domestically generated ones will be limited by redundant or inadequate UK legislation. Therefore, mechanically, the Bill does the job.
I have seen the Lords amendments to the Bill. As is so often the case, the other place has done a thorough job of tightening up these inherently intrusive provisions to provide more focus and to take on board human rights considerations and reporting requirements. There was also a significant narrowing of the Henry VIII powers to create new sanctions, which is generally to be welcomed.
However, there is of course much more to consider than just whether we can practically implement sanctions. There are also the policy questions of what types of sanctions we want to issue; to what extent we wish to continue following the sanctions regimes of various national groupings, or whether we increasingly want to assert our own new policy post Brexit; and how our view ties in with our wider policy objectives on the trade and security fronts going into our Brexit negotiations.
In that context, I recognise and strongly support how the Prime Minister spoke out recently in Munich, and before that in her Mansion House speech and on her visit to Estonia, against Russia meddling in elections and planting false stories in the media to “weaponise information”, and also against its aggression towards eastern Europe, which is threatening the international order. However, I suggest that this admirable and strong rhetoric needs to be backed up with more specific proposals showing how and with whom we intend to use sanctions in the post-Brexit world. I was somewhat surprised that more space was not given to that policy issue in the Foreign Secretary’s speech this evening. Yes, of course trade policy will be vital post Brexit, but so will our ability to protect our trade interests and our wider democratic values.
More to the point, if we do not stand up, engage on this issue and lead in the way that many countries expect us to, our authority and influence could quickly disappear. The UK was a party to the Budapest memorandum, by which Ukraine renounced its nuclear weapons in return for what it thought would be peace with Russia. But when it came to Europe taking ownership following the betrayal by Russia and its occupation of Crimea and east Ukraine, it was France and Germany, rather than the UK, that led on sanctions.
Is that a portent of post-Brexit Europe, with reducing UK influence? If we do not lead, will we simply fade away to relative international insignificance, in the same way that a couple of months ago the UK lost its seat on the International Court of Justice for the first time since its foundation in 1946? I repeat that we need leadership on this issue as to where we want to place ourselves as an international player, if we are no longer the global superpower we once were.
The key emerging issue on our future trade with the EU is that of regulatory alignment—whether we have it at all and, if so, whether it should be implemented by our choice or by tying ourselves to future changes through membership of the European economic area, for instance. The debate over alignment also holds for sanctions, but with a key difference, I believe: barring the extreme positions on the far left and the UKIP-style non-interventionist right, most of us would agree that close co-operation with the EU and the US will remain vital, and perhaps even more so now that we are possibly to lose our seat at the EU table and lose the leading role that the Foreign Secretary referred to in his speech today. That seems to have been confirmed by the Prime Minister in Munich last Friday, when she said that the UK will be leaving the EU’s common foreign and security policy.
Finding a new policy is therefore vital. It is no coincidence that Russia is delighted with the idea of Brexit, not least because of the potential weakening effect on the western alliance. It must be a key objective that we minimise that effect. We can see the importance of blocs in how Russia and China have been attempting to undermine UN sanctions on North Korea. Without a concerted US and EU insistence, what chance would we, the UK, have had of stopping recent Russian and Chinese abuse by acting alone? The answer, I fear, is very little, despite having the fifth biggest economy in the world.
In that regard, the more experts in this area that one listens to, the more one comes away with the understanding that the most effective sanctions regimes are those put in place by multiple countries. UK unilateral sanctions placed on Russia following its murder of Alexander Litvinenko in 2006 may have been right in principle, but they were seen to have little impact in practice. On the other hand, the EU, as the largest trading bloc in the world, can pack a heavy punch when it implements sanctions, as the figures show it is increasingly being prepared to do.
Alignment is therefore in our interests, but we need to ask what form it should take. Should we align like the neutral Swiss or Norway, and not have a seat at the table or determine policy but just join in with the others? Personally, I would see that as a failure of our long-held responsibility to engage and help lead the free international community.
My view is that, for sanctions, we should negotiate a position with the EU whereby we keep a decision-making and voting seat at the table. Whether that is done via some form of membership of the EU’s Political and Security Committee or through a new body is what we should now be considering. In Munich last week Mr Barnier called for an “ambitious partnership” that is “broad... beneficial and balanced”. I think that we should take him up on that invitation.
From a UK business perspective, there could be severe dangers associated with unilateral action. It could result in British companies being much more easily impacted by counter-sanctions imposed by the targeted regime, and it could have the additional regulatory headache involved in multiple export licence systems.
Finally on sanctions, like my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and the hon. Member for Bishop Auckland (Helen Goodman), I turn to the financial crooks, drug and people-smuggling barons and human rights abusers who are laundering more than £100 billion through the UK every year. We do not want that money here, and hopefully the asset freezing provisions of the new Criminal Finances Act 2017, including its Magnitsky human rights abuse amendment, will help, although some action from the Government would now be welcome.
However, it is not just about the money. We do not want these people or their families here, enjoying the rule of law and standards that they so blatantly disregard in their own countries. I should like to see a new visa-based regime and a list system. As every Russian opponent of the Putin regime will tell us, it is exposure and publicity that such people fear the most. At a time when the United States has just issued a further list of people whom it is only considering adding to its public Magnitsky list, I would appreciate an explanation of why Ministers continue to keep the banned list private here in the United Kingdom.
On the subject of anti-money laundering, let me say that it would be very helpful if the Government produced their long-awaited anti-corruption strategy. Many anti-corruption themes need to be pulled together and acted on. Let me issue a plea for moderation, common sense and risk assessment to be given more consideration in that context. That plea comes from the thousands of people who are ever more frustrated to hear that £100 billion of black money is being laundered in the UK while they have been banned from or delayed in opening simple bank accounts for some petty, spurious or jobsworth reason.
Dame Margaret Hodge (Barking) (Lab)
The Bill commands general support on both sides of the House, and, like the hon. Member for Huntingdon (Mr Djanogly), who made an excellent speech, I welcome it. As currently drafted, however, it fails to include one vital measure that would at a stroke transform Britain’s contribution to the fight against money laundering, tax avoidance and evasion, corruption and financial crime. That measure has been debated many times in both Houses, and is strongly supported by parliamentarians in all parties and by the all-party parliamentary group on responsible tax.
We simply want to ensure that British overseas territories, many of which constitute the leading tax havens in the world, have registers of beneficial ownership that are public and open for anyone to interrogate: businesses, individuals, the press or civil society. I for one have had enough of the endless rhetoric proclaiming that Britain is leading the global fight against corruption and money laundering. The reality has to start to match that rhetoric, because at present it does not. By failing to insist that our overseas territories have public registers of beneficial ownership, we are complicit in facilitating the very corruption that we claim to want to eradicate.
Our overseas territories play a central role in the scourge that is corruption, tax evasion and money laundering. Of the 200,000 companies exposed in the Panama papers, more than half were registered in the British Virgin Islands, a UK overseas territory. More than half the offices of the law firm Appleby that were exposed in the Paradise papers are located in UK-controlled tax havens, and 90% of the world’s top 200 global companies have a presence in a UK tax haven. A World Bank review of corruption cases over a 30-year period found that our tiny overseas territories came second only to the vast United States of America among jurisdictions that provide anonymous shell entities for those involved in international corruption.
We all know that the effect of this financial crime is immense, and that the impact on the poorest in the world is particularly pernicious. We in the UK lose money that we desperately need for our schools and hospitals, but developing countries are even more adversely affected. The United Nations Conference on Trade and Development has estimated that developing countries lose at least $100 billion a year as a result of tax havens, and the OECD has estimated that they are costing those countries up to three times as much as the total global aid budget. What happens in our tax havens really matters. Persistent collusion by the UK in enabling them to endure, because of the Government’s failure to clamp down on the secrecy that pervades our British tax havens, is inexcusable.
Jo Stevens (Cardiff Central) (Lab)
My right hon. Friend is making an extremely powerful speech. Does she agree that whatever is in the Bill, it will lack any credibility if we point the finger at secrecy in other countries but do nothing about the secrecy in the overseas territories and Crown dependencies?
Dame Margaret Hodge
I strongly concur. Interestingly enough, David Cameron recognised that in 2013 when he told the overseas territories to rip aside the “cloak of secrecy” by establishing public registers of beneficial ownership. He wrote to them in 2014 saying that public registers were
“vital to meeting the urgent challenges of illicit finance and tax evasion.”
In September 2015, he accused them of
“frankly…not moving anywhere near fast enough.”
He said that
“if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”
When he launched the UK’s public register, he argued that
“it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”
I agree with all those sentiments and arguments. All that we are asking of the present Government is that they stand by the promises made by their colleagues, their right hon. and hon. Friends, in a Conservative-led Government nearly five years ago. I also agree with the current Prime Minister, who said:
“If you’re a tax-dodger, we’re coming after you. If you’re an accountant, a financial adviser or a middleman who helps people to avoid what they owe to society, we’re coming after you”.
However, our tax havens are “middlemen”. It is time that the Prime Minister and her Government turned their rhetoric into practical action, and put an end to the nefarious activities that take place in so many of our jurisdictions.
Lloyd Russell-Moyle
Many of our tax havens, and some of our Crown dependencies, were put on the EU watch list. They had to demonstrate that they were making improvements. I understand that one of the ways in which they could get on to the watch list was for the UK Government to underwrite that progress by indicating that they would support it, which would enable them to avoid being put on the blacklist. Is it not imperative for us to enforce the commitment that we made to the European Union in preventing them from being put on the blacklist by ensuring that they implement what they promised?
Dame Margaret Hodge
I entirely agree. Indeed, if we leave the EU without having implemented reforms that would have an impact on the overseas territories, the EU will blacklist them.
I know that there are many principled Conservative Members—including the right hon. Member for Sutton Coldfield (Mr Mitchell)—who care passionately about transparency, and have championed the cause from both the Back Benches and the Front Bench for many years. I urge them all to make clear to their Front-Bench colleagues that they will support a cross-party amendment setting a clear and reasonable timeframe within which the overseas territories would be required to prepare and launch public registers of beneficial ownership. I hope that the Government will listen to the advice of leading Back Benchers on their own side. Those of us who are involved in campaigning for transparency are not seeking short-term political advantage. What we want is an important, sustainable change that will have a lasting impact on the process of stamping out financial skulduggery, and a considerable impact not just on the United Kingdom’s public finances but on those of the poorest nations in the world.
We can never build a global Britain on dirty money. We will not create a strong economy on the back of being the jurisdiction of choice for every kleptocrat and crook in the world. Our British overseas territories will not prosper over time on the basis of being safe havens for illicit wealth. Transparency is an essential tool in the battle against all financial crimes. Exchanging information behind closed doors, which the Government claim is sufficient, particularly disadvantages the very same countries that suffer the most from financial crime and money laundering, because they have the weakest regulatory agencies in operation.
Relying on regulatory bodies is also very much second best. Even our under-resourced bodies such as Companies House are at best reactive in their work on uncovering financial crimes; there is very little evidence that they are undertaking proactive investigations. Indeed, the constant flow of scandals is strong evidence that the system based on the private automatic exchange of information is not working.
Let us consider the case highlighted recently by Global Witness of the $75 million paid by Glencore to Dan Gertler, a controversial businessman accused of bribing senior officials in the Democratic Republic of the Congo to advance mining interests. The money was originally due to be paid to Congo’s state mining company, but following a secret agreement was paid into one of Dan Gertler’s companies registered in the Cayman Islands. Or let us consider the case revealed in the Paradise papers of Jean-Claude Bastos, who managed Angola’s sovereign wealth fund and was paid more than $41 million from the fund via a secretive British Virgin Islands company. The BVI company was itself owned by a series of secretive offshore companies, but the ultimate beneficial owner was Mr Bastos.
Today’s Guardian contains disturbing revelations that North Korea broke international sanctions aimed at inhibiting the development of weapons by using a network of companies based in our tax havens to acquire millions of dollars-worth of fertiliser, coal and other commodities—our tax havens, undermining our national security and that of other western nations. Secrecy enables wrongdoing.
Ironically, the British Government have accepted that argument, because we are ourselves publishing our national register of beneficial ownership. The standard that we accept for ourselves should be the standard we expect for our overseas territories. To pretend, as the Government do, that the overseas territories are making good progress is nonsense. It was 2013 when David Cameron first demanded public registers; nearly five years later, we are still waiting for a number of the jurisdictions, including Anguilla and the Turks and Caicos Islands, to set up a central register.
Let me take this opportunity to debunk some of the myths that were prayed in aid when this matter was debated in the House of Lords. Raising the spectre of identity theft and personal security risks is wide of the mark. Public registers can have tightly defined case-by-case exemption policies to protect individuals who are genuinely at risk. Ministers claim that no other countries are adopting public registers. Again, that is not true: the EU is currently implementing the fifth anti-money laundering directive requiring all EU members to implement public registers by 2019, including Gibraltar, and we should be implementing that.
Arguing, as Ministers do, that we should not act until others have acted is a wretched excuse. We have been bold in leading the movement to stamp out corruption; we should pursue that course and be proud of it. As the number of tax havens decreases and the noose tightens around the remaining tax havens, our action will make action elsewhere in the world inevitable.
I welcome today’s statement from the Secretary of State for Exiting the European Union that the UK wants to lead a global race to the top in rights and standards. There is no better way of leading that race to the top than by insisting that our overseas territories adopt public registers of beneficial ownership.
Public registers will not undermine legitimate businesses or individuals who want to continue to take advantage of low-tax regimes. They will expose those who seek to hide their money because they have received it corruptly, or who unlawfully evade tax, all too often at the expense of poor people and poor countries.
Anneliese Dodds (Oxford East) (Lab/Co-op)
On public registers, is it not also the case that firms that are more transparent are often more successful than those that are not? We see that in the examples of Santander, SSE and many others.
Dame Margaret Hodge
My hon. Friend on the Front Bench is completely right.
Finally, while we were all horrified by the destruction wrought by the hurricanes last year, those disasters should never, ever be used as an excuse for allowing kleptocrats, villains and tax evaders to prosper. In a White Paper on the overseas territories published in 2012, the Government stated:
“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”
I am urging tonight that the Government use their powers to insist that our tax havens—our overseas territories—put in place public registers in a defined timescale. That is a reasonable demand. Stopping it would create a grim stain on Britain’s reputation as we move to establish credibility in a post-Brexit world.
Nick Herbert (Arundel and South Downs) (Con)
I agree with what the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) said in welcoming the measures in this Bill. I would go further and welcome the steps that the Government are taking to tackle corruption. However, I also agree with the right hon. Lady and my right hon. Friend that we need to go further now on the issue of transparency in our overseas territories—an issue I spoke about almost exactly a year ago in this House. Specifically, it is necessary in the fight against corruption that a public register of beneficial ownership of companies is established.
Much has been made of the effect of criminal activity, the ability of those engaged in such activities to launder money and the impact of the lack of transparency in supporting crime and corruption. The right hon. Lady pointed out that the United Nations Conference on Trade and Development estimates the cost of tax havens to developing countries to be some $100 billion a year. These are costs that are falling on the poorest developing countries. It should also be pointed out that tax avoidance costs us, too. It costs taxpayers in developed countries. A 2014 United States Senate report pointed out that the US loses some $150 billion in tax revenues a year because of offshore tax schemes.
The Panama papers, and subsequently the Paradise papers, revealed the extent of the problem. However, as President Obama said after publication of the Panama papers, the problem is that most
“of this stuff is legal, not illegal.”
That goes to the heart of the issue. Companies are able to operate perfectly legally in environments where there is not sufficient transparency. The losses are legitimate in the sense that they are not unlawful but they are avoiding taxation; the activities may be legally possible, but they are illegitimate morally. They may also, however, involve criminal activity. All of those are reasons why transparency is so important.
That is why it was such a major step forward when David Cameron announced in 2013 that action would be taken and when, in April 2014, he wrote to the leaders of the overseas territories, following the action taken in global summits, and said that Britain wanted the overseas territories, in partnership with us, to publish public registers. As he argued, these were the gold standard in transparency and would support law enforcement. That was the Government’s position at the time, but does it remain their position? They have never said that they will insist that the overseas territories produce public registers, even though the then Prime Minister urged them to do so in the strongest possible terms. I will explain why that is a necessity.
It is not clear to me whether it remains the Government’s position to urge the overseas territories to introduce public registers as soon as possible. That does not seem to be their position any longer. I think they are now saying that the overseas territories should move towards the creation of public registers once that becomes the gold standard globally. If hon. Members and non-governmental organisations have noticed this change of emphasis, surely the overseas territories will have noticed it, too. What progress can we reasonably expect them to make if they have sensed that the pressure from the UK Government to introduce those registers has eased?
Luke Graham (Ochil and South Perthshire) (Con)
I agree with many of my right hon. Friend’s points about transparency. I also agree with some of the fine points made by the right hon. Member for Barking (Dame Margaret Hodge). My right hon. Friend mentioned a change of emphasis. I am a member of the Public Accounts Committee. I understand from speaking to some of the United States authorities that there has clearly been a change of emphasis. We are getting quite a clear picture from the United States that it is not intending to go all the way with public registers of beneficial ownership, and certainly not as far as we would like to go. Therefore, we need to be clear about where we want to show leadership, but, at the same time, we have a duty to our overseas territories to ensure that, if we limit their economies in some way, we think about other measures that can support them in the short run.
Nick Herbert
I agree with my hon. Friend that it is necessary for us to show leadership, and I will say more about the support that we will need to give to the overseas territories in that respect.
A number of arguments have been advanced as to why it is not a good idea to require the overseas territories to introduce public registers. The first is that others will take advantage, and that criminal activity will simply relocate if we say that it can no longer take place in the overseas territories without visibility.
That argument is completely without moral credibility. It is also an admission that such activity is taking place in those areas. To say that we should not act because there might be an economic effect as a result of a reduction in criminal activity would be to argue that the Government should never take action against crime. We have to look at what steps might be necessary to compensate for and mitigate those effects, and to support the overseas territories, to whom we have an obligation in many ways. Simply to say that we will not insist on these changes because their economies would be damaged by the ensuing reduction in criminal activity would be akin to arguing that there would be no point in the police arresting a major drugs dealer in the UK because another drugs dealer might sell drugs in his place.
That argument cannot be sustained. If we believe that a wrong is being done to developed and developing countries—as it is—by the absence of transparency enabling tax evasion and worse, it is our responsibility to tackle that wrong by any means we can. If we simply stand back and wait for change to happen, we cannot expect it to do so.
The second argument that is put forward is that the measures are unnecessary because allowing law enforcement agencies specific access to information on the beneficial ownership of companies is better. It might be the case that law enforcement agencies require a particular level of information, and they can get it through the introduction of central registers, which is a welcome initiative, but if people are seriously arguing that transparency is unnecessary for law enforcement, why did we introduce transparency in the UK? It is self-evident and intuitively obvious that transparency is an aid to law enforcement, because law enforcement agencies cannot be expected always to go after criminals. Criminal activity has to be exposed, and publication is a way of exposing and preventing it. It is telling that a lot of this activity has surfaced only because of leaks. We cannot rely on the law enforcement agencies alone, even with the assistance of central registers and the exchange of information, to deal with all these issues. Also, they cannot deal with tax evasion issues that might be lawful but morally illegitimate. If it was right for the UK to do this, it is right for others to do it, especially our overseas territories.
That leads me to the third argument, which is an important and difficult one. To what extent should the UK insist that the overseas territories do anything? Would we be behaving in a neo-colonialist manner if we did so? This argument has surfaced more recently in relation to the decision by the legislature in Bermuda to reverse a decision of the Supreme Court relating to same-sex marriage. The UK Government made the difficult decision that it was not proper for them to intervene and that this was a matter for the Bermudian authorities. However, we took action in previous years when we reversed the colonial laws that we had bequeathed to the overseas territories in relation to the criminalisation of homosexuality. The very fact of the relationship between us and the overseas territories—and the very fact that we can change the law there by orders in the Privy Council—reveals a relationship that requires us to hold to certain standards.
I accept that there could be unusual circumstances in which the UK Parliament would seek to intervene, but when it comes to global law enforcement, the harm that is being done is so general that it surely justifies action. There is a danger that, if the Government are seen to be stepping back in relation to human rights issues and to corruption, far from winning praise for allowing the devolution of power and the expression of local democratic decision making in the overseas territories, we will actually be harming ourselves and our international reputation for not upholding our obligations to the highest standards. Therefore, on balance, the argument is made not only that we have the power to intervene but that we have a duty to do so if the harm that is being done is otherwise so great.
Let us be clear that the tide is now turning in the direction of increasing transparency. As we have heard from the official Opposition, the EU is adopting measures to ensure that that takes place, and it is significant that the developing countries—those that are most harmed by the absence of transparency—are often the most supportive of these measures. Countries such as Kenya, Nigeria and Afghanistan are committed to introducing public registers of beneficial ownership. Are we really saying that our own overseas territories will not be required to do so when developing countries such as those are committed to taking that action?
The uncomfortable truth is that some of our overseas territories are the worst culprits when it comes to tax havens. Everyone knows that; the papers that have been published reveal it, and the time has come to deal with it. I agree with the right hon. Member for Barking that the time has come to insist that our overseas territories deal with this issue because frankly we will not make progress unless we press them. That is why, if a sensible amendment is tabled to the Bill to set a reasonable timetable for the overseas territories to produce registers of beneficial ownership—an amendment that has cross-party support, that includes commitments to ensure redress for any economic harm and that is respectful of the great economic damage done by the terrible hurricanes to some of our overseas territories—I will support it. I hope that such an amendment will command support on both sides of the House. This is, after all, the policy set by a Conservative Prime Minister and this Conservative Government, and it is the right policy.
Tax havens harm the world’s poorest most of all. Tax havens harm developing countries, and they harm us. They harm us economically, but they also harm our reputation. We live in an age of accountability and transparency. We must continue to lead this argument and not be behind it, which is why I urge my right hon. and hon. Friends on the Front Bench to take very serious note of what is being said in the House this evening and to act.
Jo Swinson (East Dunbartonshire) (LD)
It is a great pleasure to follow the right hon. Member for Arundel and South Downs (Nick Herbert), who made a powerful speech to which I hope his Front-Bench colleagues were listening. It is hugely encouraging to hear so many Conservative voices speak out in favour of more transparency than is already being implemented. I hope it is a sign that this House has a centre of gravity for encouraging further action, of which the Government need to take note.
This Bill is sadly necessary if we are to leave the European Union. The very existence of this Bill underlines the negative impact of Brexit. Our international influence is diminished by leaving the European Union. Of course, sanctions and action against financial crime and money laundering are much stronger when co-ordinated internationally, and the European Union has been a successful mechanism for doing just that.
The existing sanctions and anti-money laundering rules are important, because fighting corruption is an important part of protecting our democracy. When I was a Business Minister, I was charged with implementing parts of the accounting directive through secondary legislation and with championing extractive industries transparency through the extractive industries transparency initiative. One of the issues I was always keen to explain is the link between financial crime, which can often be seemingly victimless—we are talking about numbers on a spreadsheet or on pieces of paper—and its very real and significant impact on people’s lives. The extractive industries transparency initiative is about fighting the corruption that we know happens in some developing countries, where vast mineral wealth is siphoned off into the pockets of dictators rather than funding essential public services.
It is important that we recognise that our country is not immune to such practices. Given particularly that London is such a major financial centre, we perhaps have a greater responsibility than other countries to ensure that tough laws are properly enforced to crack down on corruption. Of course, UK tax havens are another area to which that responsibility extends. I totally agree with the points made about the effect on our international reputation when we do not make sure that happens.
On the sanctions part of the Bill, I welcome the UK’s appetite to align with the EU’s sanctions policy in future, although I note that we will not enjoy the influence we currently have on what that sanctions policy should be. It is crucial that we do not diverge from that policy, because we do not want to risk being seen as a haven for corrupt individuals and corrupt money.
As the right hon. Member for Sutton Coldfield (Mr Mitchell) said, there are opportunities in the Bill to provide greater clarity for NGOs that are doing vital work in difficult countries where there may be regimes that are subject to sanctions but where, none the less, those NGOs need to purchase fuel, supplies and food in country. Clause 15 makes sure there are more powers in primary legislation to provide exemptions so that there is legal clarity that what those NGOs are doing is proper and in order, which is important. Some NGOs, and others in the sector, have suggested that there could be improvements in the detail, which can no doubt be discussed in Committee and on Report.
More generally on sanctions, despite the amendments made in the other place, the Bill still hands over too many powers to the Government, and those powers are too widely drawn. Clause 12 is a case in point, as it defines sanctions not in terms of named individuals but gives Ministers the power to describe groups of people. The potential for unfairly catching individuals in such descriptions is large, and we still need to consider that point. I urge the Government not to look to overturn amendments made in the other place or to roll back the positive changes that have already been made to this Bill.
Various right hon. and hon. Members, including the hon. Members for Bishop Auckland (Helen Goodman) and for Huntingdon (Mr Djanogly) and the right hon. Member for Sutton Coldfield, have raised the idea of a Magnitsky amendment. It is important that the UK takes a leadership role on human rights issues, and sanctions responding to human rights violations are therefore important. That means a crackdown on money and on visas, and it should also include a public list of those who are banned or for whom a ban is potentially being considered. I will look with great interest at any amendments tabled on that basis, and my party and I are very much minded to lend support to such amendments.
On the anti-money laundering aspects of the Bill, one part of the UK economy where there is real cause for concern is our property market. My hon. Friend the Member for Oxford West and Abingdon (Layla Moran) talked about her experiences when the Public Accounts Committee visited the United States last week. The United States is already ahead of us, with mechanisms to define areas where property transactions and property ownership can be further investigated. The statistics are shocking. As many as three in 10 properties that are investigated have suspicious ownership. The London property market is hugely vulnerable to such intervention. Properties are bought to try to clean dirty money.
Excellent research by Transparency International UK has identified £4.2 billion-worth of property in London that has been bought with suspicious wealth, most of it based in secretive jurisdictions. In praising Transparency International, I should declare a degree of interest. Transparency International has excellent research, and my husband happens to be its director of policy.
The anti-corruption summit in 2016 committed to introducing legislation so that overseas companies that own UK property would have to declare their beneficial owners. We were promised that legislation by April 2018—in two months’ time. That is clearly no longer happening. It has been delayed on more than one occasion, and now it looks like we will not receive even a draft Bill until the summer.
Danielle Rowley (Midlothian) (Lab)
With the UK in a housing crisis, does the hon. Lady agree that the Bill could speed up the property register and help tackle that important issue?
Jo Swinson
I absolutely agree. There is no need for any further procrastination. Officials clearly ought to have been looking at this issue since the promise was made at the anti-corruption summit 2016, and it was expected that something would be ready in time for this year. Even if a draft Bill is being considered for the summer—I recognise that parliamentary time is sometimes a constraint on the Government—there would be real support for the bringing forward of some amendments to this Bill based on what may already be partially drafted legislation, because money laundering is important when it comes to property and understanding who owns it. This situation is just another worrying signal from this Administration about the priority they give to combating corruption, because promises made in 2016 are being downgraded and delayed.
Others have pointed out the missed opportunity in this Bill in respect of the overseas territories and Crown dependencies. Back in 2015 and the latter part of 2014, I was the Minister who brought forward changes to the Small Business, Enterprise and Employment Bill—now Act—to introduce a public register of beneficial ownership of UK companies, and I am proud to have done so. Persons of significant control are now registered at Companies House, and people can now log on and see exactly what is there. I agree that there is a need for additional resources for enforcement to will the means, but that was an important step forward, and I am proud to have been part of a Government who took a leadership role.
I pay tribute to my right hon. Friend the Member for Twickenham (Sir Vince Cable), who was Business Secretary at the time, and to the former Prime Minister, David Cameron, because he was absolutely committed to fighting corruption and to playing a global leadership role through the G7 summit and beyond. He repeatedly made it clear that overseas territories should also publish registers. In fact, between 2013 and 2016, the Government sent letters to the overseas territories on several occasions encouraging action, and it is deeply concerning that the appetite has significantly diminished under the current Administration. It is almost as if the Government are now relaxed about the murkiness of financial transactions of the like that we saw revealed in the Paradise and Panama papers and about our overseas territories being used in the UK’s name to hide complex structures under which corruption can flourish. Progress has ground to a halt. If the Government disagree and think that they are as committed to tackling corruption as ever, what have they been doing since 2016? Where are the letters and notes from meetings where they have been encouraging the overseas territories to publish their beneficial ownership registers? I stand ready to be corrected if the Minister can provide that information, because the House would very much like to see it.
The right hon. Member for Barking (Dame Margaret Hodge) mentioned Gibraltar and the fifth anti-money laundering directive when the Foreign Secretary was still in his place. His answer was somewhat vague, suggesting that maybe we would be implementing it, because the UK is already going beyond what is required, but that was not entirely clear. We then heard a response that was slightly more depressing, if a little clearer, from the Minister for Europe and the Americas later in the debate, suggesting that we perhaps would not need to implement the directive because we may have left the EU by the final deadline for implementation. He knows as well as I that there is no reason to be a last-minute merchant about such things. There is nothing to stop us implementing the directive before the final deadline, so it is absolutely in the gift of the Government to do so. If they are choosing not to, that is a clear decision from this Government to allow Gibraltar not to conform to the provisions of a directive that we deem to be necessary for the UK as a whole.
The hon. Member for Glasgow Central (Alison Thewliss) raised Scottish limited partnerships, and I am glad that she did, because they have been abused in major money-laundering schemes. Indeed, they have potentially been implicated in the alleged bribery of European politicians. Such partnerships have been required to file beneficial ownership information since June, but many have failed to do so or, in some cases, have filed patently false information. Again, there is an issue about enforcement.
Many of these issues need to be explored further during the passage of this Bill, which is sadly necessary. The Bill overreaches in some areas by giving the Government too many powers, but in other areas it misses opportunities that we need to take in order to provide assurances that we are taking the necessary and swift action to fight corruption. The Bill is an all right start, but it clearly needs further improvement. We should maintain the positive changes already inserted by the House of Lords, and I look forward to exploring the detailed issues as the Bill progresses through the House.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to follow the hon. Member for East Dunbartonshire (Jo Swinson). I also pay credit to her husband’s work at Transparency International. I think he came up with the phrase that, as we leave the European Union, we should be “a beacon, not a buccaneer”. That is the spirit in which I approach the Bill: we should look to set the highest standards for transparency and financial probity, not try to get some short-term advantage by short-changing on those important issues.
I want to focus on three matters. The first is sanctions, which I raised with the Secretary of State earlier. I accept that if we freeze other people’s assets, we should not try to take part of them. However, in rare situations when we freeze the assets of regimes that have caused or committed serious offences in our country that have done real harm to our citizens, it is perhaps right to say, “Those assets are there and there is no realistic prospect of getting compensation to the victims in any other way than by using them.” In those rare situations, rather than letting people continue suffering from the injuries that were done to them, should not we be able to use the assets to try to rectify the wrong, if only slightly? I cannot imagine many instances in which that would apply, but it would clearly apply to the victims of the previous Libyan regime, which supplied Semtex to the IRA. I hope that, when the Government consider licensing the use of assets that have been frozen, we would help those victims of events that took place at least 20 years ago, if we could find a way to do so. How much longer will they be around to benefit from compensation, even if we could agree it with a Libyan Government—if there ever were one that would do so?
I heartily support the arguments for the need for overseas territories to have public registers of beneficial ownership. I do not want to repeat the arguments, but I will add a couple. It is sometimes asked why the overseas territories should have to lead, and argued that they should be able to follow the rest of the world. It is claimed that if they act first, they will be at a disadvantage and lose revenue and business will be driven elsewhere, to even murkier regimes. The problem with that argument is that our overseas territories are such a large part of the market for the activity that we are discussing that, if they do not reform, nobody else will. We cannot follow the market—we are the market here. We have to take a lead. We have to say to our overseas territories, “You have to do this. We don’t want you to be accused of having dirty, corrupt, criminal money. We don’t want you to have it or be accused of having it. The only way that we and you can show that you have clean regimes is to have this transparency.”
I suspect one of the reasons why the overseas territories can attract such large amounts of business is their relationship with the UK, their protection by the UK, the rule of law that we help them have and their access to our financial market. There is a very real link between what they do and what happens here. We therefore have some obligation to act to ensure that they have the same standards as we have. We cannot just wash our hands and say that it is for them and that they are independent and can do what they like. They benefit greatly from their links to us, and the time has come for us to say that we need them to move to the same standards as we have and that they cannot be allowed to weaken our reputation. Everywhere else in the world thinks that they are part of the UK. Developing nations say, “What you’ve done is great, but our assets have been stolen and are being hidden by your territories and we can’t get at them or find out exactly where they are.” Everyone thinks that they are part of us and it damages our reputation if they do not adopt the same high standards.
I agree with my right hon. Friend the Member for Arundel and South Downs (Nick Herbert) who said that we cannot force that on overseas territories overnight. We have to give them a sensible and fair timeframe and we would much prefer them to choose to put the transparent register in place instead of our forcing them. I, too, would support an amendment that provided for a realistic and fair timetable, but we need the Government to tell the overseas territories that they want and expect them to do it and that, if they have not done it by the deadline, the Government will make them do it, so that we get that open, clear and transparent standard.
Let us be honest: the Government’s actions in the UK to increase transparency have been mostly extremely good. We have the open register of beneficial ownership for companies, although we need to sort out some of the Companies House details. A few weeks ago, the new power of unexplained wealth orders came into effect. But if devious people can hide from our regime by using our overseas territories, all those things will be for nothing. We need to extend these powers much more widely.
I am not usually keen on our transposing EU directives where we do not need to do so, but it would be a terrible situation if we were not to implement something consistent with the fifth EU anti-money laundering directive and were lagging behind. If we read what is in there, we see that it contains some things that we should do, such as having a cap where we do not have a register of who has a pre-paid card, so that someone cannot spend laundered money around the world using such a card. That is a perfectly sensible measure to take.
The directive also contains provision for the register of trusts in certain situations. It would be a strange situation if the country in Europe that probably has the most trusts was the only one that did not have any transparency. That would hardly aid our reputation for being a clean financial centre, which is what we should be keen to establish. I am not particularly fussed whether the Government implement the fifth directive before we go or whether we introduce similar, equivalent or, we hope, stronger measures of our own, but let us not fall behind on those sensible ideas that the EU has come up with. I am not aware that we opposed them in the EU. I believe that we agree with the direction of that directive, so let us get those things into force.
The third point I wish to cover is the property register. I have served on a few Bill Committees in my time and I have occasionally tabled amendments in my misspent youth; occasionally I have asked for reviews, as that has been the only way of getting things tabled. In general, the Government’s response is, “There is no point putting into a Bill a requirement for a review, as we review things in any case.” Yet in clause 44, on the property register, what we have managed to get is a requirement for three annual reviews of the progress the Government are making on their own policy. I accept that that was the result of a compromise in the House of Lords, but I, too, would love to see real progress made on this property register, as it is an important missing link in our transparency.
I followed that debate in the House of Lords, and I found Lord Ahmad’s argument convincing: if we are going to have this register, we want it to have real meaning and teeth, and if the reward for a delay is that we can have a mechanism in law that means that if someone does not disclose the beneficial ownership of that property correctly, we can prevent them from selling it in future, that is a price worth paying for a delay. That would be a real consequence: if someone does not register who really owns a property, they cannot sell it until they do. That would be a powerful message to send out to say that we do not want dirty money buying property in this country; that if we think someone has bought a property with dirty money, we will impose an unexplained wealth order and try to work out whether we should get that money back off them; and that if they just do not tell us who owns that property, they are not allowed to sell it until they do. That would be a real step forward, so I am reluctantly prepared to accept that we need to wait a couple of years to get those powers in a place that will be effective. I hope that as this Bill proceeds through this House we can have the same assurances that were given in the Lords that the Government are committed to that register and that we are not just left with three years of reviews, at the end of which we have made no progress on that situation. The Government have committed strongly to that register again, and I look forward to it.
If ever we needed a reminder of how important the measures in this Bill are, we need only look at a story again today of a large bookmaker being fined millions of pounds. One of the reasons for that was that it did not prevent money laundering through its shops for several years. I declare that I went to a charity darts tournament sponsored by that bookmaker, to get a donation for a charity in my constituency—that is on the register and I declare it. This just shows that money laundering is not just about large amounts of very clever things moving around the world, as the “McMafia” credits showed; it is everyday activity, and we need everyday businesses to be on their guard in preventing this from happening. So I support the fact that the Bill retains those important powers going forward.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
It is a pleasure to follow the hon. Member for Amber Valley (Nigel Mills), who made a thoughtful contribution on some of the gaps in this Bill. Perhaps it is because I am, with him, the co-chair of the all-party group on anti-corruption, perhaps it is because in the last Parliament I was our Front-Bench spokesperson on the Criminal Finances Bill or perhaps it is because I am in front of the TV too much at the weekend, but I get the sense that money laundering is everywhere of late.
As the hon. Gentleman has just mentioned, we heard this morning of the record £6.2 million fine slapped on William Hill for not being vigilant enough in the prevention of money laundering. We have seen how the proceeds of crime have been funnelled through its channels, and the Gambling Commission has said that it must do better—as if it did not have enough on its plate with responsible gambling.
It has just finished, but for a while Sunday night was “McMafia” night—it is now “Homeland” night again in our house—and as the plot unfolded, we saw how billions of pounds can be transferred internationally very quickly, at the click of a mouse on a laptop. It also showed corrupt politicians, violent police, counterfeit goods hawked around high streets and all sorts of other things. It was fiction, but there was some factual basis.
No one so far has spoken against the idea of having such a Bill. The principle is good. No one is saying that we should turn a blind eye to dirty money. My worry is that, as right hon. and hon. Members from all parties have said, the Bill could do better and go a lot further. It is a good start, but the Paradise papers and Panama papers shone a light on a murky world of international finance and taxation working for the benefit of those with access to vast wealth and an army of lawyers—for the few, not the many—when ordinary citizens just want a fair and transparent financial system. So two cheers for the Bill.
The glaring omission, which has been mentioned many times, is that the Government need to work a lot harder to persuade the UK’s overseas territories—and one day, I hope, the Crown dependencies, too—to adopt the same level of transparency as we have in the UK and introduce public registers of beneficial ownership.
It is not for nothing that London is frequently named as the world’s money laundering capital. In 2016, the Home Affairs Committee concluded that the London property market was the primary avenue for the laundering of £100 billion of illicit money a year. As a London MP, that is particularly galling to me, because my inbox and postbag are full of housing issues, which also come up a lot when people come to my surgeries. We have a housing crisis, with people who want to get a foothold on the ladder and people in substandard accommodation.
It is not enough to think that it is not our problem; otherwise, silence equals complicity in what are becoming industrial levels of tax avoidance and evasion. The Bill will allow us to set our own sanctions and anti-money laundering policy, but our leaving the EU will inevitably damage our ability to influence the policies of the bloc. Britain’s voice will be quieter on the world stage and its global footprint will diminish. We will shrink in our role fighting corruption globally.
Some progress has been made in the adoption of private registers, but not all overseas territories have even adopted one, and if they have, they have not been centrally located or fully populated. Four and a half years on from when the Government tried to persuade the overseas territories to adopt public registers, none has so far done so, and the Government seem to have given up on them. As has been said many times in this debate, only Montserrat has made the commitment.
The ghost of David Cameron seems to have been ever present in this debate. He invited the world to an anti-corruption summit in London in May 2016—how long ago it all seems—and talked about how the public register model should be a “gold standard”. He said that tax avoidance schemes
“are quite frankly morally wrong”.
Again, there is that disjuncture between what is legally possible and what is morally correct.
Fast forward to 2018 and the Foreign Office expects the UK tax havens to adopt the public register model only when it becomes a “global standard”. There is a definite shift there. It is hardly leadership; it is followership, backtracking or a dereliction of duty, if we are being blunt.
Dr Huq
Absolutely; my hon. Friend is so correct, as ever.
We all know what happened to David Cameron next: his ill-judged referendum was his downfall. Ironically, the EU seems to be taking the lead as it prepares to implement the fifth anti-money laundering directive. Our chaotic approach to Brexit and the slippage—we do not know what will or will not apply—is why the Bill is necessary. Last December, the EU agreed that all its 28 member states should establish public registers of the beneficial ownership of companies. We can all get behind the reasons: they allow greater scrutiny of information and contribute to preserving trust and integrity in the financial system. More and more countries are committed to implementing, or have implemented, public registers—I am talking about sovereign countries and not necessarily our overseas territories. There were 35 countries with registers at the last count, and with all EU member states required to have them by 2019, I suggest that this is a golden opportunity to build a new global standard.
When that happens in 2019, the UK Government should seize the opportunity to ensure that our overseas territories follow suit as soon as possible. Regulatory alignment is a popular watchword these days, and we should apply it in this situation. The territories that rely on wealth being stashed away from taxpayers are astute. They do it because they can get away with it, and they use the arguments of competitiveness and security against a centralised register. Our Government continue to drag their feet after so much promise, which is shameful.
The Government’s anti-corruption strategy was hastily rushed out—some Conservative Members did not notice it—because of harrying by people such as my right hon. Friend the Member for Barking (Dame Margaret Hodge), who had several debates on it at the end of last year. We kept saying, “Where is that anti-corruption strategy?” and the strategy was hurriedly rushed out at the end of last year. There is full awareness of the importance of public registers, but the strategy states:
“Our ultimate aim is that public registers become the norm. If this were to happen”—
suddenly it has become conditional—
“we would expect the Overseas Territories to follow suit. The government will continue to work with these Overseas Territories to strengthen their beneficial ownership arrangements”.
The Government also promise a statutory review by December 2018. Why not now? It seems we have had a year of nothing, with the smokescreen of a consultation thrown in. People have consultation fatigue and we know what the issue is.
How can the Government aim for something if they are taking no action? It is not good enough. Only when the UK mandates the overseas territories to create the registers will transparency flow, and only then will the big question be sorted out, with all its constitutional, ethical and international dimensions—people have talked about foreign aid. It is right to hold the Government to account on the promises they have made, as the all-party parliamentary group will continue to do. I hope that the anti-corruption tsar, the hon. Member for Weston-super-Mare (John Penrose), who has gone from his place—I would have liked a tsarina—will continue to hold the Government’s feet to the fire.
I should give a short plug for the APPG. We recently had an event where we had the cast and crew of “McMafia” in the building—my hon. Friend the Member for Oxford East (Anneliese Dodds) was there. It is not just fiction, but is happening in the real world. They launched an app. If people enter their postcode, they can see how many secretive jurisdictions are near them. The programme showed Kensington and these smart central London properties, but it is happening in Ealing. I put in my own postcode: Ealing is the 14th most secret neighbourhood in the country.
We are lucky enough to live in one of the most desirable cities in the world, but it is desirable for the corrupt, too—those with dirty cash to stash and launder. The Government agreed to fix that at least two years ago, but no concrete progress has ultimately been made. There are loads of examples—I will not go into them all now because we could be here forever. There were stories of “from Russia with cash”, Magnitsky was mentioned in the debate, and there is the pop princess from Uzbekistan. My right hon. Friend the Member for Barking had a debate on the Azerbaijan laundromat case, and we have had Bywater Investments and North Korean shell games. The list goes on and on.
This country has a real choice ahead in defining what kind of country we want to be post Brexit. We can put an end to the millions of pounds of stolen money flowing through London’s luxury property market or we can continue turning a blind eye, kicking the can down the road, saying that we are doing a consultation, pushing these things into the long grass and making London an even more appealing playground for the corrupt.
Thankfully, the other place wants significant concessions on the Henry VIII powers that might have come to pass. We have heard mention of statutory instruments, but this House must be vigilant and ensure that the Government do not try to sneak in more secondary powers through the back door, giving Ministers carte blanche.
Leaving the EU will undoubtedly affect our ability to sanction regimes properly. We will be vulnerable to legal challenges because corporations will see us as an easy target outside the EU. They will have an easier task suing a smaller state. Despite the Bill’s title, only one and a half of its 59 pages are dedicated to anti-money laundering. The Bill is a disappointment and a missed opportunity from a Government who promised much but are short on delivering. It is not just me saying that; ask Christian Aid, Global Witness and Transparency International. My verdict is, “Could do better.”
Julia Lopez (Hornchurch and Upminster) (Con)
I welcome the Bill, which will not only see us retain our ability to impose sanctions and some of the powers against crime that currently derive from our EU membership, but will pave the way for new methods of tackling terrorism financing and money laundering.
Concern has been expressed that once we are out of the EU, the UK will—out of economic desperation—somehow turn itself into the global laundry for money of dubious origin or market itself as the premier place to stow ill-gotten gains. Sound arguments for a simpler, more competitive UK tax and regulatory regime must never be undermined by the idea of a financial free-for-all, not least because, in an ever more transparent world, London’s reputation as the world’s top financial centre will increasingly depend on it setting and adhering to global standards on financial probity. Meanwhile, as criminals continually update their methods, we shall need our own law and law enforcers to be ever more adaptable and responsive. It is therefore a timely moment to create an independent UK sanctions and anti-money laundering regime that can respond adequately to the forensic, cutting-edge work being undertaken by the likes of the City of London police and the National Crime Agency.
Going forward, the UK might wish to harmonise its own sanctions regime with existing sanctions regimes in order to maximise the impact of those sanctions and reduce the opportunity for legal uncertainty for UK or UK-based firms operating under our new regime. In time, the UK could play a critical role in bridging the growing gap between the EU and US approaches to sanctions, and in pushing for ever greater clarity from both sides to try to mitigate the risk of non-compliance in the financial sector.
As we look ahead, we must be careful of the law of unintended consequences. We must not make operating in certain countries or particular types of business so risky that we either cut ourselves off from legitimate opportunities or push ever greater volumes of business into newer, less robustly regulated parts of the sector. In that regard, the Government might consider new measures to facilitate information sharing between banks and regulators on suspicious entities or individuals so that we can encourage a proportionate, risk-based approach to whether to take on such business.
I welcome the ability that the Bill gives us to update counter-terrorism financing legislation, as well as clause 44, which commits to a register of beneficial owners of overseas entities. Nobody wants to discourage investment into the UK, particularly if such investment can help to increase housing supply by getting large-scale developments off the ground. None the less, the current approach cannot go on.
For goodness knows how long, I have been writing a book about London in the 21st century, covering the flood of international money into London’s housing market, the use of overseas investment vehicles to pay for that property and the resentment stoked in Londoners when such investment vehicles have been used as mechanisms to shield the proceeds of crime or evade tax, with property left empty. I therefore appreciate the confirmation from my hon. Friend the Member for Weston-super-Mare (John Penrose) that the Government believe that foreign owners of British homes and offices should now be treated in the same way as owners of British companies. As he says:
“More than £122bn of property in England and Wales is owned by offshore firms. If they’re clean and reputable…they’ll have nothing to fear. But if murky shell companies have bought British property with plundered or laundered cash, we don’t want them here.”
The register should underline the UK’s commitment to being a strong, reputable trading nation that welcomes clean investment. Those values must surely shape our nation’s future as we chart our new path outside the EU.
Alex Norris (Nottingham North) (Lab/Co-op)
As I have been sitting here listening to the debate, I have had a growing sense of déjà vu with regard to a similar sedentary vigil just before the recess when we debated the Nuclear Safeguards Bill. That is an important piece of legislation that we need as we leave the EU and seek to quickly and safely reproduce the benefits of our EU membership. It is in the same vein that we consider sanctions and anti-money laundering provisions. We must have arrangements in place not only because sanctions and anti-money laundering provisions are important causes, but because we have international duties to fulfil. This must be done, as is widely accepted across the Chamber.
Nuclear safeguards are of course high-impact, but also relatively easy to define and understand. That makes things a bit easier. We have civil nuclear matter, we need it, we want to move it, and we do not want it to fall into the wrong hands. Our current arrangements work, and we want to continue to have the same level of protection and safeguards. We cannot say the same about this area of murky finance, with money moving across boundaries and individuals profiting from criminal activities and then seeking to legitimise that wealth elsewhere. This is an ever-changing world, so our arrangements must be able to keep up. As we have heard very powerfully from Members throughout the Chamber, our current arrangements leave a lot to be desired. It would therefore be remiss of us just to lift and shift current systems; we should seek to improve them, and I will suggest a couple of ways in which we might do so.
First, I want to address the issue of the EU’s fifth anti-money laundering directive. This has now been agreed in principle between the EU and member states, of which we are still one, but it is scheduled for a phased introduction from next year, presumably falling during a post-Brexit transitional period. We have not had a lot of clarity from those on the Treasury Bench about how we will approach this. I hope that we will not see a request for us to concede a boatload of secondary legislation to Ministers. There was considerable interest about that in the other place, and I think we can do better. Even the hon. Member for Amber Valley (Nigel Mills), who is not currently in his place, said that we ought perhaps to transpose the directive into our law. When we hear the hon. Gentleman talk about transposing EU directives, we really are in a special place.
So what could we do about our sanctions regime? Currently, we lag behind the US and Canada. We need a targeted, flexible approach that promotes human rights and protects innocents from paying the price for the crimes of their leaders. That is why we have heard many voices call for Magnitsky-style amendments to the Bill. I add my voice to that. Such provisions allow us to pick and choose public officials from around the world who have committed human rights abuses or violations, and seize their assets and ban their travel. Such sanctions work because they target the wrongdoer specifically. A broader sanction or embargo at a national level punishes all, and often those who can least afford it bear the burden. Instead, such provisions target the people we need to get to. They would give Ministers flexibility and promote our attempts to meet our human rights goals as a country. We could underpin that—I am very keen on this, and it has not been mentioned yet—with humanitarian impact assessments of any sanctions that the Government impose. When our Government seek to impose sanctions, it is reasonable that we ought to have a clear understanding of their impact on the wider community in the affected area.
With regard to the anti-money laundering provisions, I start with the obvious: it is time for a property register. The initial commitment was made by the Government in 2016; we are now told that it will be operational in 2021. That will not do. This Bill is a good opportunity for us to pick up the cudgels and get on with it. Bricks and mortar is an obvious place to start, where we can disrupt the supply chain and follow the money. That would also have benefits in affected communities through releasing properties for people who actually wish to live in them.
That would help us at home, but we need to take on the broader challenge across the world. We will have failed if we get to the end of the process with a gold-standard piece of legislation—as I very much hope we will—but find that those high standards can be easily circumvented through a British overseas territory or Crown dependency. I know that this is controversial and there are strong feelings on it, but while we have a relationship whereby this Parliament has responsibility for defence, security and foreign relations in those territories, we should continue to take a strong interest in money laundering, because it sits at the very root of all those things. When the British Virgin Islands is at the heart of the Panama papers and Oxfam rates Bermuda as the No. 1 worst corporate tax haven, we should want to act and use all the tools that we can. Notwithstanding the qualifiers heard from the Government Benches, it is not too much to ask that we should see a public register of beneficial ownership of companies in the overseas territories and Crown dependencies.
The final way we could improve is by looking at the role of the banking system in preventing money laundering. We know that banks are under pressure to serve the bottom line and that they can have their heads turned when they encounter potentially profitable customers. We also know that relative to estimated levels of money laundering, regulatory fines have been low. When penalties are low, rewards for looking the other way are high. When there is little personal reputational risk, these things can happen.
The current legal framework is inadequate, and we should seek to change it. Two years ago we had a consultation on creating a specific “failure to prevent economic crime” offence, which would have covered money laundering. That was downgraded to a call for evidence, which closed in March 2017. It has been nearly a year, and we have not seen the fruits of that. I know as well as anybody what 12 months can do in life—it has been a big 12 months for me—but it is time we got around to this.
In conclusion, how we approach the Bill will tell us a lot about Britain’s place in the world post Brexit. Do we still believe that we have an outward-looking leadership role? Do we still seek to set high standards for ourselves and others? Are we keeping up with the pace of the modern world and the changing nature of crime? I believe that we ought to want to do all those things, and that we can use this Bill to do so.
Mr Bob Seely (Isle of Wight) (Con)
It is a pleasure to follow the hon. Member for Nottingham North (Alex Norris), who spoke so eloquently. I welcome the Bill, but like so many other Members who have spoken this evening, I think we should be doing more.
It is not in our interests to have lax standards. It is in our interests to have the highest standards, which I know the Foreign Secretary and others are trying to achieve. The Bill is not just about finance; it is about power. Our finance system—the western finance system—is a source of power. Russian and Chinese oligarchs, and especially the Russians, use our finance system. That gives us influence over them. This is not just about terrorists, dodgy individuals or drug dealers. This is about changing and influencing state behaviour. I very much hope that Ministers will see it in that guise. With new forms of conflict in the world that we inhabit, financial power is a hard bit of soft power. The power to make rich people poor by freezing their assets should not be underestimated because it is a significant source of our influence.
Other Members, such as my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), have spoken eloquently about the lack of Magnitsky elements in the Bill, which concerns me. There are no visa bans in the Finance Bill amendments, and there is no presumption of action. I remind Members that Magnitsky was a Russian lawyer who worked for Bill Browder. He was tortured for several months and murdered, and his dead body was put on trial. That is remarkable, even by Russian standards. It would be nice if the Government had more ambition when it came to the Magnitsky elements of either the Finance Bill or this Bill.
The idea that weak or lax standards help the UK to compete in international money markets and international economies is deeply misguided. We are in danger of wagging our fingers at people like the Russians while allowing their state officials, people close to their regime and those on sanctions lists a free light to live here and use the western system.
EN+ was floated recently in the City. It has been reported that US security officials were concerned about the float and raised issues about it, as it may have been used to pay off loans to VTB, a Russian state-owned bank that is subject to sanctions. If that is the case, I would love Ministers to explain to me why it is a wise move effectively to turn a blind eye while the Russians play the sanctions process that we have put on them.
I will touch briefly on the offshore problem. I congratulate Private Eye on the work it has done in recent years to highlight the effects and the extent of offshore vehicles in the UK. When even in a place such as the Isle of Wight we have property owned by companies based in the British Virgin Islands, the Cayman Islands, Jersey, Guernsey, Luxembourg or Gibraltar, the system is flawed. Lax standards are corrupting for our country and our financial system and it is short-sighted to see it otherwise; I am sure Ministers will agree. When houses in Belgravia and Hampstead are used as glorified Rolexes for the international kleptocracy, we are getting something wrong.
I very much hope that the Minister will pledge to continue to make aspects of the Bill tighter, consider what can be done about the missing Magnitsky elements and make a commitment to having the highest standards in the Bill, rather than following others.
Bambos Charalambous (Enfield, Southgate) (Lab)
As most hon. Members have stated in this debate, money laundering and corruption are huge issues worldwide. Although I welcome some of the measures in the Bill, I do not believe that it goes far enough.
The Minister for Europe and the Americas has already been made aware—it was mentioned in an intervention—that, as part of the recently agreed fifth EU anti-money laundering directive, all EU member states will be required to have public beneficial ownership registers by 2019. I am sure he will confirm that, whether or not the United Kingdom is part of the EU at the time of the directive’s implementation, the United Kingdom would not want any measures that are weaker than those in the directive.
This raises the question of what should happen in the overseas territories. The UK has made a start on a public beneficial ownership register, but more needs to be done in the overseas territories. As my right hon. Friend the Member for Barking (Dame Margaret Hodge) pointed out, the problem is that many overseas territories are tax havens and as such they are home to many offshore companies willing to offer complete anonymity to their clientele, with very few questions asked.
We should note that, despite overseas territories having small populations, half of all global trade passes through them because they are tax havens, and the vast majority of the transactions are carried out by offshore companies. Let us, for example, take the British Virgin Islands. Despite having a population of only 28,000, it is home to an estimated 500,000 offshore companies, which is 40% of the total number of offshore companies in the world. Many of these offshore companies have complete anonymity and are shell companies working with nominees and powers of attorney to move around vast amounts of money. Most people faced with that information would conclude that there is something dodgy going on.
My right hon. Friend gave examples of corrupt and illegal practices that have occurred in overseas territories tax havens, all of which are because of the opaqueness of the systems that they operate. A fully functioning central, public beneficial ownership register in the overseas territories would be no cause of concern to companies carrying out legitimate business activity. As more and more countries agree to adopt a public beneficial ownership register, it is inevitable that the overseas territories should follow.
We need to make sure that money offshore in these tax havens is not being used for illegal purposes. If there is an issue, it is that overseas territories have built their wealth on secrecy. If that is the case, the Government should support the overseas territories to make sure activity is based on a legitimate and transparent model of business. The Government should give support to the overseas territories as they transition from financial secrecy to openness.
There is no reason why corporate ownership transparency should cause any problems in the provision of legitimate financial services, especially considering that many other countries will be adopting the principles of transparency registers. The people who are losing out the most are those in developing countries. They are in the greatest need and the billions being diverted away from them could literally be costing lives.
I will conclude by saying that a fully operational public beneficial ownership register in the overseas territories will greatly help to curtail money laundering, corruption and criminal activity, but much more needs to be done than is set out in this Bill.
Vicky Ford (Chelmsford) (Con)
Issues relating to sanctions and anti-money laundering have been dealt with under EU law for many decades. It is absolutely right that we in Britain should treat these matters extremely seriously and make sure that the UK has in its toolbox all the tools that it needs to take action.
The UK has taken the lead in the past. Many of my colleagues in the House have reminded us of their experience when David Cameron chaired the G8 and tax transparency was put at the top of the global agenda. I remember being in the European Parliament at that time, working with the UK Conservative-led Government to increase tax transparency across Europe by introducing country-by-country reporting for banks.
The UK must continue to lead because the City of London is the world’s leading financial centre. The financial services sector is the leading contributor to British finances. It is vital to our future economic success, and its success is based on its reputation for trust and transparency. Crime does not stand still, however, and those who want to continue to launder money will continue to try to evolve their behaviour, moving into new dark spaces, taking advantage of digital trade and finding new ways to exploit a virtual world. No country has the tools to act alone and countries must continue to work together. Of course Britain will continue to implement anti-money laundering laws that were set in Brussels: we helped to form those laws. Action is being taken today. In today’s news, we have seen fines against William Hill, HSBC has announced a warning of a potential $1.5 billion fine for its Swiss operation and Latvia’s central bank chief has been suspended.
If we are to continue to take action against money laundering and fraud internationally as well as domestically, we must continue to have exchange of information. Data exchange is key for our security services, our tax authorities and our financial services sector. The vast majority of our financial services companies want to be able to stamp out fraud themselves. I am sure I am not the only Member to receive a phone call from their credit card company warning them that their credit card was being used fraudulently. I was in my kitchen in England while my credit card was being used in a hotel in Turkey. Our companies want to be able to access cross-border personal data because that helps them to fight crime.
Foreign Secretary, you have spoken about building bridges with Europe. You have spoken about building a physical bridge. You have spoken about building a hypothetical bridge. I challenge you to build a digital bridge: a 21st century data exchange bridge, based on the rules of data adequacy. That will ensure we keep the ability to fight crime together across the world.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
I agree with many of the comments we have heard today from both sides of the House, which I would summarise as a necessary start but not good enough, not far enough, not strong enough.
One area I am interested in is arms control, which the Bill misses an opportunity to address. The arms export control system we use in the UK goes hand in hand with the sanctions system we use to stop arms getting to certain regimes. The arms export regime we operate in this country is, of course, underpinned by EU consolidated criteria. There is no mention of consolidated criteria or of bringing the arms licensing regulations into a system such as the sanctions regulations. It is, I suggest, a great shame. The Bill does not touch on that area.
All of this is all very good, but enforcement is needed. Without enforcement, there is no point and the Bill is not worth the paper it is written on. Since 2011, there have been no prosecutions by Her Majesty’s Revenue and Customs of people who have broken the arms export regime or broken sanctions on arms sales. What is the point of introducing a Bill with a raft of sanctions against arms sales to certain regimes if we are not going to enforce them? It is not as though during this time there have not been significant and very credible reports that arms export controls have been breached and that arms have been sold to some of the most dangerous regimes in the world. We have just failed on enforcement because HMRC is under-resourced and these issues are under-prioritised in that department.
Turning to another area, I have a constituent who is a local business owner with a foreign national. She has reported many times her feeling that the company that she co-owns has been engaged in money laundering. She reported it to Action Fraud, Sussex police and HMRC, but for over a year, nothing was done. It took us hiring forensic accountants for HMRC suddenly to realise that hundreds of thousands of pounds might well have been laundered through the company. This was a director who wanted to blow the whistle, but HMRC and Action Fraud were just not interested. That is another example of how what is written in the Bill is all well and good, but the enforcement is just no good.
When Labour Members talk about wanting to give more money to our nurses, teachers and firefighters, we are often mocked by Government Members, who say that we want a magic money tree. It seems to me that a crop of magic money trees is growing with incredible health in some of our 14 British overseas territories. They are very clean because they are laundered daily, and they clearly like the climes—the balmy 32° that it is right now—in the British Virgin Islands. I note that many of the people in the Virgin Islands never really see these trees because they are lovely brass-plate trees.
Maybe it is not the climate that encourages magic money trees to locate in our overseas territories. Perhaps they thrive as part of a protection racket to shelter the very wealthiest in our society from paying their fair share. As we leave the European Union, it is vital that we have the mechanisms in place to replace the sanctions and money laundering provisions of the EU. I commend the Government for taking the first steps, but the Bill falls very short of creating a public, central and open register of beneficial ownership for our overseas territories.
More than 70% of corruption cases surveyed by the World Bank between 1980 and 2010 rely on anonymously owned companies helping to obscure what they are doing. It is the overseas territories that fly the flag of brand Britain and endanger that flag by not opening up—[Interruption.] I am sure that you will have a moment to reply later on, Mr Foreign Secretary. You do not need to chunter from your seat. These corrupt regimes are under the British flag. We have seen in the Paradise papers how companies such as Appleby—I call them crooked Appleby—advertise themselves as respectable offshore sector companies. However, they are now suing The Guardian for telling the truth that six of their 10 offices are located in overseas territories and are involved in money laundering. What will the Bill do to help people? Not enough.
We might hear from Government Members that we cannot do much on these issues, but a raft of people from overseas territories have written to me, begging us to take action, saying that they see no benefits in the territories for people on the ground from this tax evasion. It does not benefit our overseas territories. It benefits a small, super-elite and if we do not take action on enforcement in our overseas territories, who will? The Bill must go further. If it does not, we must ensure that amendments are forced in Committee and on the Floor of the House because there is cross-party support for ensuring that brand Britain stays clean and that we kick out the dodgy dark money from our country and our overseas territories.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a real pleasure to respond to the debate on behalf of the Opposition. The Bill, as many colleagues have indicated, purportedly aims to provide the UK with an appropriate system to stop the corrupt and the criminal from benefiting from our British financial system. I will first consider the sanctions-related matters before looking at the money laundering matters, although they are of course intrinsically linked.
As with much of the Government’s Brexit-related legislation, many concerns have been expressed about the lack of parliamentary oversight of the Bill’s provisions. As my hon. Friend the Member for Bishop Auckland (Helen Goodman) set out, many positive changes were made when the Bill was discussed in the other place, and they must not now be rolled back in this place. Other matters of concern persist, as indicated by the hon. Members for Glasgow Central (Alison Thewliss) and for East Dunbartonshire (Jo Swinson), and echoed in the calls for clarity from the hon. Member for Huntingdon (Mr Djanogly).
We still lack clarity over the extent to which our sanctions regime will be aligned with that of the EU 27. The evidence is clear that sanctions are more effective when imposed collectively—the hon. Members for Glasgow Central and for Huntingdon made that point very well. I was disappointed by the Foreign Secretary’s comments in this regard, which I thought were contradictory; he simultaneously admitted that unilateralism might not be effective while vaunting the possibilities of a totally independent regime. There are no indications in the Bill of how we will concretely ensure the continued co-ordination that is so necessary in this area.
We heard in the debate some persuasive arguments about the need for stronger commitments in the Bill, not just fleeting mentions, on the necessity for sanctions to target those responsible for human rights violations, particularly those responsible for gross human rights violations, as in the so-called Magnitsky regimes. The right hon. Member for Sutton Coldfield (Mr Mitchell) spelled out clearly the reasons for such an explicit approach. I hope that Government Members will have listened to those arguments.
Finally in relation to the sanctions-related provisions, the hon. Members for Glasgow Central and for East Dunbartonshire mentioned the need to ensure that measures are appropriately calibrated so that they target criminal individuals and terrorists, not legitimate aid agencies and financial service providers delivering legitimate services. It is essential that we have accurate and appropriately granular mechanisms in that regard.
Let me move on to money laundering. I was very pleased, as I am sure were many Members, about the informative and courteous style of debate that we have had on money laundering tonight. I am afraid that is in contrast to the comments on money laundering from the Government when introducing the Bill, which I thought were disturbingly brief. It is clear that the problem of money laundering is getting worse, not better. I will not go into all the arguments and evidence on that now, because that has been done very ably by other Opposition Members, not least my hon. Friend the Member for Ealing Central and Acton (Dr Huq). At the centre of the UK’s problems with money laundering lies a lack of transparency and accountability, both of which are essential if we are to ensure that the criminal and the corrupt do not profit from our leaky financial system.
On the issue of public registers of beneficial ownership in our associated territories, may I say what a powerful tour de force we have had from the right hon. Members for Arundel and South Downs (Nick Herbert) and for Sutton Coldfield? I am sure that the right hon. Member for Arundel and South Downs, as a former Home Office Minister, has a huge insight into the damage being done by the lack of transparency in this area, aiding international criminals. The Government must listen to the uncomfortable truth that he has set out so ably tonight.
My right hon. Friend the Member for Barking (Dame Margaret Hodge) set out how long this process has been running, as the Government requested beneficial ownership registers from the overseas territories five years ago. Many Members have indicated that we have had a slippage from the Government’s initial commitments in this regard. The failure to clean up their act by some of our overseas territories is having a severe impact on their reputation. As someone who has had many meetings with representatives of those jurisdictions, and who supports them tremendously, let me say that it is not their foes but their friends who are arguing for more transparency, because we see the reputational damage that the lack of transparency is doing to them. As my right hon. Friend the Member for Barking said, the Government’s failure to act constitutes complicity. I agree with the hon. Member for Amber Valley (Nigel Mills) that the UK must exercise leadership.
There has also been a lack of clarity from the Government over whether they are minded to follow EU-level developments, particularly the anti-money laundering directive known as AMLD 5. I agree with the hon. Member for Chelmsford (Vicky Ford) about many things—we worked together previously in the European Parliament—but I am afraid I cannot agree with her assessment that we know for certain that the Government will continue to cohere with EU-level developments. The hon. Member for East Dunbartonshire (Jo Swinson) and my hon. Friend the Member for Enfield, Southgate (Bambos Charalambous) explained very clearly why we do not have the clarity that we need.
I think it especially important to focus on the regulation of trusts. Under David Cameron, the Government argued against their inclusion in EU registers of beneficial ownership. The Foreign Secretary claimed that the UK was ahead of the rest of the EU with our register of beneficial ownership, but we have been a drag on the EU when it comes to more transparency on trusts.
Anneliese Dodds
At EU level, we have been. David Cameron argued against the inclusion of trusts in EU beneficial ownership registers, but we now have a chance to change. I can see that the Foreign Secretary is appalled by the idea that we might have acted as a drag in that regard, but I am sure that he will be converted to the cause of more transparency.
As the hon. Member for East Dunbartonshire rightly mentioned, it is deeply concerning that the timetable for the foreign-owned property register has slipped so substantially. I take on board what was said by the hon. Member for Amber Valley—we already have a register of sorts, in the guise of Private Eye’s tax haven property map—but that map was created, essentially, by mistake. It was created when the Land Registry released data, by mistake, which was then matched up with Companies House data. The Government should be delivering the register themselves. I appreciate that there should be additional disincentives, but that is not a reason not to act now.
Finally, let me say something about the issue of due diligence in relation to British company ownership. Yes, we do have a public register run by Companies House, but the responses to a series of parliamentary questions that I have tabled have shown that there is little or no oversight of the veracity of the data supplied to it. That is illustrated by the worrying case mentioned by my hon. Friend the Member for Brighton, Kemptown (Lloyd Russell-Moyle), to whom I pay tribute for all his effort to help his constituent. There are not enough resources in Companies House, and there is a regulatory gap in respect of those registering companies with it directly. There are even problems for those who register through company formation providers, many of which have been shown not to be fulfilling their responsibilities. In that context, it may be necessary to launch a pincer movement requiring all such firms to have UK bank accounts: at least they would then be covered by anti-money laundering legislation through the bank account system.
The Financial Action Task Force is due to report next month on the UK’s approach to money laundering and ensuring the integrity of the international financial system. I am sure Members in all parts of the House agree that it would be a huge international embarrassment if the taskforce concluded that the UK Government had chosen not to adopt measures that would help to clean up our financial system. I am afraid I agree with my right hon. Friend the Member for Barking that there are grim stains on the UK’s reputation in this regard.
Let me issue one last plea. I have been very disturbed by the Government’s decision not to defend publicly the journalists who were singled out by Appleby. It picked on British companies, the BBC and The Guardian, which were taken to court after releasing details that were in the public interest. Sadly, the Treasury team—I see that some of its members are present—has not yet been willing to condemn that behaviour. I appeal to Ministers, including those in charge of foreign policy, to do so now, and to confirm that those disclosures were in the public interest.
The Minister for Europe and the Americas (Sir Alan Duncan)
As my right hon. Friend the Foreign Secretary said in his opening speech, this Bill is necessary to ensure that we can continue to use sanctions and anti-money laundering regulations to support our foreign policy and national security goals as we leave the European Union. We have had a lively and passionate Second Reading debate, but I sense that the setting up of a UK sanctions regime on our departure from the EU would appear to enjoy the broad support of this House.
It is often invidious in winding up a debate to pick out some speeches but not all, but forgive me, Mr Speaker, if I do that this evening, because I think the two strongest and most remarkable speeches were those of the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), with whom I worked very closely as his deputy in DFID. I appreciate the passion of the right hon. Lady; we will no doubt debate these matters at great length in Committee and on Report, and we will take on board the strength of the arguments we have heard tonight, and which, of course, we have heard before. Likewise, my right hon. Friend made an impassioned plea for humanitarian agencies to be fully considered, and I will come to that shortly. He also spoke of Magnitsky, as did many Members; I will go into more detail later, but for now I will say that this Bill has wide-ranging powers to sanction people for human rights abuse. On open registers, we share my right hon. Friend’s view on wanting to bear down on illicit money flows; as he said, the registers are open to instant access by regulatory authorities, but I quite understand his view that such action alone does not suffice.
I have a small point to make to my hon. Friend the Member for Huntingdon (Mr Djanogly), who asked if we could publish the anti-corruption strategy; we did so in December of last year. The hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle) asked why nobody has been prosecuted for export control offences; in fact, there have been 23 not just prosecutions, but convictions, for export control offences in the 10 years from 2006 to 2016, and a number of these prosecutions relate to exports to countries covered by UN and EU sanctions regimes.
This being a Second Reading debate, I want to dwell on a few key principles contained in the legislation, as I have no doubt that we will discuss the closer detail further in Committee. The first such issue is that of delegated powers. They are rightly coming under scrutiny in this place today. However, it is important to recognise that Ministers implement sanctions and anti-money laundering regulations by using delegated powers now, through secondary legislation under the European Communities Act 1972, and this Bill will not change that approach. In fact, in the future Parliament will have greater oversight of sanctions than it currently does, with votes needed in both Houses when the UK acts outside the requirements of the UN, and given the need to respond quickly to global events, the Government believe that regulations remain the best mechanism for implementing and amending sanctions and anti-money laundering regimes.
There is, however, the question of creating criminal offences, as referred to by the hon. Member for Glasgow Central (Alison Thewliss), and I am confident this will be addressed before Report. We have listened to these concerns and we are working on a solution that we hope will be accepted by those who expressed them in another place. Indeed, Lord Judge, whom we have been talking to, and his colleagues did not disagree that breaches of sanctions should be criminal offences, and we will introduce amendments to fix this and address their concerns in due course.
On procedure, we believe we have the right balance of affirmative and negative resolutions. Regulations that implement UN regimes will be made under the negative procedure; regulations that do not implement UN sanctions regimes will be made under the made-affirmative procedure.
The hon. Member for Glasgow Central talked about the ability to amend devolved legislation as being “monstrous”. I think she slightly misunderstands the process here. Sanctions are a matter of foreign policy.
Helen Goodman
On negative and affirmative resolutions, the Minister is choosing to draw a distinction based on the origin of the sanctions—whether they are from the UN or the EU—but would there not be a greater logic in drawing a distinction between individual sanctions on people, which obviously have to be done quickly, and the rules of the game for the regimes, where the House would be reasonable in seeking to be consulted before they are introduced?
Sir Alan Duncan
The reason that we have made this distinction in terms of procedure is that we are obliged in law to implement UN sanctions. Once the sanctions have been agreed at the UN Security Council, the UK has an obligation to implement them under the UN charter. Not to do so would leave the UK in breach of international law—hence the distinction in the procedure that we are using.
Returning to what the hon. Member for Glasgow Central described as “monstrous”, I say again that sanctions are a matter of foreign policy and so are reserved to this Parliament.
Sir Alan Duncan
No. We consulted the devolved Administrations—that answers a question that the hon. Lady asked—and they did not disagree with us. The ability to make changes to devolved legislation that can be used only to make changes required as a result of sanctions does not injure the devolution settlement. Their primary purpose is for a reserved matter.
Let me move on to the issue of Magnitsky. I recognise the concerns expressed about the importance of taking a stand against individuals responsible for committing gross abuses of human rights. We recognise and indeed share those concerns. I would like to make it clear that this Government are committed to promoting and strengthening universal human rights, and this Bill will permit us to do so. We already have a range of powers to take action against those who commit gross human rights abuses, most recently through the Proceeds of Crime Act 2002, as amended by the Criminal Finances Act 2017. The Home Secretary also has the power to exclude individuals whose presence we believe to be contrary to the public good, and we keep track of potentially dangerous individuals to prevent them from entering the UK. To complement this, we also have a range of domestic asset-freezing powers.
We are already committed to using sanctions in this area. This is demonstrated by the number of countries against whom we use human rights-related sanctions. They include the Democratic Republic of the Congo, Iran, Libya, Mali, South Sudan, Venezuela and Zimbabwe. The Bill will rightly continue this, allowing the UK to continue to implement existing sanctions regimes and to impose new sanctions in the future. I reiterate my point that paragraphs (f) and (h) of clause 1(2) will empower the Government to implement sanctions on human rights grounds. These are broad powers that will provide maximum flexibility and allow us to include all sorts of abuses, including but not only gross human rights abuses.
I should like to refer to the comments made by my right hon. Friend the Member for Sutton Coldfield about humanitarian access and freedoms. This is an important point. The Government recognise the concerns expressed in the House about the humanitarian impact of sanctions, and we understand the need for engagement with non-governmental organisations and other humanitarian actors. We fully support the work of NGOs operating in difficult areas, and we recognise that they are important partners in delivering the UK’s objectives in challenging environments. I want to reassure the House that the Government have been actively engaging with NGOs. As part of the consultation for the Bill, we held a roundtable to understand their concerns. Within the past couple of months, we have also met organisations involved in humanitarian, development and peace-building work.
The Bill provides a number of tools that will enable the Government to tailor each regime to help to meet the needs of NGOs. In particular, it will enable the Government to make exemptions for humanitarian reasons and to issue licences for legitimate activity. EU case law currently limits our ability to issue general licences, but the Bill will provide greater flexibility by allowing us to do so in circumstances where Ministers judge it appropriate. It will also help to prevent the exploitation of NGOs by those seeking to circumvent sanctions. We have committed to remain engaged with the humanitarian sector and to provide it with high-quality guidance on the implementation and enforcement of individual regimes. We will continue to work with NGOs and other stakeholders to develop the best possible system.
Beneficial ownership has been at the heart of tonight’s debate. We will no doubt discuss it in Committee and perhaps on Report. It is important to recognise that the UK is the only member of the G20 with a public register of company beneficial ownership. We welcome the fact that the EU is catching up with us, but, when it does, public registers of beneficial ownership will still not be a global standard. The non-EU members of the G20 will still not have them.
We hope to work with the Financial Action Task Force and other partners to establish registers of beneficial ownership as a global standard, the effect of which will be not to allow companies or people simply to shift from one regime to another and hide their assets somewhere else. In the meantime, we should remember that the overseas territories are well ahead of most jurisdictions, including many G20 partners, in developing private registers.
In the exchange of notes in 2016, the overseas territories with significant financial centres each committed to holding central or equivalent registers of company beneficial ownership and to making information held on those registers available to UK law enforcement and tax authorities. Those arrangements are almost complete, with some of the territories understandably slightly delayed by last year’s devastating hurricanes.
Moreover, the overseas territories are separate jurisdictions with their own democratically elected Governments. The UK respects the constitutional relationship with the overseas territories and Crown dependencies. It is entirely right to work consensually with them, rather than to impose legislation. The UK has only legislated directly without the overseas territories’ consent in the most exceptional of circumstances, such as on capital punishment.
We do not generally legislate for the overseas territories, and to do so would have the effect of overruling their own legislatures and could be interpreted as disenfranchising the citizens who voted for them. The overseas territories have taken great steps forward in this area, further indeed than many other jurisdictions, and I urge the House to appreciate the importance of not jeopardising what has been agreed with them.
Until we leave the European Union, the United Kingdom will continue to exercise all the rights and obligations of membership, including with respect to common foreign and security policy, sanctions and anti-money laundering. After we leave, this Government intend to continue working closely with our European neighbours to ensure our collective peace and security. Sanctions and anti-money laundering regulations will continue to be a powerful tool in that effort.
Through this Bill, the Government intend to ensure that these important foreign policy instruments continue to be fully available for the United Kingdom to use wherever it is deemed appropriate so to do. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Sanctions and Anti-money Laundering Bill [Lords] (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Sanctions and Anti-Money Laundering Bill [Lords]:
Committal
1. The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 6 March.
3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
4. Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.
Other proceedings
7. Any other proceedings on the Bill may be programmed.—(Chris Heaton-Harris.)
Question agreed to.
Sanctions and Anti-money Laundering Bill [Lords] (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Sanctions and Anti-Money Laundering Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of:
(a) any expenditure incurred under or by virtue of the Act by the Secretary of State or the Treasury; and
(b) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Chris Heaton-Harris.)
Question agreed to.
SANCTIONS AND ANTI-MONEY LAUNDERING BILL [LORDS] (WAYS AND MEANS)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Sanctions and Anti-Money Laundering Bill [Lords], it is expedient to authorise:
(1) the imposition, by regulations under the Act, of charges by persons exercising functions under the regulations in connection with the detection, investigation or prevention of money laundering or terrorist financing or the combating of threats to the integrity of the international financial system; and
(2) the payment of sums into the Consolidated Fund.—(Chris Heaton-Harris.)
Question agreed to.
Sanctions and Anti-Money Laundering Bill [Lords]
Tuesday 1st May 2018
(6 years, 6 months ago)
Commons ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 1 May 2018 - (1 May 2018)
16:31 - The House divided: - Ayes: 301 / Noes: 314 - Question accordingly negatived.
17:59 - The House divided: - Ayes: 296 / Noes: 314 - Question accordingly negatived.
18:14 - The House divided: - Ayes: 298 / Noes: 313 - Question accordingly negatived.
18:28 - The House having divided: - Ayes: 295 / Noes: 313 - Question accordingly negatived.
Mr Speaker
Before we begin with Government new clause 3, I want to refer to the procedure for this debate. As the House will know, I have decided not to use my discretion to select the late starred new clauses and amendments from the Government, which were tabled yesterday afternoon and which appeared in print for the first time only this morning.
New Clause 3
Periodic reports on exercise of power to make regulations under section 1
“(1) The Secretary of State must as soon as reasonably practicable after the end of each reporting period lay before Parliament a report which—
(a) specifies the regulations under section 1, if any, that were made in that reporting period,
(b) identifies which, if any, of those regulations—
(i) stated a relevant human rights purpose, or
(ii) amended or revoked regulations stating such a purpose,
(c) specifies any recommendations which in that reporting period were made by a Parliamentary Committee in connection with a relevant independent review, and
(d) includes a copy of any response to those recommendations which was made by the government to that Committee in that reporting period.
(2) Nothing in subsection (1)(d) requires a report under this section to contain anything the disclosure of which may, in the opinion of the Secretary of State, damage national security or international relations.
(3) For the purposes of this section the following are reporting periods—
(a) the period of 12 months beginning with the day on which this Act is passed (“the first reporting period”), and
(b) each period of 12 months that ends with an anniversary of the date when the first reporting period ends.
(4) For the purposes of this section—
(a) regulations “state” a purpose if the purpose is stated under section 1(3) in the regulations;
(b) a purpose is a “relevant human rights purpose” if, in the opinion of the Secretary of State, carrying out that purpose would provide accountability for or be a deterrent to gross violations of human rights.
(5) In this section—
“the government” means the government of the United Kingdom;
“gross violation of human rights” has the meaning given by section 1(6A);
a “Parliamentary Committee” means a committee of the House of Commons or a committee of the House of Lords or a joint committee of both Houses;
a “relevant independent review”, in relation to a Parliamentary Committee, means a consideration by that Committee of whether the power to make regulations under section 1 should be exercised in connection with a gross violation of human rights.”—(Sir Alan Duncan.)
This new clause requires periodic reports to be made about the use of the power to make sanctions regulations. A report must identify regulations relating to gross human rights violations. It must also specify any recommendations made by a Parliamentary Committee for use of that power in relation to such violations, and include the government’s response.
Brought up, and read the First time.
The Minister for Europe and the Americas (Sir Alan Duncan)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 1—Scottish Limited Partnerships: partner requirement—
“(1) For the purposes of preventing money laundering, where a limited partnership registered in Scotland has general partners at least one of those must be a British citizen.
(2) Where a limited partnership registered in Scotland has limited partners at least one of those must be a British citizen.
(3) In this section—
a “limited partnership registered in Scotland” means a partnership registered under the Limited Partnerships Act 1907;
“British citizen” has the meaning given in part 1 of the British Nationality Act 1981.
“general partner” has the meaning given in section 4(2) of the Limited Partnership Act 1907;
“limited partner” has the meaning given in section 4(2A) of the Limited Partnership Act 1907”.
New clause 6—Public registers of beneficial ownership of companies registered in British Overseas Territories—
“(1) For the purposes of the detection, investigation or prevention of money laundering, the Secretary of State must provide all reasonable assistance to the governments of the British Overseas Territories to enable each of those governments to establish a publicly accessible register of the beneficial ownership of companies registered in each government’s jurisdiction.
(2) The Secretary of State must, no later than 31 December 2020, prepare a draft Order in Council requiring the government of any British Overseas Territory that has not introduced a publicly accessible register of the beneficial ownership of companies within its jurisdiction to do so.
(3) The draft Order in Council under subsection (2) must set out the form that the register must take.
(4) If an Order in Council contains requirements of a kind mentioned in subsection (2)—
(a) it must be laid before Parliament after being made, and
(b) if not approved by a resolution of each House of Parliament before the end of 28 days beginning with the day on which it is made, it ceases to have effect at the end of that period (but without that affecting the power to make a new Order under this section).
(5) In calculating a period of 28 days for the purposes of subsection (4), no account is to be taken of any time during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than four days.
(6) For the purposes of this section, “British Overseas Territories” means a territory listed in Schedule 6 of the British Nationality Act 1981.
(7) For the purposes of this section, “a publicly accessible register of the beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006.”
This new clause would require the Secretary of State to take steps to provide that British Overseas Territories establish publicly accessible registers of the beneficial ownership of companies.
New clause 14—Public registers of beneficial ownership of companies in the Crown Dependencies—
“(1) For the purpose of preventing money laundering, the Secretary of State must provide all reasonable assistance to the governments of the Crown Dependencies to enable each of those governments to establish a publicly accessible register of the beneficial ownership of companies registered in that government’s jurisdiction.
(2) The Secretary of State must, by the deadline set for the implementation of the European Union’s 5th Anti-Money Laundering Directive, prepare a draft Order in Council requiring the government of any Crown Dependency that has not introduced a publicly accessible register of beneficial ownership of companies within their jurisdiction to do so.
(3) The draft Order in Council under subsection (2)—
(a) must be laid before Parliament after being made, and
(b) if not approved by a resolution of each House of Parliament before the end of the 28 days beginning with the day on which it is made, ceases to have effect at the end of that period (but without that affecting the power to make a new Order).
(4) In calculating a period of 28 days for the purposes of subsection (4), no account is to be taken of any time during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than 4 days.
(5) For the purposes of this section, a “publicly accessible register of beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006 (information about people with significant control).
(6) For the purposes of this section, “Crown Dependency” means—
(a) any of the Channel Islands;
(b) the Isle of Man.”
New clause 19—Scottish Limited Partnerships: UK bank account requirement—
“(1) For the purposes of preventing money laundering, where a limited partnership registered in Scotland has general partners at least one of those must have an active UK bank account.
(2) Where a limited partnership registered in Scotland has limited partners at least one of those must have an active UK bank account.
(3) In this section—
a “limited partnership registered in Scotland” means a partnership registered under the Limited Partnerships Act 1907;
“general partner” has the meaning given in section 4(2) of the Limited Partnership Act 1907;
“limited partner” has the meaning given in section 4(2A) of the Limited Partnership Act 1907.”
Government amendments 10 to 12.
Amendment 32, in clause 1, page 2, line 17, at end insert—
“(i) further accountability for, or act as a deterrent to, the commission of a gross human rights abuse or violation.”
This amendment would enable sanctions to be made for the purpose of preventing, or in response to, a gross human rights abuse or violation.
Amendment 33, page 2, line 35, at end insert—
“(5A) In this section, conduct constitutes “the commission of a gross human rights abuse or violation” if each of the following three conditions is met.
(5B) The first condition is that—
(a) the conduct constitutes the torture of a person who has sought—
(i) to expose illegal activity carried out by a public official or a person acting in an official capacity, or
(ii) to obtain, exercise, defend or promote human rights and fundamental freedoms, or
(b) the conduct otherwise involves the cruel, inhuman or degrading treatment or punishment of such a person.
(5C) The second condition is that the conduct is carried out in consequence of that person having sought to do anything falling within subsection (2)(a)(i) or (ii).
(5D) The third condition is that the conduct is carried out—
(a) by a public official, or a person acting in an official capacity, in the performance or purported performance of his or her official duties, or
(b) by a person not falling within paragraph (a) at the instigation or with the consent or acquiescence—
(i) of a public official, or
(ii) of a person acting in an official capacity, who in instigating the conduct, or in consenting to or acquiescing in it, is acting in the performance or purported performance of his or her official duties.
(5E) Conduct that involves the intentional infliction of severe pain or suffering on another person is conduct that constitutes torture for the purposes of subsection (2)(a).
(5F) It is immaterial whether the pain or suffering is physical or mental and whether it is caused by an act or omission”.
This amendment, which is consequential on Amendment 32, would define what constitutes the commission of a gross human rights abuse or violation. The commission of a gross human rights abuse or violation would include the torture of a person who had sought to expose the illegal activity of a public official, or the torture of a person who had sought to defend human rights or fundamental freedoms, by a public official or a person acting in an official capacity.
Government amendments 13 to 17.
Amendment 20, in clause 56, page 43, line 7, after first “1”, insert
“, section (Public registers of beneficial ownership of companies registered in British Overseas Territories)”.
This amendment is consequential on NC6.
Government amendment 18.
Amendment 31, in title, line 5 after “objectives”, insert
“or to further accountability for, or act as a deterrent to, the commission of a gross human rights abuse or violation”.
This amendment to the long title would be consequential on Amendment 32.
Sir Alan Duncan
This group contains new clauses and amendments regarding three related issues that I will discuss in turn: imposing sanctions for gross human rights violations, or what is now popularly known as the Magnitsky amendment; Scottish limited partnerships, which are of deep concern, particularly for the Scottish National party; and public registers of beneficial ownership in the overseas territories. In two of those areas, the Government are taking action to tackle abuses and tighten up standards: through Government amendments on Magnitsky and through a consultation document on Scottish limited partnerships.
Alison Thewliss (Glasgow Central) (SNP)
Will the Minister give way on that point?
Sir Alan Duncan
It is a bit early, but I will do so if the hon. Lady insists; I am ever obliging to the hon. Lady.
Alison Thewliss
The Minister mentions the consultation on SLPs. Does he not accept that there has already been a consultation on SLPs and that it closed over a year ago, so to have another consultation is just wasting time?
Sir Alan Duncan
If I might say so ever so politely to the hon. Lady, she is jumping the gun slightly given that I am only at the end of my first paragraph, and as she knows there have been some detailed discussions through the usual channels. I will address the matter she has asked about in more detail later on; if I may, I will tackle the three issues to which I have referred in the order that I raised them, in order to satisfy the House that we are looking at all concerns in detail and genuinely.
First, sanctions for gross human rights violations have clearly been an issue of significant concern to Members on both sides of the House, as was made clear by many who spoke on Second Reading and in Committee. I fully recognise why Members and many people outside this House want to include gross human rights abuses in the Bill explicitly as a reason why sanctions can be applied, particularly in reference to the abhorrent case of Sergei Magnitsky in Russia.
In her speech to the House on 14 March, the Prime Minister made clear the Government’s intention to bring forward a Magnitsky amendment to the Bill, and as the House can see we have fulfilled that obligation by doing so for discussion in the House today. As a result of that commitment, we have worked closely, constructively and genuinely with Members on both sides of the House, including some who have campaigned for this amendment at great length, particularly my right hon. Friends the Members for Newbury (Richard Benyon) and for Sutton Coldfield (Mr Mitchell). I also genuinely thank the hon. Member for Bishop Auckland (Helen Goodman), my opposite number, and the hon. Member for Oxford East (Anneliese Dodds). Together we have worked to put together a form of words that now enjoys cross-party support. We have tabled amendments that we hope will capture the maximum possible consensus in this area.
Chris Bryant (Rhondda) (Lab)
I am truly grateful for everything that the Minister and all those he has referred to have done in relation to the Sergei Magnitsky amendment. It is obviously important that he has captured the consensus of the House, but it is even more important that we capture all those, in particular those from Russia, who have come to this country and used it for money laundering purposes and for hiding their assets. Is he confident that we will be able to do that as a result of this legislation?
Sir Alan Duncan
I am confident of that, as I will explain further in a moment.
As is traditional on Report, it is important that I explain what the amendments do, if ever so briefly. Amendment 10 relates specifically to putting gross human rights abuses on the face of the Bill as a basis on which sanctions may be imposed. Amendments 11, 12, 14, 15, 16 and 17 are consequential to that, introducing technical changes that will follow. Amendment 13 links the definition of a gross violation of human rights to the existing definition in the Proceeds of Crime Act 2002, so that it includes the torture of a person by a public official or a person in an official capacity, where the tortured person has sought to expose the illegal activity of a public official or to defend human rights or fundamental freedoms. That will ensure that all gross human rights abuses or violations are explicitly captured.
Toby Perkins (Chesterfield) (Lab)
The Minister will not be surprised to know that I fully support the Government in bringing this change forward, as I am sure all Labour Members do, given that we have been asking for it for some time. On the subject of sanctions, will the Government publish the names of those who have been sanctioned under the Bill, notwithstanding what subsection (2) of new clause 3 says about not risking damage to
“national security or international relations”?
Sir Alan Duncan
There is an obligation to report, which I will come to in a minute. I would be happy to explain the exact details to the hon. Gentleman, although of course they are still being devised on the back of the obligations laid down in the Bill.
New clause 3 requires reports to be made—this relates to the question that the hon. Gentleman has just asked—about the use of the power to make sanctions regulations, including the specifying of any recommendations made by a parliamentary Committee on the use of that power and the Government’s response. It is right and proper that an independent review of the powers should be carried out by Parliament. This is a strong set of measures to address the Government’s approach to imposing sanctions for human rights abuses, and I would like to put it on record again that the Government are committed to promoting and strengthening universal human rights and holding to account states and individuals who are responsible for the most serious violations.
Jo Swinson (East Dunbartonshire) (LD)
Will the Minister outline how he envisages such a parliamentary review operating? Will it be done through specific Committees, or on the Floor of the House? Will we be able to have confidence that that procedure is robust enough to ensure that the review is appropriate?
Sir Alan Duncan
The hon. Lady hits on a point that illustrates the important distinction between the Executive and the legislature, even though the Executive are drawn from the legislature. We, as Ministers, are the Executive. The hon. Lady is a Member of the legislature. I will not say, “Long may that continue”, but it might. It is therefore inappropriate for us to determine in primary legislation exactly how the House should go about its business. That is for the House itself to decide. We believe that we have included in the Bill the proper impetus for the House to be able to structure itself as it wishes—through the Joint Committee on Human Rights or the Foreign Affairs Committee, for example—while saying in advance that we as the Executive will have an obligation to report back and respond to any such independent activity.
Stephen Kinnock (Aberavon) (Lab)
Along with other colleagues, I absolutely share the objectives of the Magnitsky provisions. I have been in touch with Bill Browder, for whom Sergei Magnitsky worked at the time of his brutal murder by the Russian authorities, and Mr Browder has made it absolutely clear to me that if this does not lead to the full publication of the names of the people who are being sanctioned and to absolute clarity on the nature of the independent review that has just been mentioned, the Bill will have failed in its objectives. It is important that the Minister understands what Mr Bill Browder is saying on this matter.
Sir Alan Duncan
I can say that any person sanctioned under this Bill will have their name published on an administrative list, which will be publicly available. I hope that that will reassure the hon. Gentleman, the House and all those interested in this issue.
John Penrose (Weston-super-Mare) (Con)
I was about to ask the same question, and the answer that the Minister has just given will be enormously reassuring to many of us, particularly because the thing that many of these kleptocrats and organised criminals really fear is the glare of public disclosure.
Sir Alan Duncan
I hope that I will be able to continue to address the House with similar such effect this afternoon.
Sir Geoffrey Clifton-Brown (The Cotswolds) (Con)
I doubt that there is anyone in this House who does not want the overseas territories and Crown dependencies to have open, public registers of company interests. If new clause 6, tabled by my right hon. Friend the Member for Sutton Coldfield (Andrew Mitchell) does not pass, how will the House be able to have confidence that the Executive will make sufficient progress as though we had compelled them to issue Orders in Council?
Sir Alan Duncan
I will be saying more about the overseas territories in a moment. I fully recognise the interest that my hon. Friend has shown, over many years, in the importance of protecting the interests of the overseas territories, particularly in the Caribbean. I will be able to give him deeper reassurance on this in a moment, but if I may, I will continue with my points in the order that I was planning to make them, by addressing the Magnitsky issue first, then Scottish limited partnerships, before turning to that rather more vexed issue.
Looking at the Scottish National party Benches, I turn to the separate amendments on Magnitsky tabled by the hon. Member for Glasgow Central (Alison Thewliss). While we agree with the driving principles behind the amendments, we are satisfied that the package of amendments that we have tabled—which have been signed by Members on both Front Benches—sufficiently cover the same objectives. I hope that the hon. Lady will feel that they do. As she knows from our discussions in Committee, we have approached this entire issue in a spirit of cross-party co-operation. Indeed, she has played an important part in that in her campaigning.
Alison Thewliss
I should like to take this opportunity to say that, having heard what the Minister has said on this matter and others, I am content not to press my amendments relating to Magnitsky.
Sir Alan Duncan
I am grateful to the hon. Lady. I am hoping for a similar response on other parts of the Bill as I proceed gingerly through the new clauses and amendments that we are discussing today. I hope that, when I proceed gingerly, no one can see that I am here at all.
Opposition amendments 31 and 32 would insert a purpose into the Bill to allow sanctions regulations to be made for the purpose of preventing, or ensuring accountability for, a gross human rights abuse or violation. As the hon. Lady has already suggested, however, our amendment 10 would add a similar purpose, so I sense that we have found common ground here. Also, just to make the record clear, Opposition amendment 33 would define what constitutes a gross human rights abuse or violation on the face of the Bill. Government amendment 13 provides a similar function through reference to a definition already existing in other legislation, as I have just explained, which is preferable for maintaining a tidy statute book. I therefore hope that our amendments meet the goals of the hon. Lady’s amendments. I sense that they do.
Setting aside a technical assessment of the Bill, I think that, on Magnitsky, we have got there. This is a very important moment for the House, and for the defence of human rights that the United Kingdom is always proud to show. All parties have come together to find consensus on ensuring that the proper legislative powers are in place to address gross violations of human rights. That is a matter of deep concern to Members on both sides of the House, to many people outside and internationally. If the amendments are agreed to today, as I am sure they will be, we can truly say that we have spoken together, united in favour of human rights, and that the voice of the United Kingdom sits alongside other countries that have adopted such legislation, and we can score it as a great achievement of which we can all be proud. Once again, I pay tribute to those who have so relentlessly and persistently campaigned for it. It is not just a triumph for the House; it is a personal triumph for them. In saying that, I look once again to my right hon. Friend the Member for Newbury in particular.
Turning to Scottish limited partnerships, we recognise the concerns that have been raised, and I assure the House that the Government are committed to making further progress. SLPs and other forms of limited partnership play a vital role in the asset management sector for the funding of asset-based contribution pension schemes and for oil and gas exploration, which matters enormously to Scotland. That makes it all the more important not just that their legitimate use is supported, but that legitimate action is taken to prevent their misuse. As hon. Members will be aware, the past decade has seen a vast increase in the number of SLPs, with the growth rate far outstripping that of the number of limited partnerships established in the rest of the UK, and we recognise the concern that SLPs are being used inappropriately. Following clear evidence of certain SLPs being misused, the Government brought them within the scope of our register of beneficial ownership. Since then, the rate of new SLP registration has declined by approximately 80%, but we recognise that more needs to be done.
Yesterday, the Department for Business, Energy and Industrial Strategy published a consultation document on limited partnership reform following its call for evidence last year. The document sets out clear options for reform. The Government propose that all those registering a limited partnership would need to be registered with an anti-money laundering supervisor. They would need to carry out due diligence before establishment, with the possibility of supervisory action. That due diligence will necessarily include identifying the beneficial owners of the SLP, including its general and limited partners when they exercise control over the SLP. That addresses the substantial purpose behind new clause 19, which would require at least one of both the general and limited partners in an SLP to have an active UK bank account, and so require that they will have been subject to due diligence for anti-money laundering purposes.
Such measures would address the substantial purpose behind the new clauses on the subject. We are further consulting on how best to require limited partnerships to retain a physical presence in the UK to ensure that there is a UK link against which any necessary enforcement proceedings can be taken. Additionally, the Department for Business, Energy and Industrial Strategy is seeking views on whether all limited partnerships should be required to file an annual confirmation statement with Companies House. Taken together, the proposals would tighten the checks on SLPs, ensure that they retain a UK presence and expose more details about their workings to public scrutiny. They would not disproportionately burden limited partnerships that operate entirely lawfully, but they would go further in reducing their potential for illicit misuse.
New clause 1 would require that, where a Scottish limited partnership has general and limited partners, at least one of each must be a British citizen. That would have the unintended side effect of disrupting the legitimate uses of corporate partners within sectors, including the venture capital sector. The Government consider that the measures on which the Department for Business, Energy and Industrial Strategy is consulting will do more to bring transparency to limited partnerships and to prevent them from being misused, without damaging their legitimate usage. The Department’s consultation will be open until 23 July, and I encourage all interested Members to continue engaging with the process of reforming limited partnership structures. Given the work that the Department is leading, and the Government’s clear plan to continue reforming limited partnerships, I respectfully ask that hon. Members do not move their respective amendments in this area and that they work hard with us to ensure that we can produce an outcome with which they are fully satisfied.
Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)
The Minister mentioned increasing the regulation of SLPs, but a regulation from last year meant that SLPs had to register their beneficial ownership within 28 days or face a £500 daily fine. Only 43% of them have provided that information, meaning that £2.2 billion in backdated fines has accrued. When does the Minister intend to collect that money and enforce the regulations that already exist for SLPs?
Sir Alan Duncan
It sounds as though the hon. Gentleman is going to make a robust submission to the consultation, and I urge him to do so, because I fully take the point that if something can be required but it does not work operationally, then obviously it will not be delivered. I urge him to record what he believes are the facts and submit them to the consultation.
I express my gratitude to Members who have tirelessly continued to raise their concerns on the issue of SLPs—I can spot one from where I am standing—and I hope that what I have said today, and the content of the consultation published yesterday, provides reassurance that the Government are genuinely committed to reform in this area.
Turning to beneficial ownership in the overseas territories, as the House will now appreciate, the Government’s plan for tackling the issue had been to table a new clause, which we did, that sought unity in the House, which I believe we had a good chance of securing. The new clause sought to enhance the measures on beneficial ownership in the overseas territories but stopped short of legislating for them, thus avoiding constitutional conflict. As Members will be aware, however, some amendments were not selected today, and we of course fully respect the procedural basis on which Mr Speaker chose not to select them.
New clause 6, tabled by my right hon. Friend the Member for Sutton Coldfield and the right hon. Member for Barking (Dame Margaret Hodge), would put a duty on the Government to work with the overseas territories to set up public registers of company beneficial ownership by 31 December 2020. If they do not do so, the new clause would require the Secretary of State to prepare a draft Order in Council, aiming to legislate directly. Opposition new clause 14 would require the Secretary of State to provide all reasonable assistance to the Governments of the Crown dependencies to enable them to establish a public register of company beneficial ownership, and if, by the implementation of the European Union’s fifth anti-money laundering directive, they have not, the new clause would require the Secretary of State to take all reasonable steps to ensure that the Privy Council legislates to require each Crown dependency to do so.
The UK has strongly supported co-ordinated international action to promote beneficial ownership transparency. The UK was the first G20 country to establish a public register of company beneficial ownership and has committed to creating a new beneficial ownership register for overseas companies. At EU level, the UK went beyond the requirements of the fourth anti-money laundering directive in establishing a public register and supported the inclusion in the fifth anti-money laundering directive of a provision that will require all EU member states to have legislation in place to support publicly accessible registers by the end of 2019.
We are also committed to seeing the overseas territories and Crown dependencies take further action, and they have already made significant progress through consensual joint action. We are grateful, and we respect all the work they have done in this area. All Crown dependencies have central registers in place. Of the seven overseas territories with significant financial centres, four already have central registers or similarly effective arrangements. They are able to provide UK law enforcement authorities, on request, with access to such information, even at very short notice—it can be within 24 hours, or even within one hour in urgent cases.
Sir Alan Duncan
I can answer with an unequivocal yes. That is a shared objective on both sides of the House. The only thing on which we have different opinions is the manner in which we get there. The objective is clear. The arguments are very finely balanced, and the hon. Lady may want to listen carefully to what I am about to say. We recognise the need to tackle illicit finances across the globe, including in the Crown dependencies and overseas territories. We are concerned, however, that the economic impact of imposing public registers on the overseas territories will be significant.
Furthermore, the overseas territories are separate jurisdictions, with their own democratically elected Governments. They are responsible for their own fiscal matters, and they are not represented in this Parliament. Legislating for them without their consent effectively disenfranchises their elected representatives. We would have preferred to work consensually with the overseas territories to make those registers publicly available, as we have done in agreeing the exchange of notes process.
Sir Alan Duncan
No, not for the moment.
We do not want to legislate directly for the overseas territories, nor do we want to risk damaging our long-standing constitutional arrangements, which respect their autonomy. However, we have listened to the strength of feeling in the House on this issue and accept that it is, without a doubt, the majority view of this House that the overseas territories should have public registers ahead of their becoming the international standard, as set by the Financial Action Task Force.
We will accordingly respect the will of the House and not vote against new clause 6. Unless my right hon. Friend the Member for Sutton Coldfield chooses not to press the new clause, we accept that it will become part of the Bill. In the same spirit, I would appreciate it if the hon. Member for Bishop Auckland chose not to press new clause 14, which would add the Crown dependencies to that stipulation.
Her Majesty’s Government are acutely conscious of the sensitivities in the overseas territories and of the response that new clause 6 may provoke. I therefore give the overseas territories the fullest possible assurance that we will work very closely with them in shaping and implementing the Order in Council that the Bill may require. To that end, we will offer the fullest possible legal and logistical support that they might ask of us. Alongside that, we retain our fullest respect for the overseas territories and their constitutional rights, and we will work with them to protect their interests.
Helen Goodman (Bishop Auckland) (Lab)
I am pleased to have the opportunity to take part in the debates on Report of this important Bill. I will follow the same order as the Minister in discussing the amendments.
I took the rather unusual step of signing the Government’s Magnitsky amendments, new clause 3 and amendments 10 to 13, so this House can present a united voice to the whole world in expressing our abhorrence for gross human rights abuses and our determination to tackle them together.
I thank the right hon. Member for Newbury (Richard Benyon) and my hon. Friends the Members for Rhondda (Chris Bryant) and for Dudley North (Ian Austin)—the latter is not in the Chamber at the moment—all of whom have campaigned on this issue for a long time. Her Majesty’s Opposition believe that human rights should be at the centre of foreign policy. The only way gross human rights abuses will stop is if those who perpetrate them, order them and facilitate them are brought personally to account. They must pay the price.
Sanctions against individuals for gross human rights abuses were originally conceived as a response to the terrible treatment of Sergei Magnitsky, but we believe there is a wider problem. We note, for example, that the United States has sanctioned Maung Maung Soe, one of the generals responsible for the ethnic cleansing of the Rohingya in Myanmar.
Last year, the Criminal Finances Act 2017 enabled the Government to freeze the assets of people responsible for such crimes, and this Bill will enable us to ban visas and prevent such people traveling here. The only question is why it took so long for the Government to come round to seeing the importance of this measure.
We introduced so-called Magnitsky amendments in Committee that would have given us the same ability as Canada and the United States to implement targeted sanctions. Unfortunately, the Government initially did all they could to reject our amendments. They rejected them in principle on Second Reading; they reordered the consideration of the Bill; they suspended the Committee; and then they downright voted against the amendments. After the Salisbury incident on 4 March, the Prime Minister announced a complete U-turn. We are pleased the Government have seen the light, but it is unfortunate that it took such a tragic event for them to change their mind.
I am pleased to offer the support of Her Majesty’s Opposition to new clause 6, tabled by my right hon. Friend the Member for Barking (Dame Margaret Hodge). I congratulate her on her long campaign, which began when she was Chairman of the Public Accounts Committee. She has stuck with it over many years, and we see in the Minister’s announcement today that the campaign was well worth while. I also congratulate the right hon. Member for Sutton Coldfield (Mr Mitchell) on putting together a fantastic coalition of support for this change.
We believe the time to act has come. In 2014, David Cameron wrote to the British overseas territories recommending that they introduce public registers—the UK introduced a public register in 2016—and new clause 6 sets out a timetable for them to do so by 2020. Money laundering through London is estimated by the National Crime Agency to total £90 billion, and it is facilitated by the secret ownership of companies allowed in tax havens. Unfortunately, the British overseas territories and Crown dependencies are major actors. They enable the corrupt to live in comfort on their ill-gotten gains and facilitate tax avoidance and evasion on a spectacular scale. The UK is estimated to lose £18.5 billion each year. I am only surprised that the Chancellor of the Exchequer did not also sign new clause 6.
The poorest countries in the world are estimated by the United Nations to lose £100 billion a year through these tax havens, which dwarfs any aid flows we supply. That is another reason why new clause 6 is very much to be welcomed.
The scope for hiding large funds facilitates serious international crimes: drug dealing, people trafficking, sanctions busting, illegal arms sales and terrorism. Over and again, the names of the British overseas territories and Crown dependencies come up when these crimes are finally uncovered.
James Duddridge (Rochford and Southend East) (Con)
Clearly, it is important to remember that this is not just an overseas territories issue but a global one. Is the hon. Lady worried that this legislation will just displace all the activity to states such as Delaware, which do not have this transparency, and we will not gain any of the real benefits?
Helen Goodman
Of course the hon. Gentleman raises a worry, which has been expressed. My right hon. Friend the Member for Islington South and Finsbury (Emily Thornberry) and I were in the United States a fortnight ago, when we met several members of the US Congress who are keen to crack down on Delaware, Nebraska and the other states there. Leading by example, which is what the last Administration did, is a way to make progress on this issue. I will come back to the international links later in my speech.
Mr Geoffrey Cox (Torridge and West Devon) (Con)
What does the hon. Lady say to the 50,000 or 60,000 inhabitants of the Cayman Islands, who were given a constitution in which the responsibility for the governance of their financial and economic affairs was solemnly conveyed to them by this Parliament? The measure she is supporting will require that constitution to be amended so that the section that conveys on them the power to make their own orders in these affairs will have to be removed. What does she say to them?
Helen Goodman
My understanding is that the position on the British overseas territories, as set out by a White Paper when the hon. Member for North West Norfolk (Sir Henry Bellingham) was a Foreign Office Minister, is that it is appropriate for this House to legislate for the Cayman Islands and the overseas territories if it is considered necessary. Given the long list of crimes, which I have just read out to the House, that are facilitated, it can be argued completely that when we are making changes in this respect, this is an international, foreign policy issue, as that is what we are talking about; we are talking about the financing of international crime and of terrorism. This is not like trying to intervene in street lighting or purely local matters. It simply has a completely different import for the world.
Robert Neill (Bromley and Chislehurst) (Con)
I understand the point the hon. Lady is making and, as a lawyer, I very much appreciate the importance of the international fight against crime and money laundering, but will she concede that at least some overseas territories take their obligations very seriously? For example, Gibraltar, which is part of the EU as well, has already publicly accepted that it will transpose the fifth anti-money laundering directive, which includes a public register of beneficial ownership, into place by December 2019? In a sense, such places do not need to be legislated for, because they are willing to do this. It is important to be proportionate in our approach, is it not?
Helen Goodman
Of course what the hon. Gentleman says about the fifth anti-money laundering directive is right, in so far as it does put obligations on Gibraltar. That was why I have linked new clause 14 to the fifth anti-money laundering directive, because clearly it is easier, in terms of international competitiveness, for many jurisdictions to move together.
Sir Henry Bellingham (North West Norfolk) (Con)
The hon. Lady mentioned the 2012 White Paper on the overseas territories, in which we said that in extreme cases we would legislate on such matters but that we would always try to build consensus first, because of our great respect for the constitutions of those territories. I plan to make a few remarks about that, but given the Government’s announcement today, will she confirm that she will not press new clause 14, which would extend new clause 6 to the Crown dependencies?
Helen Goodman
I will come on to that at the end of my speech.
I was explaining that these crimes are significant and that we see money being laundered in the UK, and I wanted to give the example of Mr Temerko, who was once a senior figure in Russia’s defence industry and who rose to become a key player in the Russian oil giant Yukos. His engineering company, Offshore Group Newcastle Ltd, had a large site up in Hadrian’s yard in Newcastle, where it was doing some energy work. The company won a grant from the Government’s regional growth fund in 2013, but it later went into administration and the work in the north-east was left unfinished. OGN Ltd is owned by a parent company based in the secrecy jurisdiction of the British Virgin Islands. Clearly, the effects of the lack of transparency are not felt solely in London; they are felt across the United Kingdom.
As I have said, I acknowledge that progress has been made, in so far as registers of beneficial ownership or “similarly effective systems” have been set up, but these are not transparent.
Mr Jim Cunningham (Coventry South) (Lab)
After the incident in Salisbury, I was led to understand that the Government were cracking down on money laundering in this country, particularly in respect of these Russian oligarchs. Does my hon. Friend not agree that the Government should pursue this a lot further than they have been doing?
Helen Goodman
I certainly agree with that. Obviously, the law enforcement agencies—the National Crime Agency, the police and the Serious Fraud Office—need more resources. They would then be in a better position to crack down on this money laundering.
The purpose of transparency is not for the entertainment and titillation of the curious; it is to facilitate the authorities’ ability to track down illicit flows, because they can see the connections and links. This effectiveness of transparency was demonstrated by the fact that the Panama and Paradise leaks enabled Her Majesty’s Revenue and Customs to open civil and criminal investigations into 66 people, to pursue arrests for a £125 million fraud, to tackle insider trading and to place dozens of high net worth individuals under review.
I am extremely pleased that the Minister said what he did about not opposing new clause 6, which stands in the name of my right hon. Friend the Member for Barking. I welcome his change of heart on that. He has, in the written ministerial statement he produced this morning, bigged up the role of the Financial Action Task Force, and I was a bit surprised by that, as the FATF is a rather unsatisfactory forum. It is an inter- governmental body with no legal personality or explicit formal authority under international law and no enforcement powers. It has 37 members, which include Russia, China and the Gulf Co-operation Council. Foreign Office Ministers have been eloquent in recent months in saying that the United Nations Security Council is ineffective in upholding international law because of the Russian veto, yet here, when we want to tackle the financing of major crimes and terrorism, they seem content to hand over their moral compass to the Russians. The FATF is also highly secretive; in answer to my questions, Ministers have refused to publish future agendas or papers for discussion. Even the UK does not always ensure its FATF representative has a thorough-going commitment to reform—for years it was a person who had his family money in a secret Bahamas trust. So I will be very pleased if the House can unite behind new clause 6 this afternoon.
I turn now to new clause 14, which would require public registers in the Crown dependencies. The case in principle for acting to improve transparency in the Crown dependencies—the Channel Islands and the Isle of Man—is substantively the same: their secret ownership arrangements facilitate both money laundering and tax evasion.
Gavin Robinson (Belfast East) (DUP)
The hon. Lady will have heard what the Minister said in his speech about the response that the Isle of Man and other Crown dependencies are able to give within hours, whenever a request is made for information that falls within a terrorist category. Does she accept that the Crown dependencies forthrightly, earnestly and efficiently provide information to our law enforcement agencies within hours, when it is requested?
Helen Goodman
The hon. Gentleman makes the same point about the Crown dependencies as other Members have made about the British overseas territories. The current situation is as he describes it—if the law enforcement agencies want information and ask for it, the authorities in the relevant jurisdictions give it to them—but the problem is that, to crack down on serious and organised crime, it is really useful to see the whole picture, and we can see the whole picture only if we have all the information. That is the point of transparency and that is the lesson from the Panama and Paradise papers.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
My hon. Friend is making a brilliant speech. Have we not learned that dark money will move to wherever the law is darkest? If we bring transparency to the overseas territories, most of the money is simply going to be relocated to the Crown dependencies, unless we change the law to cover them, too.
Helen Goodman
That point was made to me by the Minister and his officials when we discussed the Bill, and my right hon. Friend is absolutely right that, because we are making changes in respect of the overseas territories, we need to make changes in respect of the Crown dependencies.
Ms Angela Eagle
My hon. Friend is making an extremely good speech. Does she agree that the time for secrecy in all these jurisdictions is now over? We need transparency so that we can minimise the abuse—whether tax evasion, tax avoidance, or the laundering of criminal money—that is becoming more and more of a feature in these jurisdictions. Does my hon. Friend agree that once we have our own house in order, we can then campaign internationally to close down all tax havens?
Helen Goodman
My hon. Friend has succinctly made my whole case for me. She is absolutely right. Those people who think that the situation in the Crown dependencies is not as serious as that in the British overseas territories need only to remember the 957 helicopters that were registered on the Isle of Man to avoid VAT.
Several hon. Members rose—
Helen Goodman
I shall make a little more progress, because many Members want to speak.
I have linked new clause 14 to the fifth anti-money laundering directive, so that we would see a number of jurisdictions moving together. I am pleased that the Government have accepted the secrecy jurisdictions and that we have a role with respect to the overseas territories, but we need an effective path to bring change according to a timetable, within the current Parliament, and new clause 6 tabled by my right hon. Friend the Member for Barking would provide that. I will not press new clause 14 to a vote—I was not going to press it in any case—because I think we can reach an agreement on how to proceed on these matters.
Dame Margaret Hodge (Barking) (Lab)
Let me start by saying how grateful I am to all right hon. and hon. Members from all parties who support new clause 6. I am particularly grateful to the right hon. Member for Sutton Coldfield (Mr Mitchell), who has worked with me on this important issue and shown his particular skills and experience as a former Government Chief Whip.
The fact that the new clause commands such wide support throughout the House speaks volumes for what it says. Our proposal is right in principle and will be effective in practice. When it is passed—I am grateful to the Minister for conceding that the Government will not oppose it—this simple measure to require British overseas territories, our tax havens, to publish public registers of beneficial ownership will transform the landscape that allows tax avoiders, tax evaders, kleptocrats, criminals, gangs involved in organised crime, money launderers or those wanting to fund terrorism to operate. It will stop them exploiting our secret regime, hiding their toxic wealth and laundering money into the legitimate system, often for nefarious purposes.
Transparency is a powerful tool. With open registers, we will know who owns what and where and will be able to see where the money flows. We will thereby be better equipped to root out dirty money and deal with the related issues, and we will be better able to prevent others from using secretive jurisdictions to hide their ill-gotten gains.
Sammy Wilson (East Antrim) (DUP)
Does the right hon. Lady accept that open registers are not the panacea that she is describing? Indeed, the UK currently has open registers, but the name and address of an 85-year-old was used fraudulently to register 25,800 companies, without anyone discovering that fraud.
Dame Margaret Hodge
Open registers are an essential tool. They are necessary, but they are not sufficient. We also need a strong regulatory framework for the establishment of companies and strong policing arrangements to ensure that the regulations are implemented.
Toby Perkins
My right hon. Friend is absolutely right to pay tribute to Members from all parties, including the Conservative Members who bravely supported her even when the Government attempted to buy them off. On behalf of many Members from different parties, may I say how grateful we are for the tenacity that she has shown and the excellence with which she has pursued this campaign? It shows Parliament in a good light, and the measures that the House is set to approve will do a great deal of good.
Dame Margaret Hodge
I thank my hon. Friend for his kind words, but it really has been a team effort, with people from throughout the House and across all the political tribes.
New clause 6 would simply put into legislation proposals that David Cameron first articulated in 2013, when he spoke about ripping aside the “cloak of secrecy” and repeated the well-known mantra, “sunlight is the best disinfectant”. It would do no more and no less than fulfil the commitment made by the then Prime Minister five years ago.
Britain sits at the hub of the world’s largest network of secretive jurisdictions, and British tax havens are central to the movement of illicit moneys around the world. The secrecy under which they currently operate facilitates wrongdoing on an industrial scale. We have a weak regulatory regime, some of which was enacted by the previous Labour Government and needs reform, and sadly we have lax policing of our system. Couple that with the secrecy that prevails, and Britain and our overseas territories have increasingly become the most attractive destination for crooks, kleptocrats and corrupt individuals who engage in financial skulduggery. If we do not accept new clause 6, we will be in danger of sacrificing our traditional reputation as a reliable jurisdiction by our failure to challenge the secrecy.
Liam Byrne
I very much echo the sentiments of my hon. Friend the Member for Chesterfield (Toby Perkins). Does my right hon. Friend agree that it is impossible for us to get unexplained wealth orders to work unless we put in place registers not only for our countries and the overseas dependencies, but for the Crown dependencies, too?
Dame Margaret Hodge
I entirely concur with my right hon. Friend’s important point.
Let me take Members through the argument, because it is important that we understand what we are dealing with. First, on the scale of the problem we are tackling, the National Crime Agency reckons that around £90 billion a year is laundered through the UK. We know that developing countries lose three times as much in tax avoidance as they get in all the international aid that is available to them. Half the entities cited in the Panama papers were corporations registered in just one of our overseas territories: the British Virgin Islands. We know that, in the past 10 years, £68 billion has flowed out of Russia into our overseas territories. That is seven times more going to the overseas territories than has come to Britain. We know that there are 85,000 properties here in the UK that are owned by companies registered in our tax havens, half of which are in just two constituencies in London, and a sample survey done by Transparency International suggests that two out of five of those properties have Russian owners.
Chris Bryant
So far, we have been talking about public registers of beneficial ownership of companies. Does my right hon. Friend accept that this should also apply to beneficial ownership of trusts? It seems incomprehensible to me that we in this country should keep the trusts quite separate and quite hidden.
Dame Margaret Hodge
I completely concur with the point made so forcefully by my hon. Friend. No doubt that will be subject to further campaigns for a change in legislation over the coming period.
John Penrose
May I just follow up on that last point? It is not just trusts that are an essential and major omission here. It is also other kinds of assets, including real estate, mineral rights, debt and bonds. Unless we have complete and comprehensive registers in due course, my worry, and the worry of others, is that we may be over-claiming the benefits of transparency. It may be a necessary step, but it certainly does not cover all those other areas, which, arguably, are more important.
Dame Margaret Hodge
I welcome the contribution from our anti-corruption champion—the hon. Gentleman was appointed by the Government to fulfil that role. Indeed, he is right, but I hope that he will work with me and others in ensuring that we get better coverage for the public registers. However, that should in no way limit what we are attempting to achieve today, which will be a remarkable, important and really world-changing measure in the fight against corruption.
Our overseas territories are an integral part of Britain and they should be guided by the same values as us. Clamping down on corruption and toxic wealth is morally right. We will never be a truly global Britain on the back of stolen principles. Other Members have mentioned the White Paper that was published by the Government in 2012 on our relationship with our overseas territories. I simply refer Members to one phrase in that document:
“As a matter of constitutional law, the UK Parliament has unlimited power to legislate for the territories.”
The Government put that phrase pretty high up in that White Paper, so they are jealously guarding their powers in relation to the overseas territories. These are powers that we should always be reluctant to use, but they are also powers that Governments of both parties have employed in the past.
Mr Cox
In 2009, we gave the people of the Cayman Islands a solemn pledge in this House. We said, “We will not legislate for you in these areas of public responsibility without your consent.” By this measure today, we are breaking that promise to them, and it is beneath the dignity of this Parliament to do away with that promise and that pledge of good faith.
Dame Margaret Hodge
I simply draw the attention of the hon. and learned Gentleman to what his Government stated in 2012 in the White Paper. In that White Paper, they set out the fact that they were jealously guarding their right to legislate as and when that became appropriate. That is what his Government said in 2012.
Mr Bob Seely (Isle of Wight) (Con)
On a point of record, I believe that that was in our previous two manifestos, so I am not quite sure why we, on the Government Benches, are arguing on this point.
Dame Margaret Hodge
I thank the hon. Gentleman for his intervention.
For the sake of clarity, let me just say that, in the past, Conservatives have used this power when they legislated to ensure that capital punishment was abolished in all our overseas territories. A Labour Government used the power to ensure that we brought to an end discrimination on the grounds of sexuality in our overseas territories. One of us—I never remember which—used the power to intervene in the Turks and Caicos when there were problems with the administration of governance.
Mr Kenneth Clarke (Rushcliffe) (Con)
The right hon. Lady has conceded that we use with reluctance our undoubted power to exercise our jurisdiction in these territories and she has given the very important areas in which this House has already done that. Does she accept that, when such vast sums of dishonest money are being channelled through the territories, and when such obviously little progress is being made in many of them to deal with the matter, that is a situation that justifies our jurisdiction? As the Cayman Islands have a rather better record than some of the other British overseas territories—they do co-operate very closely with our law authorities, as the dependent territories do—it is open to their Government to consider the matter and act on their own accord given the steer that this House is giving to them.
Dame Margaret Hodge
I completely concur with the right hon. and learned Gentleman’s succinct remarks. People have said to me that the areas in which we have intervened—we do intervene with huge reluctance—are moral issues. I cannot think of another issue that is more moral than trying to intervene to prevent the traffic in corrupt money and illicit finance across the world.
Adam Holloway (Gravesham) (Con)
Does the right hon. Lady agree that corruption also costs lives and violates people’s human rights?
Dame Margaret Hodge
Absolutely. That is why the Magnitsky amendment, which we have just passed, is absolutely central to our proceedings and legislation on anti-money laundering.
Hannah Bardell (Livingston) (SNP)
I thank the right hon. Lady for giving way and I congratulate her on this excellent cross-party consensus. Is she not concerned that the hon. and learned Member for Torridge and West Devon (Mr Cox) seems more concerned about a promise made to the Cayman Islands than about the people of his own constituency and of the UK who are suffering as a result of corruption and money laundering? Does that not seem odd?
Dame Margaret Hodge
The truth is that the traffic in illicit money has an impact not just on people here in the UK—for example, through the acquisition of properties here—but worldwide. We see that in the losses in tax revenues, particularly to the poorest developing countries.
Dame Margaret Hodge
I do not think that the hon. and learned Gentleman and I are going to agree. I am going to make some progress because I know that other Members wish to say certain things.
Openness and transparency do not stop the overseas territories from choosing to try to compete on tax. Although I would not approve, they can all set a corporation tax rate of zero. If they believe that that is a way of attracting financial services into their countries, they are free do so. We are asking for openness and not much more. I do agree with their argument that our registers need to be improved, but that is not an either/or; it is a both/and. We need both to improve our registers and ensure transparency in our overseas territories. To those who argue that the money will transfer to other tax havens, I say this: there may well be some leakage, but our tax havens play a disproportionately large role in the secret world that makes tax havens. If we lance that boil, it will be far easier for us to secure transparency elsewhere and much harder for other tax havens to sustain their business models.
Our campaign on transparency is not and has never been partisan. My party believes passionately that transparency is vital in the battle against financial crime and money laundering, but all Members of this House—from all the political tribes—share our determination to eliminate the wrongdoing that inevitably springs from the secrecy that pervades our tax havens. We cannot sit here and ignore the practices that allow Britain and our British overseas territories to provide safe havens for dirty money. If we can act to root out the corruption, we must do so. Our proposal is simple but powerful. It is easy to implement but lethal in its effectiveness. It is not just legally possible; it is morally vital. Britain and our overseas territories will not get rich on dirty money. We must act now and new clause 6 is an important move in doing so. I ask the House to support it.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
I draw the attention of the House to my declaration in the Register of Members’ Financial Interests.
Before I speak about new clause 6, I would like to thank my right hon. Friend the Minister for Europe and the Americas on two other issues, the first of which is the Magnitsky amendment, for which many of us made the case on Second Reading, especially with regard to a degree of independent input from the House into the visa banning and sanctions regime. No doubt aided by the dreadful events in Salisbury, we have all now got to the same place, and I am grateful to him and his colleagues for ensuring that that is the case today.
The second issue—I know from our time together at the Department for International Development that my right hon. Friend understands this well—is about trying to ensure that no unnecessary restrictions will stop money flows for humanitarian charities and non-governmental organisations that often operate with great bravery in extremely difficult and contested areas. I understand that very good progress has been made on that, and I hope that he will keep an open mind if there are future difficulties in that regard.
I turn to new clause 6. It has been a tremendous pleasure to work with so many colleagues from both sides of the House, and I am grateful to many of my own colleagues for standing firm in the face of considerable pressure. It has been a very pleasurable experience to work closely with the right hon. Member for Barking (Dame Margaret Hodge) over the past six months, and the House has clearly benefited hugely from her distinguished period as Chair of the Public Accounts Committee. I think that this is the fourth time that we have been around this track, so it is now time for the House to assert its authority and nudge the Government into the right place. I am therefore delighted that the Government have indicated that they will accept new clause 6. I cannot forbear to point out that this is evidence that, in a hung Parliament, power passes from the Cabinet room to the Floor of the House of Commons. I was going to urge the House to support new clause 6 and, with the deepest respect, reject the Government’s starred amendments, which were tabled at the last moment yesterday, but in fact you did not select them, Mr Speaker.
Dr Matthew Offord (Hendon) (Con)
It is not just crooked money though, is it? The World Bank’s International Finance Corporation invested £400 million through Cayman-based investment vehicles in 2015 alone, and that money supported projects in 24 developing countries. There is good as well, is there not?
Mr Mitchell
Of course, and that is exactly the sort of fact that would be displayed by an open register. My hon. Friend makes my point for me. That is the sort of openness that we seek. We seek to expose the sort of money that I have outlined and that the right hon. Member for Barking so eloquently described.
David Cameron’s Government understood this clearly. He showed real leadership by insisting that what he called the “shroud of secrecy” must be ripped away in this fight against money laundering and tax evasion. If the House had drawn back from agreeing to new clause 6 today, it would have sent a terrible signal against what has previously been a really strong strand of global Britain. It would have been a huge relief to thieves and money launderers around the world that our tax havens would have remained open for business.
I turn to the four matters of concern to the overseas territories in the hope of reassuring them that the House is putting in place a practical measure that is not as serious as some of them seem to believe. The first concern is the belief that the measure will damage the overseas territories’ economies and destroy their income. No doubt the same arguments were used against the abolition of the slave trade. It is true that there may be some immediate but modest effect, but consider the nature of much of the funding that the overseas territories are handling and that I and others have described. In fact, the economy of the British Virgin Islands, for example, may actually improve, because much of its business is professional, transparent and completely proper. In the past, I have myself invested in an international property fund in the BVI that was properly governed. In such cases, people from different jurisdictions can put funds in without a tax charge, but when they take funds out, they pay tax in the jurisdiction where they live. So it is perfectly possible, and in my view quite likely, that if open registers are fully implemented in a jurisdiction such as the BVI, some of the serious international financial organisations and banks will choose to go there, although they do not do so today.
Sir Henry Bellingham
I declare an interest as chairman of the all-party group for the British Virgin Islands. I sympathise, in many ways, with much of what my right hon. Friend is saying, but if there is a temporary hit to the BVI economy because of real difficulties in transitioning to the new arrangements that he has outlined, what help should the Foreign Office try to give to the BVI?
Mr Mitchell
I will come to that point in a moment, but I hope that my hon. Friend will extol to his friends in the BVI the fact that this is not something that they should regret and seek to avoid, but something that offers them real commercial and economic opportunities.
The second argument, as we have heard, is that the territories already have closed registers that are available to law enforcement authorities and HMRC which, in the case of terrorism, will react promptly—almost within an hour. That is of course true, but it completely misses the point. That point is made eloquently but passively by the Panama and Paradise papers: it is only by openness and scrutiny—by allowing charities, NGOs and the media to join up the dots—that we can expose this dirty money and the people standing behind it, and closed registers do not begin to allow us to do that.
Robert Neill
I understand my right hon. Friend’s desire to achieve this measure and recognise the work that he has done on it, but I want to follow on from the point made by my hon. Friend the Member for North West Norfolk (Sir Henry Bellingham). The Government of Spain, for example, often use broad-brush terms such as “tax haven” against the law-abiding British territory of Gibraltar. Will my right hon. Friend extol the fact that Gibraltar has complied and continues to comply absolutely with all EU requirements? We do not help the overall cause by allowing British territories that comply with the rules to be tarred with the same brush as those that do not, as some people will use that against law-abiding British Gibraltarian citizens’ interests.
Mr Mitchell
My hon. Friend makes an extremely good point about Gibraltar. I have heard him speak about that subject in the House previously, and what he says is absolutely right. Last night, I received a three-page letter from the Chief Minister of Gibraltar. I was at a loss to understand why he felt that new clause 6 negatively affected him, since he has already committed, through the EU directive, to implement the whole of the new clause one year earlier than is specified. I therefore feel that the Chief Minister and my hon. Friend should be content with new clause 6.
Mr Kenneth Clarke
I entirely agree that the Government of Gibraltar achieve the standards described by my hon. Friend the Member for Bromley and Chislehurst (Robert Neill), and I agree with my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) that as they are about to go further, the new clause does not affect them. I recall, however, that that was not always the case. Twenty or 30 years ago, persuading the then Government of Gibraltar that access to EU financial markets required an altogether higher standard of regulation and compliance was not an easy task, and we had to imply that we might take steps to exercise our powers unless something was done about it. That might be a useful precedent for the overseas territories in the Caribbean with regard to the step that the House is taking today.
Mr Mitchell
My right hon. and learned Friend the Father of the House, given his longevity and distinguished ministerial experience over many years, will be familiar with the points that are being made about Gibraltar and, indeed, about the importance of clamping down on money laundering.
Thirdly, the overseas territories pray in aid the prayer of St Augustine—“Oh Lord, make me chaste, but not yet”—and argue that all the hot money will go to the Dutch Antilles. But it is a little bit like the battle against malaria. We seek to narrow the footprint of that disease—in this case, of illicit money—to diminish the areas affected, and then eradicate it. Through this measure, we will significantly narrow the footprint of tainted money. We should bring the same vigour and determination to the fight against poisoned money as we do to the fight against deadly insects.
Huw Merriman (Bexhill and Battle) (Con)
I worked as a repackaging lawyer who used to set up these companies around the globe—[Interruption.] For European investors, I hasten to add. I gently point out that it is very easy to set up a Delaware business trust, and as more moneys flow into Delaware business trusts, it may be difficult to persuade the American authorities to take the same steps as these, laudable as they are, because otherwise the trusts will be worth even more money to Delaware and the United States. Will my right hon. Friend consider that?
Mr Mitchell
My hon. Friend makes a good point about Delaware, but perhaps we should come to that on another occasion.
Chris Bryant
We should bear it in mind that the sanctions regime imposed by the United States of America ends up being far more aggressive, meaning it is far more difficult for Russian oligarchs to hide their money there. In fact, that has now had a significant impact on Oleg Deripaska’s holdings in this country.
Mr Mitchell
The hon. Gentleman speaks good sense. He, like me, will have been very pleased to hear from the Minister how the Magnitsky provisions will apply.
I come to the fourth and final argument that the overseas territories submit: the use of an Order in Council is over the top in this day and age; and using the royal prerogative to legislate for the OTs by Order in Council is wrong. It is right that the House considers that argument, but our new clause does so by making an Order in Council a last resort to be used only if the overseas territories have not done what we have already done in the UK and introduced open registers by the end of 2020. Others have mentioned the precedents for using an Order in Council. This House and the Government are entirely entitled to use such a mechanism if necessary—they have done so, as the right hon. Member for Barking explained—but those signing and speaking to this new clause hope that it will not be necessary. In summary, the overseas territories share our Queen and travel under our flag, and they should also share our values.
In this new clause, the right hon. Lady and I have agreed to significant concessions that I hope the overseas territories and Crown dependencies will appreciate. First, there is the total exclusion of the Crown dependencies. The Lord Chancellor was most persuasive over the past week, and they do have a different governance structure. However, I believe that Parliament will expect Her Majesty’s Government to make the point persuasively that we hope that the Crown dependencies will embrace the same ethical position and equal transparency, and accept that what is sauce for the goose is also sauce for the gander.
Secondly, while both the right hon. Lady and I believe that the overseas territories should take these steps now, the Foreign Secretary was eloquent in pleading the immense difficulties that have been caused to some of these economies by the hurricanes. That is why the right hon. Lady and I agreed that we would put the timescale back by some two and half years, to the end of 2020. I very much hope that the overseas territories will take note of that. We are trying to be helpful, within the confines of the principles that we have set out in the new clause.
Sandy Martin
Does the right hon. Gentleman agree that whatever the actual constitutional position, the British people regard the Isle of Man and the Channel Islands as part of this country and cannot understand why laws and regulations should be different in those places? Does he support my contention that the Government should work towards having the same levels of transparency and financial regulation in those Crown dependencies as are in place in England, Scotland, Wales and Northern Ireland?
Mr Mitchell
The hon. Gentleman has elaborated the point I have just made about how the House will expect the Crown dependencies to move towards the provisions set out in new clause 6 for overseas territories.
I urge all Members to support new clause 6. We must remember that the highly respected Africa Progress Panel has shown that in the Democratic Republic of the Congo, for example, at least £1.5 billion has disappeared in stolen funds and illicit money flows. As the World Bank has made clear, much of that money stolen from the people of Africa ends up in British overseas territories. The money stolen in that way dwarfs all the international development aid, development finance and foreign direct investment that flows into Africa every year. We owe it to the poor of Africa every bit as much as we owe it to our own taxpayers to support new clause 6 today and bring an end to this scandal.
Alison Thewliss
I rise to speak to the amendments in my name, on behalf of the Scottish National party. As I said earlier, I will formally withdraw amendments 31 to 33, which the cross-party amendments have dealt with adequately.
First, I would like to thank the Government and their advisers and civil servants for their time and expertise in the run-up to the Bill, as well as all those who sent me information and briefings, which have been incredibly helpful. I also want to particularly thank the experts at the Law Society, UK Finance, Roger Mullin, Richard Smith and David Leask for their thoughts on Scottish limited partnerships.
A lot has changed since the Bill began its process. Salisbury has focused minds and, I hope, will now result in some action. The UK Government went from trying to find a way to wriggle out of the Magnitsky amendment to the Prime Minister giving it her full support. Regardless of how the Government have come to that decision, I am grateful that they have finally come on board, and we can all be grateful that that move has been made.
I spent the weekend finishing Bill Browder’s disturbing book “Red Notice”, which details the lengths to which the rich and powerful in Russia are willing to go to preserve their ill-gotten gains. I recommend that all Members read it as an object lesson in Russian oligarchs’ power, which we need to be mindful of. It is a complex trail which finally led to the brave lawyer Sergei Magnitsky being wrongfully imprisoned, maltreated, tortured and eventually beaten to death in prison because he refused to perjure himself. He stood for the truth. He documented the human rights abuses against him, and, after his death, Bill Browder and his team campaigned steadfastly to bring some justice to the situation. That led to the Magnitsky Act in the US, which introduced Government sanctions prohibiting entry to the US and access to the US banking system for those involved in Sergei Magnitsky’s death. It has since been expanded in scope to become the Global Magnitsky Act, tackling more dirty money and dubious people.
The UK Government made moves on that with section 13 of the Criminal Finances Act 2017. The amendments today expand on that in a very welcome way, and I am glad to give my party’s support to them. It is crucial that the names go on the record, and I am glad that the Government have committed to an administrative list being publicly available. I could read out right now all the names that are currently on the American Magnitsky list, because they are in the public domain and everybody can see them. There is transparency and accountability, with nowhere to hide once someone is on that list. It is crucial that the list is used in the same way in the UK and that the webpage, or wherever the names are held, is available and updated regularly.
I appreciate that this is not an issue for the House, but I hope that Members will give further thought to how the process of parliamentary scrutiny will work. Will it be through a Committee? If so, which Committee? Will that Committee have powers to add names and conduct reviews? We must hold ourselves to the same standard as the existing Magnitsky list for this to be fully effective.
I want to speak about the issue of Scottish limited partnerships, which is dealt with in new clauses 1 and 19. We believe that linking an SLP with a human individual would go a considerable way to cracking down on the abuse of SLPs, so we suggest that a limited partner and a general partner must both be British citizens and that a general and a limited partner must have a UK bank account. That would, at a stroke, remove a great deal of illegitimate SLPs, while protecting those in agriculture and other areas who would be easily able to fulfil those simple requirements. The anti-money laundering requirements of our banks would act as a degree of deterrent to those seeking to abuse the system.
On new clause 1, until 2009 registrants of limited partnerships were required under the Limited Partnerships Act 1907 to provide the full name of the partners. However, the Legislative Reform (Limited Partnerships) Order 2009 confirmed that the legally required level of registration disclosure needed to be less expansive. The new clause would restore the basic information requested at the time of registration and introduce a requirement for one of the general partners to be a British citizen.
New clause 19, on the UK bank account requirement, would tie this a bit more tightly. Although SLPs’ name and country of incorporation may give them the veneer of a UK-regulated entity, at the moment their bank account and all their financial transactions can be run through overseas bank accounts that have few, if any, anti-money laundering checks on their account holders. We want to tighten that up significantly, because allowing that kind of abuse could severely damage the credibility of UK legal entities abroad.
Helen Goodman
I am most grateful to the hon. Lady for giving way. I took so many interventions on overseas territories that I forgot to comment on new clauses 1 and 19. We think that both are very sensible, given the explosion in SLPs in recent years and the complete failure to act on what has happened in the past year. New clause 19 is particularly powerful because it would mean that these people were within the ambit of the anti-money laundering legislation for the banking system.
Alison Thewliss
I thank the hon. Lady for her support. I hope to at least press new clause 19 to a vote, because there needs to be some action on SLPs, and tying it to a bank account is a good way of doing that.
The SNP is extremely proud of Scotland’s reputation as a successful place to conduct business, but with SLPs continuing to generate new scandals, there is an ever-growing reputational risk to Scotland, and indeed the UK, if action is not taken. I would like to take this opportunity to dig the Government up for their shenanigans on SLPs.
Owing to the diligent campaigning by the former Member for Kirkcaldy and Cowdenbeath, Roger Mullin, the UK Government launched a consultation on SLPs on 16 January last year and closed it on 17 March last year. We then had an election, in which my dear friend did not get re-elected. We waited. Questions were tabled, and we were told again and again by Government that a response on the consultation was imminent. There was nothing. A month ago, we were told that it would be a matter of weeks, but probably not until after the Bill came back. Last week, we were told by officials that the report on SLPs was awaiting sign-off in Government, and on Sunday there was an announcement in the press that action was going to be taken, with a “Crackdown on abuse of UK businesses for foreign money laundering”. When we get to the detail, what in fact is it? It is another consultation—it is a consultation about a consultation.
That simply will not do. The UK Government are well aware of the problems with SLPs, which are well documented. The Secretary of State mentioned earlier the evidence that led to the bringing into scope of the person of significant control. We know that that was required, and there was evidence on it. We are waiting for fines to be levied on people who have not registered their persons of significant control.
Hannah Bardell
Does my hon. Friend agree that the fundamental point in all this is that closing a consultation and then having a debate on Report shows a Government in complete chaos? How can they commit public money to a consultation process that has no influence on the legislation before us?
Alison Thewliss
Absolutely. The Government have been told all the way through this process that this is the opportunity to act on the evidence that has been gathered and is out there in the newspapers—it is in The Herald on a weekly basis, for goodness’ sake—about abuses of SLPs. The Government could have done something about this. They could easily support the amendments we are proposing to the Bill. The press release that came out said that there was
“growing evidence SLPs have been exploited in complex money laundering schemes, including one which involved using over 100 SLPs to move up to $80 billion out of Russia. They have also been linked to international criminal networks in Eastern Europe and around the world, and have allegedly been used in arms deals.”
So why will the Government not act?
Proposals are far too vague. We are promised that the Government will legislate as soon as parliamentary time allows. The Secretary of State said that the consultation will close on 23 July, so we are looking at after the summer recess before anything comes back to the House. This is the stuff of never-never land. Minsters could accept our new clauses and amendments today and start to legislate now. If they are really serious about this, they should stop fannying around, support the new clauses and amendments and stop the flow of dirty money through SLPs once and for all.
The Government’s move not to oppose new clause 6 is astonishing, but I am very glad they have made it. There has been some speculation by Conservative Members about the Scottish National party’s position on this issue, and I will deal with that, but I first want to pay tribute to the right hon. Members for Barking (Dame Margaret Hodge) and for Sutton Coldfield (Mr Mitchell) for their Herculean efforts in bringing this before the House today. For a long time, we did not know when or if the Bill was coming back, but they have steadfastly worked hard to garner cross-party support, and I absolutely pay tribute to them for doing so.
Earlier in the Bill’s progress, I made clear the reservations I had at first, and it should not be the case that the UK Government impose things on other territories. Again, I reiterate that I would not like this if it were about Scotland, but I should say to all Members who doubt the sincerity of the SNP’s position—[Interruption] I hear some of them chuckling—that we cannot envisage a situation in which a Scottish Government would deliberately act to damage the financial interests of the UK economy by allowing tax evasion and avoidance to take place on an industrial scale within our jurisdiction and to shield the flow of dodgy money. That is what we are talking about today, and that is the fundamental difference. In Scotland, the fundamental issue of landownership is also hidden behind the shield of overseas entities.
Luke Graham (Ochil and South Perthshire) (Con)
Will the hon. Lady give way?
Alison Thewliss
I am just about to finish. [Interruption.] Let me finish this point, and I will then give way.
Landownership is hidden behind such entities. Just a few weeks ago, The Sunday Post highlighted the very important point that Scottish property is held in 22 different tax havens by 776 companies. Just last year, overseas firms bought £200 million of Scottish land and buildings, ranging in size from council estates to country estates, and the total value of such property is estimated to be £2.9 billion. This costs taxpayers in Scotland and here in the form of the capital gains tax revenue that is missed because the property has gone somewhere else. It has left the country, and there is no transparency. If the hon. Gentleman really wants to justify it, I will happily take an intervention from him.
Luke Graham
I actually wanted to praise SNP Members for standing up with others to support new clause 6 and back increased financial transparency. I also congratulate them on and thank them for recognising the sovereignty of Westminster in legislating for all parts of the United Kingdom and its overseas territories. I thank them for backing the constitution as it exists, and I appreciate such support at a time when we are looking for more investment in our constituencies, especially in relation to devolved matters.
Alison Thewliss
I must say that the hon. Gentleman makes a very simplistic argument. Unsurprisingly, he entirely misses the point. However, I welcome his support, which is very good. I hope that we will be able to claim back more money for our constituencies when there has been a crackdown on tax evasion and tax avoidance.
Why do we need to act now? Because the Prime Minister has committed to ensuring that the torrent of Russian dirty money stops, and Global Witness has found that over the past 10 years, more than seven times more money—an estimated £68 billion—has gushed from Russia to the overseas territories than into the UK. This has primarily been discovered through leaks, such as the Panama papers and the Paradise papers, and by the painstaking work of researchers and campaigners, including organisations such as Transparency International. They have tried to put that together, because we cannot see this hidden picture for ourselves.
Some of the money hidden in the British Virgin Islands has been revealed to be connected to the Magnitsky case too, so we must bear in mind the severe human rights implications of money laundering—with money hiding behind closed doors, where we cannot see it. There is an incentive for people to do that because they know that, at the moment, they cannot be found out. As hon. Members have illustrated, there are many cases of public funds being stolen from some of the poorest countries in the world and hidden in the overseas territories, and we cannot in all conscience allow this to continue.
Progress has been made by the overseas territories over the years, but the pace has been slow and the work has been patchy. The EU is moving towards having a public register of beneficial owners as part of the anti-money laundering directive, and we must play our part—regardless of Brexit—to keep up the pace towards international transparency.
Alison Thewliss
I am about to finish, and I want to allow other speakers in.
This should be about everybody moving forward together on a global basis and gathering momentum towards transparency. I acknowledge the concerns of the overseas territories, but the case for action on corruption and money laundering is absolutely and completely compelling. I very much hope that we will not need to get to the position of using Orders in Council, because with such support public registers are entirely achievable.
I will talk more about Companies House later, if I am able to, but I want to close now by saying that I am not satisfied by the Government’s actions on SLPs. This is a missed opportunity, and I urge them to take real concerted action to do something today and make a change where they can.
Sir Henry Bellingham
I declare an interest as the chairman of the all-party group on the British Virgin Islands and as a former Minister for the overseas territories. I had the pleasure of visiting all but two of them during my time in office.
It is a pleasure to follow the hon. Member for Glasgow Central (Alison Thewliss). She said that not enough progress has been made, but I disagree. I think a lot of progress has been made, and I will come on to that in a moment. We are all of the same view, however, about the problem that exists, which was so eloquently outlined by the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell). No one can disagree with what they said or about the scale of the problem; it is just a question of how we attack and deal with this problem.
When I was a Minister, I came across a number of examples of straightforward pilfering by different parties in African countries. One that my right hon. Friend and I dealt with, when he was the Secretary of State for International Development and I was the Minister for Africa, involved the Democratic Republic of the Congo, where a company called Tullow had its licence expropriated, completely unreasonably, by the DRC Government. It transpired that, after it was expropriated, it was handed over to a nephew, I think, of President Kabila and to a relative of President Zuma, while the company receiving the assets was registered in the BVI.
We know exactly what the problem is, but the question is how we should go about dealing with it. In many ways, I am disappointed with the Government. I feel that they should have tabled their new clause a bit earlier and made the arguments for it and that they should very much have stuck to their ground, but we must now move forward.
As far as the economies of those territories are concerned, unless people have had the chance to go there, it is difficult fully to understand the extent to which some of them have become dependent on international financial services—in the Caymans, it is obviously banking; in the BVI, it is international corporate registrations. They are extremely successful economies, with a very large number of professional service jobs clustering around their business model. I agree entirely with my right hon. Friend when he said that they can compete in other areas, such as tax and efficiency, as well as looking after the clients, and I hope that many parts of those professional and service businesses can expand, but there will be a disruption to their business model in the short term.
I am concerned that the Foreign and Commonwealth Office will be required to work incredibly closely with the Governments of those territories—particularly those of the BVI and the Cayman Islands, and to some extent those of the Turks and Caicos Islands and Bermuda—to make sure that, over the next few years, it puts in a huge amount of effort, knowledge sharing and capacity building.
My right hon. Friend will be more aware than anyone that, under the International Development Act 2002, the Department for International Development is the first port of call for financial assistance when something goes wrong in the territories. He and I obviously remember what happened in Montserrat, when DFID quite rightly came to the rescue, and when the Government of the Turks and Caicos Islands in effect went bust, DFID came up with a very large loan. That is why it is incredibly important that successful economies, such as that of the BVI, can transition to the new world in which they are going to have to live.
I would not have supported my right hon. Friend’s new clause 6. He asked me to support it, and I thought long and hard about it. In many ways, I would like to have done so, but I was very concerned about it for a few reasons, the first of which involves the constitution. As the hon. Member for Bishop Auckland (Helen Goodman) pointed out, I was the Minister responsible for the overseas territories White Paper in 2012, into which DFID had a significant input, as indeed did the Department for Environment, Food and Rural Affairs.
My right hon. Friend the Member for Newbury (Richard Benyon) assisted in that part of the White Paper that looked at international obligations on biodiversity and so on. The White Paper said that the UK Government could and would legislate in extreme circumstances, and that was a given because the territories are our responsibility. The citizens of those territories are as British as we are, and we have the ultimate responsibility for them. In some circumstances, we would of course legislate, and we reserved the right to do so. But the White Paper, and all the discussions and promotion on it, made it clear that that would always be a last resort, and in every circumstance we would try to build consensus and work in partnership with the territories.
France has a different model, with some of its territories incorporated into La France and with representatives in the Assemblée Nationale. We have moved to a model of home rule that is different in every case. Every territory has a different constitution and a different type of home rule, and we must work now to try to build consensus. I sincerely hope that the nuclear option contained in new clause 6 of Orders in Council will not be needed. We will have to work hard to make sure that we make progress in terms of what is outlined in the new clause. If we do not, I foresee a serious stand-off with at least three of the territories. I also fear for the economies of the territories if change happens very quickly and they have a significant loss of income. How will they transition and build up tourism, for example, or agriculture, where the BVI is very far behind?
I am concerned also that those territories have nascent independence movements and they will look at what has been said in the House today and say, “Well, if Britain is not prepared to work with us on a consensual basis, why should we remain in the British family?” I will do all I can to dissuade them from that course of action. Over the next two or three years, I hope that Ministers will have many discussions and make a generous offer of assistance, so that we can make progress in the right way.
Jo Swinson
The hon. Gentleman says that we need consensus and to try to work with the overseas territories. I would gently point out that the UK has been showing leadership on this issue since the international summit in 2013. Why does he think the overseas territories have engaged so little on this agenda, and why is he optimistic about success without the type of measure that the House will agree today, given that the Government have been making the case for five years?
Sir Henry Bellingham
I understand the hon. Lady’s point, but I would point out that some of us worked extremely hard to build up to the exchange of notes in 2016, so that our law enforcement agencies can access key information from, for example, the BVI within a matter of hours and use it in various measures they take against serious organised crime, money laundering, international slavery and the expropriation of assets—[Interruption.] I hope that it is someone important. On 70 occasions, the law enforcement agencies have been able to move against unsavoury people and get results.
If we move too quickly and without a decent transition, many of the corporate registrations will not stay in the BVI, the Cayman Islands, the Turks and Caicos Islands, Anguilla and so on: they will move to places such as Delaware, Panama, Venezuela, Nebraska and Equatorial Guinea—which my right hon. Friend the Member for Sutton Coldfield and I know well, as we have both visited it. Unless we are incredibly careful, that displacement will take place and, as the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) pointed out, it will take place to the Crown dependencies.
Mr Mitchell
My hon. Friend does not appear to accept the point that has been made repeatedly today that the territories may well allow access to law and order agencies, within an hour in the case of terrorism, through closed registers, but that does not allow civil society—charities, NGOs and the media—to expose them to the sort of scrutiny that the Paradise and Panama papers did. They allowed us to join up the dots. That is why I emphatically disagree with him on this point about closed registers. They work for law and order agencies, but they do not work to stop the dreadful money laundering.
Sir Henry Bellingham
I will not get into an argument with my right hon. Friend because I think we agree on so much of this. My concern is that it required a leak from Panama to expose those people, and there will be many other jurisdictions that may not have leaks in future and where much of the business will go, unless the whole world moves to the end goal of open registers—
Mr Kenneth Clarke
I accept the point that my hon. Friend is making, but it is not the best point. Until we move, we have little chance of speeding up any response by Delaware, Panama and the other places he named. It is not an overwhelming argument to say, “Well, we should carry on having billions of pounds of criminal money flowing through our overseas territories while we wait for Panama to make a move.” That is not the strongest argument.
Sir Henry Bellingham
My right hon. and learned Friend the Father of the House is, as ever, very wise. I want to proceed on a pragmatic, staged basis, and I think we could have come together on the Government’s compromise, had it been tabled in good time.
Sir Henry Bellingham
That is a fair point, and those of us who have been supporting the Government loyally on this and working with them accept that it is a weakness in the argument. If we set an example, we hope that other people will follow. I hope that when the Minister winds up he will say how we will try to influence other countries and jurisdictions to follow this example.
Mr Cox
My hon. Friend has enormous experience of these territories and he will know, as I know, that the operation of surveillance and monitoring of flows of capital through the overseas territories is one of the best intelligence sources that we have on the movement of criminal moneys. To demand that the overseas territories all suddenly go public will give one hit—just like the WikiLeaks thing was a one-hit wonder—because no one will then trust those jurisdictions where the light of publicity has been shone. All it will mean is that the money goes to where it is darkest, as the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) said. The surveillance and intelligence operations that have been so effective will no longer be applicable. I know the jurisdictions well, and that is what will happen.
Sir Henry Bellingham
I very much hope that what my hon. and learned Friend says will not happen. Unfortunately, there will be a period of time when many corporate registrations will go elsewhere and we will then need the rest of the world to catch up.
Will the Minister, when he winds up, spell out very clearly how the Foreign and Commonwealth Office and Department for International Development will work with the territories to help them with the transition over the next few years? What specific efforts will be made to help them to diversify their economies away from financial services? What expert advice will be given to build up parts of businesses that we hope will attract international interest? Will he outline to the House what measures he thinks his Department can take in terms of representations we make to other jurisdictions? Having set an example, we need to make a virtue of it. We need to go out and ensure that we play our part even more fully in OECD and G20 initiatives across every single organisation involved, particularly the IMF and the World Bank. Will he spell out what we will do to work with them to ensure that we raise standards elsewhere in the world?
Finally, I would have supported the Government’s proposed amendment as I thought it was sensible and pragmatic. It would have helped to build a consensus with the overseas territories, rather than move in a direction that could lead to very serious constitutional problems and difficulties unless we are very careful indeed. The Minister needs to use all his diplomacy and experience to ensure that the transition is done properly and correctly.
Catherine West (Hornsey and Wood Green) (Lab)
I promise to be brief, as there are so many colleagues who wish to speak. As a mere callow youth in this House compared to so many who have campaigned on this issue for a number of years, I just want to put my views on record.
My right hon. Friend the Member for Barking (Dame Margaret Hodge), my predecessor as leader of Islington Council, has led the way on this matter. I commend her and others for the excellent cross-party nature of their work. The right hon. Member for Sutton Coldfield (Mr Mitchell) argued that this measure will enhance not just our standing in international development, so that we can feel good about ourselves, but the work in developing nations to enrich everybody, not just a few who may benefit, often nefariously, from the tax havens that operate and provide cover for bad behaviour. I commend my hon. Friend the Member for Bishop Auckland (Helen Goodman) for all her work in Committee and all the tiny tit-bits she has let us have, as Members with an interest, as it has progressed. It has been like following a series on television. I am so pleased that we can welcome the Magnitsky clause and new clause 6.
As a London Member, I want to put on record how pleased I am that there are measures that may assist in relation to property. It may not be perfect, but those of us who are London Members have very affluent parts of our constituencies where properties are purchased, often at a very high price, but then sit empty as assets, while in other parts of our constituencies families live in overcrowded homes. We need to use such international approaches to try to achieve some sense of equality.
Hannah Bardell
Given that across London almost 40,000 properties are owned by companies based in tax havens and given the scandal after Grenfell of trying to find people homes, does the hon. Lady agree that there is huge concern about these companies and organisations, and whether we are able to tackle the housing issue?
Catherine West
Indeed. And I hope that the challenge will be met to reduce inequality in housing in Scotland, because I know that a very small number of people own rather a lot of properties.
On the role of other facilitators of tax evasion and avoidance and the big four accountancy firms, many Members feel it is time that they were brought to book. My right hon. Friend the Member for Barking has done a lot of work on that. The next stage is to try to clean up the City of London more effectively and to see the closure of certain poor practices, such as Mossack Fonseca and others. Yes, it was a one hit wonder, but we did see the closure of a number of underperforming legal practices. The next step of this campaign is how to allow the pin-striped enforcers of tax evasion and avoidance to have a more honest and equal way of practising their profession.
That is all I want to say. It is so good to see consensus in the House today.
Mr Seely
It is a privilege to follow the hon. Member for Hornsey and Wood Green (Catherine West).
I believe that the fight to improve the integrity of our financial system and to do what we can to reduce money laundering is critical in the fight against not only corruption but the malign influence of authoritarian states. I very much welcome the work done by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and the right hon. Member for Barking (Dame Margaret Hodge). I felt very proud to agree to rebel against the Government— I am quite glad I did not have to—but nevertheless, I thank them for that amendment.
On the point about corruption and the malign influence of others, the right hon. Member for Birmingham, Hodge Hill (Liam Byrne), the hon. Member for Rhondda (Chris Bryant), the right hon. Member for Exeter (Mr Bradshaw), my hon. Friend the Member for Gravesham (Adam Holloway) and I have been shown documents that we believe relate to our national security and money laundering. They originate from Monaco’s Sûreté Publique, the police department that manages security and foreign residents in that area. They are based on the Sûreté Publique’s own information and on information provided by the French Direction de la Surveillance du Territoire—the DST—which at the time, was the French equivalent of MI5.
These documents are brief, terse, factual files, listing activities, associations and judicial actions. They have been authenticated by senior French intelligence sources and by British and American counterparts familiar with their contents. The documents link a noted individual in this country with Russian intelligence. These files are dated from 2005 and cover the period from the mid-1990s. The documents concern Christopher Chandler and his brother—Christopher Chandler is a public figure, owing to the Legatum Institute. In citing this evidence, I note the words of the right hon. Member for Exeter, who in November 2017 called for the House’s Intelligence and Security Committee to examine Mr Chandler.
According to the French security services, as recorded by their colleagues in Monaco—and clearly, I am confident that these documents are genuine—Mr Chandler is described as having been
“an object of interest to the DST since 2002 on suspicion of…working for the Russian intelligence services.”
I repeat:
“an object of interest to the DST since 2002 on suspicion of…working for the Russian intelligence services.”
Mr Ben Bradshaw (Exeter) (Lab)
As the hon. Gentleman rightly said, I first raised concerns about Legatum and Mr Chandler back in November. Does he agree that the information that he has just put in the public domain, combined with the growing concern about corruption, money laundering and the sale of passports in Malta, where Chandler has just acquired citizenship, demands urgent investigation by the UK authorities now?
Mr Seely
I am most grateful for that intervention. I am aware that the right hon. Gentleman has seen these documents and that he shares my concerns. I believe that the right hon. Member for Birmingham, Hodge Hill, should he have the privilege of being called to speak, will talk further on that point and make reference to these files.
Christopher Chandler’s personal file is marked “File code S”, a DST marker indicating, if I understand correctly, a high or higher level of threat to France. In France, the letter “S” is now used to designate radical Islam. In Monaco then, it was used to designate counter-espionage. As I have said, Mr Speaker, I believe that other Members, if you wish to call them, may cite further details—the right hon. Member for Birmingham, Hodge Hill, the hon. Member for Rhondda, the right hon. Member for Exeter or my hon. Friend the Member for Gravesham.
I wish to state explicitly that I make no criticism of the staff at Legatum, nor those people who have engaged with its charitable work, nor members of the public, nor, clearly, Members of this House who have dealt with this institution. I have thought long and hard before making this statement, but I have done so because I believe, and the five of us believe, that it is in the national interest to do so. If people like Mr Chandler are vulnerable to malign influence—maybe he is an innocent party in this, who knows?—especially if the information on them is covert, that matters to our democracy.
In November 2017, the Prime Minister highlighted the danger from Russia of subversion. I take my lead from her when she said that the Russian regime was trying to “undermine free societies”. I also read the excellent piece in The Sunday Times this weekend looking at how Russian bots may have manipulated elections. One of the problems in elections is that if they are manipulated successfully, the winning side does not want to know and the losers plead sour grapes, so the answer is to do what we can to strengthen our electoral system before it is too late.
Chris Bryant
I commend the hon. Gentleman for what he has said and fully concur with what he has argued—I have seen the papers as well and I have come to the same conclusion as him. Does he think that the Magnitsky clause will make a significant difference in our being able to tackle this kind of hidden pervasive influence in British society and British politics?
Mr Seely
Anything that helps us is important because we need to keep our society free of covert and malign influence. I was in the States last week, as the hon. Gentleman knows, and I am working with Congressmen there and in Canada, Australia and New Zealand, so that we can combine best practice. That is important because a counter-propaganda Bill is going through the United States Congress—do we need that here, etc.?
If I see information of this kind, I have a choice: I can disregard it and become complicit or, if it is genuine, I can put it in the public domain. It might be that Committees will wish to have access to this information, and I suspect that those who have it will provide it to any of the six Committees investigating Russia, if they wish to do so. It might be that Mr Chandler can provide a satisfactory explanation or argue that these relationships, if they existed, are now historical or have been misrepresented in the documents. I do not use privilege lightly, Mr Speaker. He might wish to offer evidence, written or oral, to any of those six Committees, whose work I am supporting, in a modest way, as secretary to the Russia steering group. I look forward to his response— I am quite sure there will be one.
I will be writing to the Prime Minister in the coming weeks to suggest further measures to strengthen our democracy and electoral system. The struggle of our generation is how we deal with authoritarian states and their actors, official or proxy, who use free and open societies to damage those free and open societies. We need to do something about it. Increasingly, Members now see that covert malign influence from authoritarian states, most commonly our friends in the Kremlin but also elsewhere, is a real and present danger to our nation, to our financial system—hence this debate—and to the transparency of our democracy and electoral system, not to mention the Kremlin’s ability to conduct acts of violence and murder on our soil. We have a duty to speak up and to use this House for the public good. That is what I am doing now.
Several hon. Members rose—
Mr Speaker
Order. I want to call several more colleagues and therefore there is a premium upon brevity.
Jo Swinson
Having listened to various hon. Members refer to the excellent briefing by Transparency International UK, I should declare an interest, as I am married to its director of policy—the briefings really are excellent.
Turning first to the Magnitsky amendments, I welcome Government amendments 10 and 13, which reflect the Prime Minister’s commitment of 14 March. After Second Reading, many of us felt rather less confident than previously that they would be forthcoming, so I am glad that the Government have brought them forward, given that the issue has been raised repeatedly. I am particularly reassured by the Minister’s confirmation that the lists of people sanctioned will be put in the public domain for anybody to see. I agree with others that that is a very important deterrent.
The importance of human rights and the part that our country plays in upholding them internationally cannot be overstated—they are vital. The hon. Member for Glasgow Central (Alison Thewliss) set out the horrendous case of Sergei Magnitsky and the horrendous lengths to which oligarchs will go to protect their ill-gotten gains. I was reminded, on the wider issue of corruption, that we are talking about not just numbers on spreadsheets, but people’s lives—this is literally a life and death matter. I recall planning a visit to Russia to investigate human rights abuses in Chechnya. We had to postpone the visit because the individual we had been organising it with, Natalya Estemirova, who was from a human rights organisation, was assassinated.
That followed the murder of the journalist Anna Politkovskaya, and last October we were shocked by the murder in Malta of the investigative reporter Daphne Caruana Galizia. These people were murdered for investigating and exposing corruption and human rights abuses. I was particularly pleased to see the launch of the Daphne project in tribute to Daphne, with 45 reporters from 15 countries carrying on her work so that her stories will live on. One of the most powerful ways to send a message to anyone who would seek to silence those trying to uncover corruption is to make sure that what they were uncovering is finally exposed.
The Minister mentioned the consultation that was launched yesterday on Scottish limited partnerships. The very real problems that have arisen under those partnerships have been in the public domain for more than 18 months, and given that we as a country have been trying to lead on this in recent years, we need to be moving with much more alacrity. The hon. Member for Glasgow North East (Mr Sweeney) made an incredibly important point about enforcement. We need to ramp up Companies House’s ability to investigate, and that requires resources. Very good people there are trying to do a very good job, but given that 17,000 Scottish limited partnerships were registered to just 10 addresses, there are questions to be asked about how risk-based investigation and digital tools could be improved.
Hannah Bardell
Does the hon. Lady agree that it is disappointing to hear Conservatives saying that the money will move elsewhere? If we do not make a start, how will we move forward? The gender pay gap reporting has done exactly that.
Jo Swinson
I concur absolutely. The fact that we cannot solve this problem in every single jurisdiction in the world does not mean we should not do what we can in those areas where we can have influence. We should certainly be using our diplomatic influence to try to expand the use of public registers in other countries, but we should also be setting our own house in order, because if we do so, we will have more legitimacy and credibility when we urge other countries to follow suit.
The United Kingdom is trying to take a leadership role on this issue, and that is important. That dates back to 2013, when the then Prime Minister, David Cameron, set out the Government’s plans at the G8 summit and was aiming to secure international agreement through the anti-corruption plan. I was delighted to play a role as a Minister in the introduction of measures on beneficial ownership and the public register in this country through the Small Business, Enterprise and Employment Act 2015. There was also an anti-corruption summit in 2016. However, there has been delay since then. At that time, the Government committed themselves to legislate to increase transparency in the housing market and to require overseas companies that owned property to declare their beneficial ownership publicly. That was supposed to be in place by April, but now it, too, has been delayed. We will not see even a draft Bill until the summer, and we will not get the actual legislation until next year.
The issue of the overseas territories really matters. More than three quarters of corruption cases involving property that were investigated by the Met’s proceeds of corruption unit involved anonymous companies based in secrecy jurisdictions, and nearly four fifths of those were registered in either the overseas territories or the Crown dependencies. As I have said, it is important that we get our house in order. Conservative Members have said we should try to do that through consensus but, as I pointed out in an intervention, the Government have been attempting to do that with various levels of enthusiasm over the last five years yet the registers have remained firmly private.
What we are talking about is an international crime. It is not victimless. We are talking about corruption that has a very serious impact on vulnerable people in countries throughout the world. Money is siphoned off through corrupt means and denied to the populations of those countries when it should be funding public services and enabling individuals to be looked after. That has an impact on the UK’s own reputation as well.
It is worth recognising the significant role of the overseas territories. In the Panama papers, the British Virgin Islands was the most popular tax haven mentioned, and Bermuda is No. 1 on Oxfam’s list of worst corporate tax havens. That is why it is important that we act. The right hon. Member for Sutton Coldfield rightly explained the challenges involved in including the Crown dependencies under new clause 6 and the specific relationship levers that we have as a country. Nevertheless, I hope that, having accepted the new clause, the Government will be enthusiastic about pursuing the same issues with the Crown dependencies to ensure that they follow suit. They should definitely be required to publish such a register so that the UK can show global leadership on this issue.
Richard Benyon (Newbury) (Con)
My experience of the House leads me to conclude that when somebody pays a Member a compliment, they should bank it and move on. However, although I am grateful to the Minister and the hon. Member for Bishop Auckland (Helen Goodman), it is important to say that a lot of people have worked on the Magnitsky amendment or law, as it has come to be known, many of whom sit on the opposite side of the House. Many of them have also been involved in this matter for a lot longer than I have, but I do stand to speak in support of new clause 3.
Robert Neill
I welcome everything my right hon. Friend has done around the Magnitsky law and the fact that the Government have accepted it. Is he aware that the Government and Parliament of Gibraltar have already introduced a Magnitsky law, which indicates their willingness to be ahead of the game, rather than having to be dragged forward?
Richard Benyon
Then they should feel extremely virtuous. It is important that we recognise that we are today putting in place something that already exists in a number of other legal jurisdictions—the Baltic states, the United States and Canada. A number of other countries are looking to do this, too.
David Cameron has been mentioned a lot today, and his commitment on this matter has been vital. In a recent speech to Transparency International he said:
“One of my regrets of my time in office was that we didn’t introduce the Magnitsky Act. The Foreign Office argument was that Britain’s existing approach was better, because we could sanction all the people on that list—and more besides. And I went along with it.
But I soon realised this ignored the advantages of working together—with other countries—under a common heading. It’s not PR, it’s a fact. You get extra clout from coming together across the world and saying with one voice to those who are responsible for unacceptable acts: ‘We are united in our action against you.’”
He then paid tribute to his successor as Prime Minister and to Parliament for passing the provisions in the recent Criminal Finances Act 2017, and also referred to a person who deserves mention in this House today. Bill Browder, along with others, has put himself at huge risk to make sure that those who murdered his lawyer and friend Sergei Magnitsky are not able to travel around the world, bank, buy property and operate in a manner that we rightly take for granted in this country but should be denied to people who have behaved in that way. If we remember anyone today, we should think of the piteous image of Sergei Magnitsky after months of imprisonment. He was extremely unwell and then beaten to death by thugs at the behest of people who have still not been held to account. Today we are saying to them, “Not in our country are you going to be able to do business,” and we should feel proud of that.
In an act of extreme serendipity, I found myself on the Bill’s Committee. I am extremely grateful to members of that Committee, to the Minister and his officials, and subsequently, in recent weeks after the Salisbury incident, to the Prime Minister for absolutely accepting that we need to have what will be known as the full Magnitsky. We went a considerable way towards that a year ago with the Criminal Finances Act, but are now in a position to say that we are in accordance with the Magnitsky provisions of other countries. It is important that we get the definitions right—I do not think that we got there in Committee—but to now have a definition of gross human rights abuse that is in accordance with the Proceeds of Crime Act 2002 is important.
My brief comments today will be about what Parliament does now, because the Bill is gratifyingly loose in its description of what kind of review mechanism Parliament will impose. This is crucial. In recent days, I have had useful discussions with Committee Clerks, the Chairmen of the Liaison and Procedure Committees and a number of others about what kind of structure we could create in accordance with the Bill to allow individuals—Members of this House, members of organisations such as Amnesty International or Bill Browder’s, or any individual—to say to the Government, “We have evidence that these people have done this and should be sanctioned.” The Government will produce a report to Parliament every 12 months setting out who has made representations to them. In an important response to the hon. Member for Aberavon (Stephen Kinnock), the Minister made a clear assertion that the names on the sanctions list will be made public. That is important.
Mr Jonathan Djanogly (Huntingdon) (Con)
I have to say that the Minister did not go into very much detail in his excellent opening remarks about what would be in the report proposed under new clause 3. If my right hon. Friend has had discussions with him on that, it would be interesting to hear about them. If not, it would be interesting to hear more from the Minister later on.
Richard Benyon
We have it in our power to create something in Parliament that will hold future Governments as well as this Government to account. I am full of respect for what our security Ministers have been doing recently to freeze the bank accounts of certain individuals, and I absolutely believe that the Government have the will to ensure that we get our economy sorted out so that we cannot be a safe haven for these people. However, what we are talking about will be happening way into the future. It will affect future Governments as well, and we must hold them to account.
We could put this in the hands of an existing Committee —perhaps a Select Committee—but I suggest that that might not be the right framework. A Select Committee has the specific role of holding a Department of State to account and looking into certain details. I personally like the idea of a bespoke Committee that would draw together members of different Committees. The example that I would throw out there for others more important than me to grab is the Committees on Arms Export Controls—the CAEC. It has a specific remit, with members from various Select Committees, and I think it would be an effective model.
Helen Goodman
May I urge the right hon. Gentleman to read new clause 10, which sets out a proposal for a scrutiny Committee?
Richard Benyon
Well, I have. I just think new clause 3 leaves it much more open for Parliament to make a decision, and I am quite content with that, although I am open to other suggestions. Some people say that the Joint Committee on Human Rights might be best placed to carry out this scrutiny, but I see, from delving into the Standing Orders, that Standing Order No. 152B(2)(a) states that the Joint Committee has a remit to look at
“matters relating to human rights in the United Kingdom”.
What we are talking about here is matters relating to human rights anywhere. We could be talking about someone who is evicting the Rohingya, for example, or actions taken in conflicts or situations as yet unknown and unforeseen. We need to ensure that we can look at human rights everywhere.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
As a member of the CAEC, I urge the right hon. Gentleman to think again about using it as a model for a scrutiny Committee. I sit on it, and it struggles to function—it did not meet for two years—but one thing that it did recommend was a measure to allow the Government to shut down brass-plate companies, on which I have tabled an amendment in the next group.
Richard Benyon
I understand the point that the hon. Gentleman is making. I am not completely wedded to that idea. I simply say that this is in our grasp—this is now Parliament’s duty. Following the very good discussions that I have had with my hon. Friend the Member for Totnes (Dr Wollaston), the Chairman of the Liaison Committee, and my hon. Friend the Member for Broxbourne (Mr Walker), the Chairman of the Procedure Committee, as well as with other wise heads and people with much more experience than I have, I know that we need to design something that really works. The crucial thing that works in Congress and in other Parliaments is what is known in the United States as the “congressional trigger”, under which it is possible to really ask questions of the Executive. Through the measure that we are discussing today, the Executive are giving Parliament the power to get this right, and we must take that duty very seriously.
Liam Byrne
I want to make two points in support of new clause 6 and to encourage the Government to take on board the arguments made by my hon. Friend the Member for Bishop Auckland (Helen Goodman). I also want to put on the record my tributes to my right hon. Friend the Member for Barking (Dame Margaret Hodge), the right hon. Member for Sutton Coldfield (Mr Mitchell) —my constituency neighbour—and the others associated with this step forward.
Mr Cox
It is perfectly within our power—the Government have committed to do this—to institute a public register that requires the beneficial owners of any overseas entity wishing to own property in this country to be declared in public. We can do that as it is part of our jurisdiction. However, does the right hon. Gentleman not see that the step that is now being taken goes much further than that and requires the overseas territories to make things public even in relation to property that is not owned in the UK?
Liam Byrne
That is absolutely what I am proposing, and my reason is this country’s national security. Let me give the hon. and learned Gentleman a simple example. Back in November 2017, my right hon. Friend the Member for Exeter (Mr Bradshaw) raised the issue of some significant agents of influence in this country: the Chandler brothers, who happen to run an important think-tank that has enjoyed unrivalled access to Ministers during one of this country’s most important national debates. The risk—I put it no stronger than that—that we are running is that that support is financed from sources that derive from the Russian Federation, and it may therefore be part of the panoply of active measures that have been drawn together since the re-election of President Putin in 2012. He has made no secret of that. He set it out in a state of the union address to the Russian people in 2013. Some call it the Gerasimov doctrine, but, whatever it is called, we saw the sharp edge of that sword on the streets of Salisbury just a few weeks ago.
I want to give the House an example of how this influence can unfold in an innocent country like ours that has perhaps been a little inattentive to some of the risks that have been growing over the past few years. As the hon. Member for Isle of Man has mentioned—[Interruption.] As the hon. Member for Isle of Wight (Mr Seely) has mentioned—he would have a different kind of specialism if he were the hon. Member for Isle of Man—the individuals to whom he referred are men of influence who help to finance an important think-tank.
I note with interest that the think-tank is financed by the Legatum Institute, which is registered in the Cayman Islands—registration number FC028686, for those who take an interest in these things—but why should these brothers be of such interest to us? Well, we know that Christopher Chandler and his chief executive, Mark Stoleson, have both taken Maltese passports through the passport-selling operation Henley & Partners. They both publicly accept that they hold accounts at the Iranian-Maltese bank Pilatus, the assets of which were frozen and its chairman arrested at the behest of the FBI in March. Both Pilatus and Henley & Partners were the subject of investigations by the Maltese journalist Daphne Caruana Galizia, who was assassinated late last year.
The hon. Member for Isle of Wight has referred to more. Richard Chandler’s file contains the additional statement:
“Richard Chandler and his brother Christopher play an important role in the capital of the companies Lukoil and Gazprom (linked to longstanding…Russian figures who could be linked to organised crime).”
Furthermore, they maintain relations with an individual, a Chechen mafia figure, who was “expelled from Monaco”. They are connected with money laundering. These allegations are made in the file.
Mr Bradshaw
Is my right hon. Friend also aware of the relationship between Henley & Partners and the social media data companies that have been allegedly involved in helping with political campaigns, including that of the recently elected Government in Malta?
Liam Byrne
These are very real and very serious allegations, yet when I tabled questions to the Treasury about whether it was exploring the Maltese golden visa route, and the access to the European banking system and the Schengen area that it provides, it said no such conversations were under way.
The point is that I would like to know more about these brothers and whether they are beneficiaries of the money knocking around the overseas territories that derives from bad sources. I want to know whether that money is derived from Russian sources, and I want to know who the business partners were.
Global Witness has done this House an incredible service by highlighting how £68 billion of Russian money is now sloshing around the overseas territories. Given the national security situation that now confronts us, and given the update to the national security strategy that has just gone through, how can we be relaxed about our ignorance of where that £68 billion of Russian money, now buried safely and securely in the overseas territories and Crown dependencies, came from?
If there is innocence, it should be proved. It should be clear. That is why the disinfectant of sunlight is so important. What we cannot have is agents of influence peddling policies and proposals backed by dirty money from one of our country’s enemies. We cannot have that, and we in this House have a responsibility to ensure that we do not run that risk.
For far too long, good and bad money has been allowed to mix together in our overseas territories and Crown dependencies. There is good money there, but we need to be honest with ourselves that some of that money comes into too close contact with cash generated by economies of evil. It is our responsibility to take steps to shut down that regime, which is why new clause 6 and the arguments of my hon. Friend the shadow Minister are so important. I hope the Minister will listen.
Mr Djanogly
First, let me join many hon. Members in congratulating the Government and, in particular, the Minister on building a consensus within the parties and among hon. Members on the Magnitsky provisions, which I wish to speak to today.
Time is short, so I will make only a few brief points. On whether these powers are actually going to be used and on the methods of use, I do not yet see any significant change of Government policy. However, if this debate is going to be the herald of a new-found dynamism to clear the UK of the £90 billion of black money flowing through our banks, real estate market, private schools, Bond Street and the rest, I would certainly very much welcome that. My question is: will action now follow the law? I will be interested to hear whether the Foreign Office has had words with the Attorney General, the Home Office or other Departments in that regard—is there a strategy?
On the Government amendments, I see that new clause 3 provides for a reporting system for human rights violation-related sanctions. That is welcome, but my reading of this provision is that it is a retrospective check on what the Government have done and not so much on what they intend to do—if I am wrong on that, I would be grateful if the Minister would clarify the position. The measure in itself is commendable, and I agree that if the report is a sparse one, it would imply and provide evidence to support claims that the Government should be doing more. However, I was very pleased to hear the Minister suggesting today that we are also to have a list system that will be updated on an ongoing basis for those subject to sanctions, as this approach has clearly been so effective elsewhere. Having said that, will the Minister confirm whether people to whom the relevant sanctions have been applied would also need to be listed in the Government new clause 3 report? I believe the answer is yes, but I would be grateful if he would clarify that. Even if there is to be a running administrative list, it would be helpful to have the names set out in the report, with reasons given and an assessment.
There is another related issue here. Could the Minister confirm whether the visa bans attributed to section 1 -type sanctions would also be listed in the new proposed report? Again, maintaining the current system of secret visa bans is simply not as effective as people knowing that their lack of welcome here will be made public in a Magnitsky-list fashion. What these people fear, every bit as much as receiving a visa ban, is other people knowing about it.
My final point is that although this Bill creates a new post-Brexit framework for sanctions, it does not actually set out our policy for how sanctions will be considered or implemented on a multinational basis, which everyone agrees is the most effective approach, as has been said by my right hon. Friend the Member for Newbury (Richard Benyon). So will the Minister explain how these sanctions provisions would be considered within the European Union after we have left it? For instance, is consideration being given to setting up a new co-ordinating committee within the EU? In various speeches I have read, it seems clear that the EU will continue to wish to work closely with the UK on external security matters, so there seems to be goodwill to that end. I would be interested to hear more on how we propose that decision making on sanctions will be put into an institutional context.
We have mainly discussed Russia today. It is worth mentioning that the US aluminium sanctions on Russia were put in place only a few weeks ago, and I have since heard of a degree of kickback from other countries such as Germany and other negatively affected parties. Clearly, if we are going to get tough on sanctions, it will be important to continue to present a united front. So we are seeing progress, but ultimately this will need to be proved by a better UK record of sanctions, visa bans, asset seizures and active prosecutions. Will the law be backed by action? The days of the UK being a dumping ground for illegal black money need to come to an end, and I hope that this Bill will act as a spark to get the process moving.
Chris Bryant
I shall be brief, Mr Speaker. Several hon. Members have spoken about the dangers of our legislation meaning that dodgy money will leave the overseas territories and go to some other kind of territory. First, that will probably be a good thing for each of those territories. Secondly, and far more importantly, all too often the way we have run our affairs in this country, and how our overseas territories have run theirs, has meant we have been a magnet for that money. For a series of different reasons, rich people who have stolen money from their own people like having it squirreled away here or in our overseas territories or, as is normally the case, in a mixture of the two. That is because they like to send their children to our expensive schools; because they like to go shopping in the UK; because, ironically enough, they like to enforce their contracts in law in British courts; and because they know that the whole system of financial and land registration in this country is relatively weak. That is why I warmly welcome the changes we are going to bring about.
Liam Byrne
Does my hon. Friend agree that the next big international opportunity to make progress on this issue is the G20 in November? If we are to help to lead the argument, we must have the moral credibility of having taken action ourselves.
Chris Bryant
I completely agree, and that is also why I agree with the kind of approach that the hon. Member for Isle of Wight tried to enjoin on the whole House—not only on those from different political backgrounds, but also on all the different silos, including defence, foreign policy, work and pensions and the Treasury—to try to make sure that we have a united, coherent, consistent and, to use a valleys word, “tidy” approach towards the Russians. That was not “a valet’s word”, but a valleys word—[Laughter.]
Richard Benyon
Language is really important, and I know that the hon. Gentleman will agree that when we talk about Russia’s malign influence, we are talking about the Russian regime and the coterie of criminals that surrounds it, of which the Russian people are the victims. The Magnitsky amendment we will pass today is the most pro-Russian piece of legislation that we can pass.
Chris Bryant
I agree; I do not think that there is a single Member of this House who does not have profound respect for the people of Russia and for the country of Russia, and for what it has given to us culturally and in so many other ways over the centuries. But what a pain it is to us to see a country that was reaching out for liberty suddenly find itself crushed under the heel again. It is a country that should be one of the great advancing economies of today, but it is in stagnation, with barely 1% growth. That is why all of us, from all parts of this House, have campaigned to take a robust attitude to Russia.
Finally, the Russian ambassador tweeted the other day that he wants to meet the all-party group for Russia, which I chair. He is not answering his phone—I am not sure whether he is busy on something else—but we will have him next Wednesday afternoon at 2.30 pm if anyone wants to hear his view of things.
Nick Herbert (Arundel and South Downs) (Con)
I was pleased to add my name to new clause 6, and I congratulate the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) on bringing it forward. I will not repeat the powerful arguments that have been made for transparency today—they were also well made on Second Reading—other than to say that progress has been made in the overseas territories. Central registers have been introduced, but that is not sufficient for the reasons that have been given. We need that transparency to shine a light on what is happening. I suspect that there has been relatively little interrogation of the central registers by law enforcement authorities. There also needs to be a step up in law enforcement action as well as in these measures.
Two principal concerns were adduced to explain why we should at least hesitate before we compel the overseas territories to act. The first is the potential economic damage to the overseas territories. I argued strongly on Second Reading that that should not be an impediment to act. It can never be an argument that, where something wrong is being done, we fail to act simply because there might be some economic consequences. We do, however, have a duty to ensure that those economic consequences are addressed and that we help to mitigate them.
In accepting the new clause, there is a strong responsibility on this House, and now on the Government, to ensure that there is no damage to the economies of the overseas territories for taking action, especially as they may now be taking it more rapidly than they wished to, particularly when we consider, for instance, the impact of the hurricane damage on the British Virgin Islands. That concern should not prevent action, but it should be taken seriously.
The second concern is the constitutional objection: is it right for us to intervene? That is a serious argument. Again, on Second Reading, I argued that if the harm that is being done is so great that it can no longer be ignored, there is a justification to act, and there clearly is a power to do so. These are not just domestic matters for the overseas territories in which we have decided to intervene; they have a global impact. It is therefore very important for the Governments of the overseas territories to understand the reasons why this House has felt it so important to move. If they can act voluntarily, ahead of any action being taken legislatively, that would be very welcome.
Robert Neill
I thank my right hon. Friend for giving way on that important point. Does he accept that it is for that reason, and that reason only, that the Chief Minister of Gibraltar wrote the letter in the way that he did—because it is the constitutional convention that we do not normally legislate without the territories’ consent? And it is for that reason, and that reason only, that the Crown dependencies, which have a good record of compliance, had concerns about this form of legislation undermining the long-established doctrine that we do not legislate for them without their consent. It is not the objective that anyone objects to in any of those jurisdictions, but this should be done through the normal constitutional process.
Nick Herbert
The Crown dependencies do not fall within the ambit of new clause 6, as my right hon. Friend the Member for Sutton Coldfield pointed out. They are in a different constitutional position.
The wider point is this: I would have been minded to accept the Government’s compromise amendments and new clauses had the House had the opportunity to consider them. We should have avoided, if at all possible, dictating to the overseas territories what to do, but that option was not available. None the less, I welcome the fact that action is being taken.
In agreeing to new clause 6, the key concession that the Government made was that it was no longer acceptable that the overseas territories should move only at the pace of the rest of the world. As my right hon. Friend the Minister for Europe and the Americas said, the key concession was that he accepted that the will of the House was that the overseas territories should move ahead of the pace of the rest of the world for reasons that have been very well made by Members on both sides of the House. That said, we should not lose sight of the objective here. The objective is not to force the overseas territories to take action, but to ensure that we tackle corruption where we find it, and that has to be done on a global basis.
The arguments that there will be displacement should not be an impediment to action, because we can never argue that we will not tackle a crime on one street corner in case it moves to the next. That can never be a moral argument or a reason not to take action. Nevertheless, it is a serious argument. What are we going to do to avoid displacement? The imperative is therefore on the Government and on this place, which has now forced this action, to support every effort possible to mobilise the global community behind transparency for everyone.
This House and the UK will be taking a lead, and we will be requiring our overseas territories to take a lead, but we now have to step up. That may mean taking initiatives such as having another global summit to encourage action, as the anti-corruption champion, my hon. Friend the Member for Weston-super-Mare (John Penrose), suggested. Whether it is through means such as the G20 or the G7, we must now drive action on a broader basis than simply the overseas territories or the Crown dependencies.
John Penrose
I completely back up what my right hon. Friend is saying. The time for global action must be now. We need to use the lead that we will create by imposing this measure to drive and exert a global leadership. It must be about not just the transparency of company disclosures but the transparency of trust disclosures and other kinds of asset classes as well as company shares.
Nick Herbert
I agree. In taking this action and ultimately, if necessary, requiring the overseas territories to act, we will be taking a grave step—one that has only been used twice before, in relation to the decriminalisation of homosexuality and to capital punishment. It is a serious move. The justification must therefore be that we use this step to encourage action globally, and that is what I urge the Government to do.
Sammy Wilson
On behalf of the Democratic Unionist party, may I welcome the changes that the Government have made regarding the Magnitsky amendment? It is likely to have an impact on those who think that they can get away with human rights abuses and hide behind and use their wealth in the United Kingdom. However, I am disappointed that we have not discussed on the Floor of the House the Government amendment and new clauses that were tabled as alternatives to new clause 6.
I have two main concerns. Coming from Northern Ireland, I know the impact on devolved Administrations of interference in devolved matters by the Government at Westminster, and I also know the impact that this can have on those with nationalist tendencies. New clause 6 presents a real danger in this regard. People have had to do constitutional somersaults in the House today. The Scottish National party, which has vigorously defended the rights and independence of the devolved Administration in Scotland, now suddenly has no difficulty supporting interference in the overseas territories.
Stewart Malcolm McDonald (Glasgow South) (SNP)
Will the right hon. Gentleman give way?
Sammy Wilson
Let me finish my argument. The point has been made that the SNP has done a constitutional somersault because this issue is of such importance. Well, during debates on the European Union (Withdrawal) Bill, the Scottish National party was quite happy to have things devolved to the Scottish Parliament that could have broken up the internal market of the United Kingdom and affected the economy of the whole country, yet they insisted that it was their right for those things to be devolved. This constitutional somersault indicates that a different attitude has been adopted towards the overseas territories on this issue, and it is an attitude that we will live to regret.
The Minister has said that he will hold the hand of the overseas territories, give them support, encourage them along and give them the opportunity to have a say in what goes into the Order in Council. Nevertheless, those who have already done a lot of what has been asked of them will feel that we have brought down a heavy hand on them.
Hannah Bardell
Can the hon. Gentleman name one Scottish policy—just one—that impinges on the human rights or the economy of the rest of the UK?
Sammy Wilson
This is the first time we have ever had a qualification put on the Scottish National party’s view that devolution is sacrosanct. All through the debates we have had in this House about the sacrosanct nature of devolved Administrations, there has never, ever been a qualification, but today we have the qualification added—
Mr Cox
On a point of order, Mr Speaker. As you know, at the conclusion of the debate on the amendments, I informed you that I wished to raise a point of order. I intervened on several occasions in the debate and I should have made it clear—as I would had you called me to speak—that I have on occasions practised in some of the Caribbean countries that formed the basis of our discussion in my capacity as a member of the Bar. I have done that for more than 20 years and I have a familiarity with those jurisdictions as a result.
The other matter I wish to raise is that before the commencement of the debate you informed us that you were not able to select the Government amendments. Can you clarify whether it was open to you to select those amendments, because you mentioned also that they had been submitted late? So that there should be no misunderstanding, especially outside the House, will you confirm that it would have been open to you, even though they were submitted late?
Mr Speaker
Yes. I do not wish to be unkind to the hon. and learned Gentleman, but—uncharacteristically for someone who is normally as fastidious and precise in his use of language and exegesis of what others say—he errs in quoting me. He said that I had indicated that I was not able to select the amendments. I accept that the error is inadvertent and not deliberate, but I never said that I was not able to select the amendments. I said at the outset that I had decided not to use my discretion to select the late starred new clauses and amendments from the Government, which were tabled yesterday afternoon and appeared in print for the first time only this morning. I absolutely accept that I have discretion in the matter, and I used that discretion as I thought right.
As for the other part of the hon. and learned Gentleman’s point of order, he was being most courteous in advising the House of that matter, but—and I do not mean this in any sense discourteously—I think it would be true to say that he was more interested in what he had to say to me and to the House than anything that I might have to say to him on the subject. He has made his point with force and clarity and I thank him for doing so.
Hannah Bardell
On a point of order, Mr Speaker. I seek your guidance. New clause 6 has just passed in a spirit of cross-party co-operation. I find it interesting that the right hon. Member for East Antrim (Sammy Wilson) spoke so vigorously against the new clause. What can we do to ensure that Members who speak so vigorously against an amendment put their money—as we know, the DUP have rather a lot of it—where their mouth is, proverbially speaking?
Mr Speaker
That is a somewhat tendentious attempt at a point of order, which is rather revealed by the hon. Lady’s grinning visage. The convention in this place is that votes should follow voice. Votes should not be in opposition to voice, but as to how the hon. Gentleman voted I do not know. If the hon. Lady is suggesting that he spoke on the matter in one direction and then did not vote, that is entirely up to the hon. Member. The hon. Member has not behaved improperly. The hon. Member may have irked the hon. Lady, but that is another matter. If it was in relation to an amendment on which there was no vote, there is nothing to be said—that is no matter for the Chair.
Toby Perkins
On a point of order, Mr Speaker. I made the hon. and learned Member for Torridge and West Devon (Mr Cox) aware, as is the convention, that I intended to raise a point of order about the fact that he spoke very passionately in favour of the Cayman Islands when he has clearly, according to his own entry in the Register of Members’ Financial Interests, done a lot of work on their behalf. That seems to have given him the opportunity to respond in advance to my point of order. Can you advise me, Mr Speaker, whether, on drawing the attention of the House to a particular entry, it makes any difference if a contribution is an intervention or at the start of a grandiose speech?
Mr Speaker
I would not refer to a speech as grandiose—that is the hon. Gentleman’s choice of language—but the short answer is no. If a Member is intervening in a debate, whether by intervention or in the form of a full- blooded speech, the responsibility to declare an interest is unchanged. I feel that the hon. and learned Member for Torridge and West Devon (Mr Cox) has clarified the position, which I think is appreciated, and I would like to leave it there. I thank him for what he has said.
Luke Graham
On a point of order, Mr Speaker. Today is the 311th anniversary of the signing of the Act of Union between England, Wales and Scotland. May I seek the Chair’s advice on how we might mark this momentous occasion?
Mr Speaker
I think the hon. Gentleman has achieved his objective. I gently point out that I still have propositions to put to the House and there is not a huge amount of time for the second group. I hope that that is the end to points of order. I thank the hon. Gentleman for what he has said.
Amendments made: Amendment 10, page 2, line 11, clause 1, at end insert—
“(ea) provide accountability for or be a deterrent to gross violations of human rights, or otherwise promote—
(i) compliance with international human rights law, or
(ii) respect for human rights,”.
This amendment makes clear that sanctions regulations can be made for the purpose of preventing, or in response to, a gross human rights abuse or violation.
Amendment 11, page 2, line 12, leave out “and human rights”.
This amendment is consequential on Amendment 10.
Amendment 12, page 2, line 16, leave out “human rights,”.
This amendment is consequential on Amendment 10.
Amendment 13, page 2, line 38, at end insert—
“(6A) In this Act any reference to a gross violation of human rights is to conduct which—
(a) constitutes, or
(b) is connected with,
the commission of a gross human rights abuse or violation; and whether conduct constitutes or is connected with the commission of such an abuse or violation is to be determined in accordance with section 241A of the Proceeds of Crime Act 2002.”
This amendment establishes that “gross violation of human rights” includes the torture of a person, by a public official or a person in an official capacity, where the tortured person has sought to expose the illegal activity of a public official or to defend human rights or fundamental freedoms.
Amendment 14, page 3, line 3, after first “to” insert “(e), (ea) and (f) to”. —(Sir Alan Duncan.)
This amendment is consequential on Amendment 10.
Clause 2
Types of Sanction
Amendment made: 15, page 3, line 26, clause 2, after “to” insert “(e), (ea) and (f) to”. —(Sir Alan Duncan.)
This amendment is consequential on Amendment 10.
Clause 28
Review of Regulations
Amendment made: 16, page 22, line 25, clause 28, after “to” insert “(e), (ea) and (f) to”. —(Sir Alan Duncan.)
This amendment is consequential on Amendment 10.
Clause 40
Revocation and amendment of regulations under section 1
Amendment made: 17, page 31, line 39, clause 40, after “to” insert “(e), (ea) and (f) to”.—(Sir Alan Duncan.)
This amendment is consequential on Amendment 10.
Clause 56
Extent
Amendment made: 20, page 43, line 7, clause 56, after first “1”, insert “, section (Public registers of beneficial ownership of companies registered in British Overseas Territories)”.—(Dame Margaret Hodge.)
This amendment is consequential on NC6.
Clause 57
Commencement
Amendment made: 18, page 43, line 31, clause 57, at end insert—
“( ) section (Periodic reports on exercise of power to make regulations under section 1);”—(Sir Alan Duncan.)
This amendment has the effect that the commencement date of clause (Periodic reports on exercise of power to make regulations under section 1) is the day on which the Act is passed.
New Clause 4
Independent review of regulations with counter-terrorism purpose
‘(1) The Secretary of State must appoint a person to review the operation of such asset-freeze provisions of relevant regulations made by the Secretary of State as the Secretary of State may from time to time refer to that person.
(2) The Treasury must appoint a person to review the operation of such asset-freeze provisions of relevant regulations made by the Treasury as the Treasury may from time to time refer to that person.
(3) The persons appointed under subsection (1) and (2) may be the same person.
(4) In each calendar year, by 31 January—
(a) the person appointed under subsection (1) must notify the Secretary of State of what (if any) reviews under that subsection that person intends to carry out in that year, and
(b) the person appointed under subsection (2) must notify the Treasury of what (if any) reviews under that subsection that person intends to carry out in that year.
(5) Reviews of which notice is given under subsection (4) in a particular year—
(a) may not relate to any provisions that have not been referred before the giving of the notice, and
(b) must be completed during that year or as soon as reasonably practicable after the end of it.
(6) The person who conducts a review under this section must as soon as reasonably practicable after completing the review send a report on its outcome to—
(a) the Secretary of State, if the review is under subsection (1), or
(b) the Treasury, if the review is under subsection (2).
(7) On receiving a report under this section the Secretary of State or (as the case may be) the Treasury must lay a copy of it before Parliament.
(8) The Secretary of State may pay the expenses of a person who conducts a review under subsection (1) and also such allowances as the Secretary of State may determine.
(9) The Treasury may pay the expenses of a person who conducts a review under subsection (2) and also such allowances as the Treasury may determine.
(10) For the purposes of this section, regulations are “relevant regulations” if—
(a) they are regulations under section 1, and
(b) they state under section 1(3) at least one purpose which—
(i) is not compliance with a UN obligation or other international obligation, and
(ii) relates to counter-terrorism.
(11) A purpose “relates to counter-terrorism” if the report under section 2 in respect of the regulations indicated that, in the opinion of the appropriate Minister making them, the carrying out of that purpose would further the prevention of terrorism in the United Kingdom or elsewhere.
(12) For the purposes of this section a provision of relevant regulations is an “asset-freeze provision” if and to the extent that it—
(a) imposes a prohibition or requirement for a purpose mentioned in section 3(1)(a), (b) or (d), or
(b) makes provision in connection with such a prohibition or requirement.
(13) If a provision is referred under this section which contains a designation power, any review under this section of the operation of that provision may not include a review of any decisions to designate under that power.”
This new clause requires the appointment of an independent reviewer to conduct reviews of sanctions regulations which impose asset-freezes or similar financial sanctions where the regulations are made for purposes relating to the prevention of terrorism and have been referred to the independent reviewer for review.—(John Glen.)
Brought up, and read the First time.
The Economic Secretary to the Treasury (John Glen)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
Government new clause 5.
Government new clauses 15 to 17.
New clause 2—Companies House: due diligence and resources—
“(1) For the purposes of preventing money laundering, the Companies Act 2006 is amended as follows.
(2) In section 1061 (the registrar’s functions) after subsection (1) insert—
‘(1A) Functions directed by the Secretary of State under subsection (1)(b) must include due diligence on a person wishing to register a company.
(1B) In this section ‘due diligence’ has the same meaning as ‘customer due diligence measures’ in regulation 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017).”
(3) In section 1063 (Fees payable to the registrar), in subsection (2)(a) after ‘Secretary of State’ insert ‘including the duty of due diligence under section 1061(1A).’”
This new clause would amend the duties of Companies House to ensure that any person wishing to register a company must be checked for due diligence by Companies House, in line with the measures included in the Money Laundering Regulations 2017. It also ensures that the Secretary of State can charge fees for due diligence checks to cover costs incurred by Companies House.
New clause 7—Money laundering exemptions—
“The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692) are exempted from amendment or revocation under the Legislative and Regulatory Reform Act 2006 and under the European Union (Withdrawal) Act 2018.”
This new clause would prevent any amendment or repeal of the 2017 Money Laundering Regulations via powers contained in the Legislative and Regulatory Reform Act 2006 and the European Union (Withdrawal) Act 2018.
New clause 8—Public register of beneficial owners of overseas entities—
“(1) The Secretary of State must, in addition to the provisions made under paragraph 6 of Schedule 2, create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts.
(2) The register must be implemented within 12 months of the day on which this Act is passed.
(3) For the purposes of this section ‘a register of beneficial ownership for companies and other legal entities registered outside of the UK’ means a public register—
(a) which contains information about overseas entities and persons with significant control over them, and
(b) which in the opinion of the Secretary of State will assist in the prevention of money laundering.”
This new clause would create a public register of beneficial ownership information for companies and other legal entities outside of the UK that own or buy UK property, or bid for UK government contracts, within 12 months.
New clause 10—Parliamentary committee to scrutinise regulations—
“(1) A Minister may not lay before Parliament a statutory instrument under section 49(5) unless a Committee of the House of Commons charged with scrutinising statutory instruments made under this Act has recommended that the instrument be laid.
(2) The committee of the House of Commons so charged under subsection (1) may scrutinise any reviews carried out under section 28 of this Act.”
This new clause would require a specialised House of Commons Committee to approve all statutory instruments laid under the affirmative procedure under this Act. The Committee would also scrutinise the Government’s reviews of sanctions regulations.
New clause 11—Failure to prevent money laundering—
“(1) A relevant body (B) is guilty of an offence if a person commits a money laundering facilitation offence when acting in the capacity of a person associated with B.
(2) For the purposes of this section “money laundering facilitation offence” means—
(a) concealing, disguising, converting, transferring or removing criminal property under section 327 of the Proceeds of Crime Act 2002 (concealing etc);
(b) entering into an arrangement which the person knows, or suspects, facilitates (by whatever means) the acquisition, retention, use, or control of criminal property under section 328 of the Proceeds of Crime Act 2002 (arrangements); or
(c) the acquisition, use or possession of criminal property, under section 329 of the Proceeds of Crime Act 2002 (acquisition, use and possession).
(3) It is a defence for B to prove that, when the money laundering facilitation offence was committed, B had in place adequate procedures designed to prevent persons acting in the capacity of a person associated with B from committing such an offence.
(4) A relevant body guilty of an offence under this section is liable—
(a) on conviction on indictment, to a fine;
(b) on summary conviction in England and Wales, to a fine; or
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(5) It is immaterial for the purposes of this section whether—
(a) any relevant conduct of a relevant body, or
(b) any conduct which constitutes part of a relevant criminal offence,
takes place in the United Kingdom or elsewhere.
(6) In this section, ‘relevant body’ and ‘acting in the capacity of a person associated with B’ have the same meaning as in section 44 of the Criminal Finances Act 2017 (meaning of relevant body and acting in the capacity of an associated person).”
This new clause would make it an offence if a relevant body failed to put in place adequate procedures to prevent a person associated with it from carrying out a money laundering facilitation offence. A money laundering facilitation offence would include concealing, disguising, converting, transferring or removing criminal property under section 327 of the Proceeds of Crime Act 2002.
New clause 12—Public register of beneficial ownership of trusts and similar legal arrangements—
“(none) The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 are amended by leaving out paragraph (12) of regulation 45 (Register of beneficial ownership) and inserting—
‘(12) The Commissioners must ensure that the register is published.’.”
This new clause would require the Government to publish the register of beneficial ownership of trusts and similar legal arrangements on the day this Act is passed.
New clause 13—Due diligence—
“(1) For the purposes of preventing money laundering, when a company is formed, any company formation agent providing formation services must ensure that the identity and business risk profile of all beneficial owners of the company are established in accordance with—
(a) the customer due diligence measures under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692),
(b) regulations made under section 44 of this Act, or
(c) the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on anti-money laundering measures.
(2) For the purposes of subsection (1), Companies House is to be treated as a ‘company formation agent’.”
This new clause would ensure that when a company is formed in the UK, the relevant formation services must identify the beneficial owners of the company. It will also treat Companies House as a “company formation agent”, ensuring that the data on the public register of beneficial ownership for companies is accurate.
New clause 18—Winding up companies of designated persons—
“(1) The Secretary of State may, in respect of a designated person subject to sanctions regulations under this Act—
(a) present a petition under section 124A of the Insolvency Act 1986 to wind up a company owned or controlled by a designated person; and
(b) make a disqualification order under section 8 of the Company Directors Disqualification Act 1986 against a designated person who is or has been a director or shadow director of a company or an overseas company.
(2) In this section, ‘company’ means a company registered under the Companies Act 2006 in the United Kingdom or a company that may be wound up under Part 5 of the Insolvency Act 1986 (unregistered companies).
(3) In this section, ‘overseas company’ means a company incorporated or formed outside the United Kingdom”.
This new clause would ensure the Secretary of State could close down companies owned or controlled by a person subject to sanctions under this Act using the pre-existing powers in the Insolvency Act 1986 and Company Directors Disqualification Act 1986.
New clause 20—Periodic review of exercise of powers and operation of Act—
“(1) As soon as reasonably practicable after the end of—
(a) the period of six months beginning with the day this Act is passed, and
(b) every 12 month period which ends with the first or subsequent anniversary of the end of the period mentioned in the preceding paragraph,
(2) Subject to issues of confidentiality the said report shall include a summary of any representations made in relation to the exercise or proposed exercise of the powers and the response of the appropriate Minister to the same.
(4) The Independent Reviewer appointed pursuant to section 20 of the Terrorism Prevention and Investigation Measures Act 2011 (‘the 2011 Act’) shall include a review of the operation of this Act in the reports by the Independent Reviewer produced pursuant to the 2011 Act.”
This new clause would require a periodic review of the exercise of the powers and operation of this Act six months after Royal Assent and every 12 months thereafter.
Amendment 1, page 1, line 8, clause 1, leave out “appropriate” and insert “necessary”.
Amendment 2, page 2, line 17, at end insert—
“(i) further the prevention of organised crime, or
(j) further the prevention of human trafficking.”
Government amendment 23.
Amendment 29, page 15, line 4, clause 15, at end insert—
“(i) provide for the procedure to be followed for an application for an exception or licence”.
This amendment would ensure that the regulations will include a procedure for applying for an exception or for a licence.
Government amendment 24.
Amendment 3, page 20, line 12, clause 22, leave out “3 years” and insert “12 months”.
Amendment 4, page 20, line 14, leave out “3 years” and insert “12 months”.
Amendment 5, page 21, line 36, clause 26, leave out “3 years” and insert “12 months”.
Amendment 6, page 21, line 38, leave out “3 years” and insert “12 months”.
Amendment 7, page 31, line 12, clause 38, leave out “may include guidance about—” and insert “must include, but is not limited to, guidance about—”.
Amendment 8, page 31, line 15, at end insert—
‘(3) The appropriate Minister must review the guidance issued under this section and lay a report before Parliament every 12 months.”
Government amendment 25.
Amendment 21, page 36, line 8, clause 48, leave out paragraph (a).
This amendment would remove paragraph 2(a) from Clause 48, which enables the appropriate Minister to amend, repeal or revoke enactments for regulations under section 1 or 44 using Henry VIII powers.
Amendment 9, page 37, line 27, clause 49, at end insert—
“(5A) A statutory instrument containing regulations under section 1 that repeals, revokes or amends—
(a) an Act of the Scottish Parliament,
(b) a Measure or Act of the National Assembly for Wales, or
(c) Northern Ireland legislation,
must receive the consent of the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly, respectively.”
This amendment would require the UK Government to obtain the consent of the devolved administrations before repealing, revoking or amending devolved legislation using a statutory instrument containing regulations under section 1.
Amendment 22, page 39, line 4, clause 51, leave out subsection (3).
This amendment would remove subsection (3) of Clause 51, which states that if a reporting provision is not complied with, the appropriate Minister must publish a written statement explaining why that Minister failed to comply with it.
Government amendments 26 and 19.
Amendment 30, page 59, line 5, schedule 3, at end insert—
“Solicitors (Scotland) Act 1980
‘(4) The Solicitors (Scotland) Act 1980 is amended as follows.
(5) Section 34(1)(d) is repealed.
(6) In section 35(1), after paragraph (c) insert—
(cc) as to the way in which solicitors and incorporated practices are to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017”.”.
This amendment would amend the Solicitors (Scotland) Act 1980, ensuring it is consistent with this Act.
Amendment 27, page 59, line 14, at end insert—
“Insolvency Act 1986 (c. 45)
‘(1) In section 124A of the Insolvency Act 1986 (petition for winding up on grounds of public interest), after paragraph (1)(d) insert—
(e) any information notified to the Secretary of State pursuant to regulations made under section 1 of the Sanctions and Anti-Money Laundering Act 2018.’”
This amendment, which is consequential on NC18, would amend the Insolvency Act 1986 to ensure it is consistent with this Act.
Amendment 28, page 59, line 14, at end insert—
“Company Directors Disqualification Act 1986 (c. 46)
‘(1) In section 8 of the Company Directors Disqualification Act 1986 (Disqualification of director on finding of unfitness), after paragraph (1) insert—
(1A) The Secretary of State may apply to the court for a disqualification order to disqualify a person who is, or has been, a director or shadow director of a company, if that person is subject to regulations made under section 1 of the Sanctions and Anti-Money Laundering Act 2018.’”
This amendment, which is consequential on NC18, would amend the Company Directors Disqualification Act 1986 to ensure it is consistent with this Act.
John Glen
It is my privilege to address the second group of amendments, but before I do I would just like to acknowledge, as the hon. Member for Salisbury, the good will from across the House in light of the events of 4 March. With respect to the previous debate, I would like to acknowledge the work of my right hon. Friend the Member for Newbury (Richard Benyon), the hon. Member for Rhondda (Chris Bryant) and, in particular, my right hon. Friend the Minister for Europe and the Americas, who has done so much to come up with an outcome, which we have just expressed, that will mean a great deal to my constituents in Salisbury.
New clauses 2 and 13 aim to improve the quality of information on our company register. The Government believe that they would do so at a significant cost to UK business and would require considerable consequential change to the UK company law system for the measure to function. Companies House is taking active steps to improve the quality of data on the register. It has already increased its resourcing to support these investigations and more is being sought. Since the start of March, the first tranche of cases of non-compliance with beneficial ownership registration requirements were passed from Companies House to the Insolvency Service. The cases will form the basis of the first prosecutions for non-compliance with such requirements and should be prosecuted shortly.
New clause 18 and amendments 27 and 28, which were tabled by the hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle), allow for action to be taken against so-called brass-plate companies that breach sanctions. The reason that brass-plate companies have not been prosecuted or wound up relates to the challenges of collecting evidence of their activities, not a lack of legal powers. I look forward to hearing what he has to say, but the amendments do not provide any enhanced ability to take action against such companies. We continue to explore with partners across Government whether we could do more to address this issue, so I hope that in due course, hon. Members will agree to withdraw this set of amendments.
I now turn to amendment 19, to which new clause 5 has a similar purpose. These proposals seek to clarify the interaction of powers in the Bill with the provisions of the European Union (Withdrawal) Bill. New clause 7 seeks to constrain the powers of future Governments to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. However, the powers in the European Union (Withdrawal) Bill are necessary to ensure a functioning statute book immediately after the UK ceases to be a member of the EU.
Amendment 30 seeks to amend the Solicitors (Scotland) Act 1980 to give the Law Society of Scotland greater powers to conduct its role as an anti-money laundering supervisor. The Government strongly support all supervisors having adequate powers to effectively monitor and take measures to ensure compliance from their members and to use proportionate and dissuasive sanctions when their members do not comply with the rules. The Law Society of Scotland has raised with Treasury officials the issues that it would like to amend in legislation. They are looking closely at this issue and will continue to work with the Law Society of Scotland to address it. I therefore respectfully ask the hon. Member for Glasgow Central (Alison Thewliss) not to press that amendment, but no doubt we will have a discussion in due course.
New clause 8, on beneficial ownership, seeks to set down in legislation an obligation to implement, within 12 months of the Bill getting Royal Assent, our commitment to establishing a public register of company beneficial ownership of overseas companies that own or buy property in the UK. The UK was the first country in the G20 to establish a public register of company beneficial ownership, and Transparency International concluded that we are one of just three G20 countries with a “very strong” legal framework around beneficial ownership.
Let me be clear to the House that the Government are committed to establishing this register and to bringing increased transparency to UK property ownership. The Government committed in January to publishing a draft Bill before the summer recess, and we recently published our response to the call for evidence. We will legislate early in the next parliamentary Session to establish the register by 2021. We will be the first country to establish the register and it is important to get it right.
New clause 12 would require HMRC’s register of trusts that generate UK tax consequences to be published. Information held on the register is accessible to law enforcement agencies and allows them to readily draw together information on trusts, including offshore trusts, when they generate a UK tax consequence. However, trusts, unlike companies, do not have any independent legal personality in their own right. They are frequently established for legitimate and highly personal reasons, such as protecting assets for children or vulnerable adults. Placing this information into the public domain would infringe the privacy rights of trust beneficial owners and needlessly publicise the financial affairs of vulnerable people for whom trusts are established. I therefore ask Members not to press those amendments.
New clause 11 seeks to create a corporate criminal offence of failure to prevent money laundering, which is not necessary because of reforms to the anti-money laundering regime already in place. The proposed offence is substantively available in respect of firms regulated for anti-money laundering purposes by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which require regulated firms to have policies, controls and procedures to mitigate and manage risks of money laundering and terrorist financing. Failure to comply with these requirements is already a criminal offence.
John Glen
I am happy to be corrected, and I apologise to the hon. Lady.
Amendment 29 relates to the procedure by which individuals or entities apply for licences and exceptions to be included in the regulations. Retaining the application procedures in guidance will give the Government the flexibility to update them as needed and to respond to stakeholder feedback.
The Government have tabled new clause 4 because we recognise the concern raised by the Independent Reviewer of Terrorism Legislation and the Joint Committee on Human Rights that the repeal of part 1 of the Terrorist Asset-Freezing etc. Act 2010 would remove the independent reviewer’s oversight of domestic counter-terrorism asset freezes. Government new clauses 15 to 17 and amendments 23 to 26 will provide the UK Government with the powers necessary to enforce UK sanctions regulations against ships in international and foreign waters. These powers will ensure adherence to the standards set out in relevant UN Security Council resolutions and provide protection against the transportation of dangerous and harmful goods in international waters. These provisions contain important safeguards on the use of these powers, including a requirement to have reasonable grounds to suspect that sanctions are being flouted before enforcement action can be taken as well as flag state and foreign state consent where relevant.
New clause 20, tabled by the hon. Member for Glasgow Central—I hope I have got that one right—would oblige the Secretary of State to lay a report before Parliament each year on the exercise of the powers in the Bill. We have a range of reporting requirements in the Bill already, including an annual report on the sanctions regulations in force, and further reports when sanctions are imposed or amended. In addition, new clause 3 sets out reporting requirements for regulations made under the human rights purpose. We consider it unnecessary, therefore, to add an additional report on top of these, given that the issues that would be addressed in the report would be mirrored by those already required in the Bill.
Amendments 3 to 6, also tabled by the hon. Lady, would require that every sanctions designation be comprehensively re-examined annually. We agree that sanctions should only be in place for as long as there are good reasons for them to be so, and the Bill contains a range of procedures to ensure that all our sanctions are subject to regular scrutiny and review. We believe that three-year comprehensive reviews, combined with a robust package of procedural safeguards in the Bill, will ensure that these standards are at least maintained, so we would ask that she consider not pressing her amendments.
New clause 10, tabled by the hon. Members for Bishop Auckland and for Oxford East, would require statutory instruments that are to be considered under the draft affirmative procedure to receive a positive recommendation from a House of Commons Committee before being laid. All secondary legislation to which it would apply requires affirmative votes before coming into force, and we believe that that negates the need for additional parliamentary scrutiny. Sanctions are a manifestation of the UK’s foreign policy. They are not stand-alone or independent initiatives. Indeed, a number of existing parliamentary Committees have considered, or are planning to consider, sanctions issues, including the House of Lords EU Committee and the House of Commons Treasury Committee. It is not clear why further layers of scrutiny are necessary or desirable.
Amendment 22 would remove the requirement for Ministers to publish a written statement of explanation if they did not comply with a reporting provision. I should make it clear that this provision does not in any way displace the statutory duty to report; Ministers who fail to comply with that duty must face the consequences, regardless of whether an explanation is given.
Amendment 1, tabled by the hon. Member for Glasgow Central, would mean that sanctions regulations could be created only when that was deemed “necessary” for the purposes of the Bill, rather than when it was deemed “appropriate”. For many years the use of sanctions has been an essential part of international diplomacy, to respond to threats such as terrorism or to change unacceptable or threatening behaviour. It is important for the Government of the day to have the flexibility to impose sanctions or not to do so, after a thorough review of the prevailing political situation. Changing “appropriate” to “necessary” would mean that the Government could consider sanctions only as the last resort.
Amendment 9 would require the legislative consent of the devolved Administrations for any sanctions regulation made under section 1, if that regulation included a consequential repeal of, revocation of, or amendment to any law created by those Administrations. The power to create sanctions regulations falls under matters that are reserved to Westminster, and that includes modifications consequential on those regulations. Under the UK’s constitutional settlement, foreign policy is a reserved matter. The Bill gives the Government the power to impose sanctions as a foreign policy and national security tool.
Alison Thewliss
I have already made this point to the Minister. I agree that the Scottish Parliament does not have the power to impose sanctions, but why do the UK Government want to say that we cannot do so when it is already clear that we cannot? Why should the Government revoke something that we cannot actually do?
John Glen
We contend that the amendment would change this part of the devolution settlement, and we have received no representations from the Scottish Government on it.
Amendment 21 would remove Ministers’ power to make consequential amendments, related to sanctions and anti-money laundering regulations, to existing primary and secondary legislation. That would remove the ability to ensure that the statute book works after sanctions have been imposed. The power is not unusual, and is confined to modifications that arise solely as a result of sanctions or anti-money laundering provision. In any case, regulations making such modifications of the statute book would be dealt with by the draft affirmative procedure, so both Houses would need to approve them before they could come into force. I ask the House to preserve that important power.
Let me make it clear that the Government support the principle of amendment 2, tabled by the hon. Member for Glasgow Central, which is to help prevent organised crime and human trafficking. Those are serious issues that we are strongly committed to tackling. However, as we have explained before, we do not think it necessary to state that sanctions regulations could be created for these purposes in the Bill, because it already provides the powers to impose sanctions in these cases.
Government new clause 5 is technical. It simply seeks to clarify the interaction of the powers in this Bill with the provisions of the European Union (Withdrawal) Bill. This Bill contains powers that enable the Government to amend retained EU law to impose or lift sanctions. The new clause simply makes it clear that restrictions in the European Union (Withdrawal) Bill do not prevent those powers from being exercised in the way that was intended.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I shall speak to amendment 21 and new clauses 8 and 13. I will try to be disciplined, as the Minister was, by keeping my remarks as brief as possible, but I would state that while many of us feel that we have seen some progress in terms of transparency for overseas territories, we need a much broader programme of reform so that we stamp out dirty money from the British financial system.
While the Minister referred to amendment 21, he failed to grasp its significance and intention. As with other Brexit-related Bills, the Opposition have many concerns about the wide-ranging powers that this Bill gives to Ministers, and in particular the way in which it gives Ministers the ability to amend, repeal or revoke legislation through regulations without appropriate scrutiny. We frequently cited Lord Judge in Committee, but it is appropriate that I do so one last time in this Chamber. He was very clear about the dangers of this power. As he said, it gives Ministers
“‘regulation-making powers for this, that and the other’”.
He is a very learned person and, as he put it,
“the secondary will override the primary.”—[Official Report, House of Lords, 17 January 2018; Vol. 788, c. 718-19.]
I do not think that many Government Members could disagree with that. Clearly this is an excessive power. It is not justified by the need for speed, for reasons that were well rehearsed in Committee.
The Government have yet again today maintained that these powers are for the sole purpose of combating money laundering and maintaining a sanctions regime, but we heard just a few moments ago that these issues can be highly contentious. There can be different points of view within our parliamentary system on these matters, and that must be reflected in an appropriately inclusive parliamentary procedure.
The Committee advocated by Her Majesty’s Opposition is necessary precisely because the European Scrutiny Committee will not be operating in its same form after we leave the EU, and our sanctions policy will not be derived from the EU once we have left. That is surely the whole point, so we will need another body that can conduct that scrutiny. We will not want Members turning up on an ad hoc basis to a secondary legislation Committee ill briefed, ill prepared and not expert about the topics at hand. That is why we are making our call, and the arguments for such a body are self-explanatory.
Kelvin Hopkins (Luton North) (Ind)
I am a member of the European Scrutiny Committee, and we do take the view that after Brexit there should be a Committee that can continue to keep an eye on what is happening in the EU, because that will still be important and very relevant to what happens in Britain.
Anneliese Dodds
And that Committee has been able to develop its expertise around some very complex issues. We will not have such expertise in the future without the kind of Committee that we are advocating. It will be spread across a range of Departments, as is the case with our sanctions, so there is a need for a group in which expertise can be built up among Members. Surely that is enormously important.
As the Minister said, new clause 8 would bring forward the timetable for introducing a public register for foreign-owned property in the UK, but it would do so only in relation to the Government’s current proposals. It would actually be behind the initial timetable that we were given by the Government for introducing such a register, according to which we should have seen developments last month, given that today is 1 May. I will not rehearse all the arguments made by my hon. Friend the Member for Hornsey and Wood Green (Catherine West).
Alex Sobel (Leeds North West) (Lab/Co-op)
Global Witness has found that there are 86,000 anonymously-owned properties in the UK, many of which are empty. Does my hon. Friend agree that we should legislate so that we will know who owns these properties, and therefore be able to bring them into use by people in this country?
Anneliese Dodds
My hon. Friend is absolutely right. I understand that those 80,000-plus properties, which are often owned through secrecy jurisdictions, are the ones that crop up most often in corruption investigations. It is often exactly that kind of property that appears to be used illicitly, and it is enormously important that we get a grasp of this problem. We have seen—through the various laundromat investigations, for example—how British property has been used not only to hide illicitly gotten gains, but to guarantee additional profit, because those properties can be let out, guaranteeing a future income stream.
In that regard, I will give the Government one more opportunity. I have asked them many times to indicate whose side they are on. Are they on the side of the investigative journalists who have shown us so much about the movement of dirty money through our financial system, either through the laundromat investigations or through the Paradise, Panama and Luxembourg leaks papers, or are they on the side of those who want to shut down debate on this matter? It would also be helpful to know whether they think it is appropriate that the BBC and The Guardian are being singled out by the firm Appleby and having legal action taken against them purely because they published information from the Panama papers leaks. They are the only two British companies to be singled out in that way.
Moving back to the substance of new clause 8, the Government initially intimated that they would introduce the register back in April. Instead, it now will not be available until 2021, but we heard nothing from the Minister about why that delay is necessary. Investigative reporters have already created a register of sorts that we can all access on the internet. It was created by journalists at Private Eye and other organisations who matched up Land Registry data with company data. I am not aware of any significant worries about the reliability of that information, so why are there so many concerns in this regard? The Financial Action Task Force is due to report soon on our systems to combat money laundering, and this is not the time to delay any action.
If Ministers feel the need to slow down the process in order to consult the Opposition and produce draft legislation, I can tell them that Labour Members support such a measure. The Government do not need to jump through hoops with this legislation—they can move ahead immediately with our full support—so there is no need for delay. In fact, there is every need for haste. I look forward to hearing whether Conservative Members think that there are genuine reasons for this hold-up, because I do not believe that there are any. There is cross-party support for the original timetable. Indeed, faster progress was urged by Conservative peers when the matter came up in the other place, so I hope that the Government will listen to them and to the Opposition, and deliver this register to an appropriate, faster timetable.
On the question of registers, the topic of trusts has been raised in previous debates as well as this one. In fact, it is covered by an Opposition amendment, and the Minister also mentioned it. Not having transparency for trusts will place us behind developments in the European Union, because there is now consensus at the EU level about the need to ensure that there will be transparency for business-like trusts, so we will be behind the curve on that one. Of course, the coalition Government lobbied against transparency for trusts, and we now know that David Cameron personally intervened to try to prevent it. However, this Government could take a different approach and introduce greater transparency, so I hope that they will shift that position.
On the offence of failure to prevent money laundering, I hope the House will not mind if I briefly ask the Minister when exactly we will see the Government response to the consultation and call for evidence, which ended last year, on the failure to prevent economic crime. Although that process ended many months ago, we still do not know what action the Government will take—we are still waiting. There is no lack of evidence for the need to take action; there is only a lack of will, sadly, and that needs to change.
Our new clause 13 is similar to the SNP’s new clause 2, but it is rather broader, as it deals with trust and company service providers, as well as Companies House. In the previous debate, the Minister for Europe and the Americas rightly drew attention to the fact that the UK was a frontrunner in adopting a public register of beneficial ownership. The Opposition are of course pleased that the Government have accepted the need for such a register for the overseas territories but, as Members on both sides of the House have said, we need to ensure that the information in any such register is accurate, and that is the point about which many concerns have been raised.
I have been in correspondence with the Minister and with the FCA about one particular case, namely that of the so-called Business Bank Italy, in which a number of rather strange figures seem to be involved. One of them gave his title as the Italian translation of “the chicken thief” and maintained that he lived on the “Street of 40 Thieves” in the town of “Ali Babba”. I have tried to find out whether he and those associated with him are being prosecuted, but he has certainly been under investigation in Italy, and some of his associates have been prosecuted for their involvement in the mafia over there.
In contrast, the only person to have been prosecuted— I would also say persecuted—in the UK for submitting false information is Kevin Brewer, who is actually a whistleblower. He created a fictitious company and told the world about it in the pages of a national newspaper, but his prosecution has since been held up as showing the Government’s determination to
“come down hard on people who knowingly break the law”.
He broke the law in order to show that the law was an ass under the current system, and it is a disgrace that he has been prosecuted when others seem to be able to operate with impunity. The right hon. Member for East Antrim (Sammy Wilson), who is no longer in the Chamber, referred to an 85-year-old who was exercising significant control in 25,800 companies, so it is essential that such individuals are investigated.
New clause 13 would require any company formation agent to carry out appropriate due diligence on the beneficial owners of the companies that they are forming. It would cover both trust and company formation service providers, and Companies House, where companies can be directly registered without anyone else being involved in the process. I will not re-run our debates during the Bill’s previous stages, but suffice it to say that rather than providing additional clarity—I say the same of the additional exchanges that I have had with Ministers since—the waters have only been muddied. There is a huge ambiguity about the precise role of Companies House. Some Ministers seem to resist the view that it should be responsible for checking data on the business database, while others say that it should exercise that kind of due diligence and is doing so perfectly well. What I see as a parliamentarian, as do many businesspeople and others who are concerned about the fraudulent companies that appear to be able to operate with impunity, is Companies House sadly being severely behind the curve that has been set by crooks and criminals.
The Minister said that change would be difficult, but it would not. For example, when one registers a company with Companies House, one can enter whatever information one wants in the boxes on the website. That website does not even have the highly technologically sophisticated tool of a drop-down menu, which means that people can enter non-existent addresses, as I just mentioned, suggest that two-year-olds are people of significant control in a company and so on. The situation is ridiculous and dealing with it would not require a huge amount of investment.
We also need stronger action when it comes to the responsibilities of trust and company service providers. There is extensive evidence, most recently revealed by “Panorama”, that existing anti-money laundering legislation is insufficient to deter the money-laundering activity facilitated by some TCSPs.
I have had an extensive exchange of letters with the Treasury, and I am grateful to the Minister for corresponding with me on this subject, particularly regarding the problem of foreign TCSPs registering companies with Companies House. I have been informed by the Government that foreign TCSPs are of lower risk than UK-based ones, despite the fact they are not covered by UK anti-money laundering legislation. I received the latest letter this very morning, for which I am grateful, and it concludes by stating that foreign TCSPs are regulated by their home jurisdictions. That is okay then—they are regulated by their home jurisdictions, so there is no problem. Sadly the evidence suggests quite the opposite.
We have seen some positive moves from the Government today, under enormous pressure from Members on both sides of the House, on Magnitsky clauses and on beneficial ownership registers for overseas territories, but we need appropriate scrutiny of sanctions and anti-money laundering legislation, a return to something nearer the original timetable for foreign-owned property registration, and the exercise of proper due diligence on the information submitted to our companies register if we are really to clean dirty money out of our financial system.
We have to stop crooks, criminals and the corrupt benefiting from our country’s good name. Our Government need to stop obfuscating and start acting.
Alison Thewliss
I rise to speak to the amendments in my name. I will rattle through them and say why they have been tabled. The primary concern is about Companies House. Very much as the hon. Member for Oxford East (Anneliese Dodds) has just said, we have laid out our serious concerns at all stages of the Bill. It is disappointing to get to this stage and find that the Government are still not listening to those concerns.
Companies House does not have the adequate resources or powers sufficiently to monitor and ensure the integrity of the company incorporation data submitted to it.
Hannah Bardell
Does my hon. Friend agree that it seems to be harder to open a gym membership than to register a company with Companies House?
Alison Thewliss
My hon. Friend is absolutely correct. Registering with Companies House seems to be the easiest thing possible. It is baffling that anything else, such as a tax return, a passport application or a driving licence application, needs to go through the gov.uk verify scheme, but Companies House does not have that requirement. Just tightening up those rules would help hugely both to ensure the accuracy of the information and to clamp down on those who wish to abuse the system. It is in all our interests to make sure the system is accurate, but it is not accurate.
Worse, there are only about 20 people at Companies House policing some 4 million firms’ compliance with company law. There are no proactive checks on the accuracy of the information submitted, which, as the hon. Member for Oxford East has just said, allows a significant amount of false and misleading data to be submitted to the companies register.
Bob Stewart (Beckenham) (Con)
The hon. Lady says there are no proactive checks at Companies House, but if an outside person challenges an entry, surely the people at Companies House have to check it out. It is a criminal offence if an entry is wrong, is it not?
Alison Thewliss
The difficulty in all this is with enforcement. As the hon. Member for Oxford East pointed out, it has been very difficult to get anything to happen in the case of “the chicken thief”. The only person to be prosecuted so far is a whistleblower, which does not lead me to believe much will be done to those who abuse the system. The volume of data at Companies House makes such abuse very difficult to tackle. Indeed, investigative journalist Richard Smith has flagged up such things and has found it difficult to get any action. If a person submits the wrong name and address on their form, either deliberately or accidentally, how is the agency supposed to track down that person to get them to correct the information?
Not making the system accurate allows hon. Members to stand up in this place and say that transparency of registers does not work, but we know it does work if it is done properly and if we invest in it properly. We need to be careful to make sure that our own integrity is right, because if we are leading on transparency and beneficial registers across the world, we need to make sure that what we are doing here—the intention around Companies House—is what is carried out in practice. Companies House needs more resource to allow that to happen.
Jo Swinson
I rise to speak briefly in support of various amendments, including amendment 21, which would remove the Henry VIII powers. It has become an unfortunate hallmark of this Government that they have sought to put far too much power in Ministers’ hands. If anything, the whole “take back control” thing should be in the direction of Parliament and the representatives of the people, not to Ministers, with decisions therefore undergoing less scrutiny. I very much support amendment 21 on that basis.
I am sure that shortly the House will hear from the hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle), who tabled new clause 18, which I very much support. I understand that my support was communicated to the Public Bill Office, but unfortunately my name was not added to the amendment paper. I wanted to put on record the fact that that communication had been sent. My right hon. Friend the Member for Twickenham (Sir Vince Cable) advocated the change in the new clause during our time in coalition, but it was one of those things that was blocked by our coalition partners, who claimed that it would somehow add to regulatory burdens and so would not be possible. I am delighted to support that new clause today.
On new clause 12, which was tabled by the hon. Members for Oxford East (Anneliese Dodds) and for Bishop Auckland (Helen Goodman), it is absolutely sensible that, just as we have a public register of beneficial ownership for companies, the same requirements should apply to trusts, given that we know how often trusts are used in a way that is conducive to money laundering. I understand that there are concerns about some individuals who may be vulnerable, but a better way to deal with that would be to carve out specific exemptions for such individuals, rather than go in the other direction, with the assumption being secrecy. It is about what the default is, and transparency very much ought to be the default, particularly given the widespread evidence of the use of trusts for the sheltering of wealth and therefore as cover for shady activities.
Finally, I wish to talk about the Companies House issues raised by new clause 13, because I was formerly the Minister in charge of Companies House, which tries to do a good job, albeit not with significant resources. Some of the changes that have come in—such as the move to do much more online, thereby getting rid of the paper trail caused by requiring every single company registration to be sent in on paper—are positive and often work well. I speak as somebody who used the Companies House service to set up a company when I was out of Parliament.
I wish to see the process remain simple, straightforward and low cost so that it is easy for people to set up new companies. However, it strikes me that, in that move to online, we have opportunities to undertake many more checks in a more cost-effective way than would have been possible under the paper-based system that existed before. As the hon. Member for Oxford East pointed out, we can have innovations such as drop-down menus which we are familiar with on so many different websites that we interact with in other spheres of life. We can therefore design into the system many of the checks that need to be done.
For addresses to be entered, we could have a simple checking process against the postcode address file. Anyone in this Chamber who does online shopping—I confess that I have, on occasion, done it myself—knows that it is just not possible to enter an address that is not a straightforwardly understood UK address, which is part of the postcode address file. There are therefore lots of good opportunities for Companies House to update its system so that it is much more adept—still in a cost-effective way—at identifying the small proportion of registrations, out of the large number of companies that register with Companies House, that require enforcement activity. Being able to do that in a risk-averse manner, as well as, no doubt, dealing with other patterns of registrations that might end up needing to be investigated would certainly be helpful. Over time, no doubt, tools could be developed to improve the risk assessment process.
Maria Caulfield (Lewes) (Con)
The hon. Lady is making some good points. Currently, companies have to pay a nominal fee to register. On the types of registration that she is talking about and the in-depth detail that will need to be considered, has she done any work on the sort of fee that companies will be looking to pay?
Jo Swinson
I welcome the hon. Lady’s intervention. Basically, I am talking about making changes to the system in a cost-effective way. We are talking about system changes to multiple transactions, which, as I have said, are hardly groundbreaking in terms of online systems that exist in other spheres. I am talking about having access to these databases that already exist. Over time, intelligence-led risk profiling would also make sense. It is not about saying that for every company registration there needs to be an incredibly cumbersome process; it is about saying that measures could be taken in a fairly cost-effective way to use the technology and the ability that we now have—while things are being registered online—to identify where the problems are, in much the same way that when we enter a company name with one of those 135 sensitive words, a flag goes up, and it will be looked at by some human eyes. We could certainly have that system in place with a wider set of parameters without impinging on the general efficiency of the system, which no Member would want.
Jo Swinson
I am finishing my remarks shortly, but I will certainly give way.
Will Quince
The hon. Lady is very kind in giving way. I have a very quick question for her. She rightly answers the question from my hon. Friend the Member for Lewes (Maria Caulfield) about the process and, potentially, adding additional cost. The hon. Lady probably did it herself but many people use intermediaries—be it solicitors, accountants or other individuals and businesses that do it for them. Does she foresee additional cost being created because of the additional administration involved?
Jo Swinson
What we are discussing here is having additional checks at the Companies House end. For other organisations, some additional checks already happen. The hon. Gentleman is right that I did do a bit of a test run to check what I had said about it being straightforward. Happily, it generally was fairly straight- forward and an easy system to use. None the less, I think that there would be a way we could use new technology to improve enforcement work through the Companies House website. Additional resources will be needed if we are to take this seriously, and I hope that the Government will recognise that in their response.
Lloyd Russell-Moyle
For £12, disreputable individuals can register UK companies and begin trading arms internationally through a network of subsidiaries. For £12, they receive the legitimacy of a trading company and a respectable business. We know that this is the case because it has been happening for 10 years, and it could well be happening right now.
We know that this has been happening thanks to the investigative work of Amnesty International and other non-governmental organisations. In 2014, Ukranian-based S-Profit Ltd, which was registered here in the UK, was named by the South Sudanese Government as brokering a £44 million small arms deal. The South Sudanese Government are subject to sanctions; yet, astonishingly, S-Profit Ltd is still a registered British company.
In 2009, the Committees on Arms Export Controls found that a company called Hazel UK had been brokering arms to Libya, Syria and Sri Lanka, which violated sanctions against those countries at the time. This company is still registered. I could go on. For example, System Use Contract Ltd brokered arms to Rwanda. I have a long list.
Bob Stewart
I am intrigued by this. Fundamentally, the hon. Gentleman is saying that there is a brass plate and a registration with Companies House, but there is actually nothing between that and a company working abroad. Is he saying that there is no connection and absolutely no way that these people can be traced, or have I got it wrong?
Lloyd Russell-Moyle
This is not about tracing. These companies use British registration but undertake activities through a set of subsidiary companies or other companies that they are linked to abroad to take part in the nefarious activity. The individuals might be directors of both companies, for example.
The current threshold of requirement to disbar individuals or strike off a company is at the criminal level of responsibility, but that level is just far too high. If it were brought down to the civil level of responsibility, the Minister would be able to take action. Now, the Minister may feel that he would not want to take action and I am not compelling him to do so. I am simply giving him the powers, if need be, that already exist in the Insolvency Act 1986. This is not about extending powers that have never been used before.
The Government say that there is no information about these companies at all. Well, let us look at S-Profit Ltd, a UK-registered company that brokered arms to the South Sudanese Government. This Government have received copies of the contracts involved. The Ukrainian directors of the company have even admitted that the contracts were genuine, as did the Ukrainian state company responsible for brokering the weapons. It is not enough for a criminal action, but it is clearly enough for a Minister to invoke the public test—that is, to ask whether the company is acting against the public interest and breaching sanctions. Such companies should be struck off, so that they cannot use the brand Britain as a front for their activities.
When Sir John Stanley was in this place, he recommended the same powers in the Committees on Arms Export Controls. I am not trying to bring in something that is hugely controversial. The Government have already said today, in general, that they would like to take action on these things. I was really disappointed that we were not able to get the Government to support this. I tried to meet the Government a number of times, even coming up in recess time to do so, with the meeting being cancelled 20 minutes before it was due. It is a real shame, and I would like the Government to give way. However, I will not press the amendment to a vote on this occasion if they make a commitment to look at this further and to take it on, as I think they have done today. I hope we can work together on this.
Hannah Bardell
Thank you for letting me speak, Madam Deputy Speaker. I was not expecting to get in, so it is a real privilege to have the opportunity to bring up the rear of the debate.
I thank my hon. Friend the Member for Glasgow Central (Alison Thewliss) for her steadfast work on this Bill. I also thank other Members across the House. In particular, we heard an excellent speech by the hon. Member for Oxford East (Anneliese Dodds), who spoke about SLPs and the negative impact—the devastating impact—they have had across the UK. I recently met a Moldovan human rights lawyer at the Council of Europe. Many Members will be familiar with the nefarious activities of the Moldovan Government and certain oligarchs. She—I will not name her—has experienced huge tragedy in her life, being separated from her young son in trying to fight the Government, who are using an SLP to launder money and are engaged in criminal activities.
The point about reputation is really important, not just for Scotland but for the rest of the UK. The Scottish name is being used, and misused, through a piece of legislation. By and large, those who use SLPs are doing so for legitimate reasons, but a few are spoiling it for the many. SLPs are increasingly being abused by money launderers because of their unique characteristics. The hon. Member for Oxford East mentioned the Russian laundromat case, which extracted £16 billion out of Russia between 2010 and 2014. There were 114 SLPs in the laundromat, two of which were core laundering vehicles. Progate Solutions no longer exists—the Sarajevo-based Organised Crime and Corruption Reporting Project uncovered that company and highlighted its activities—but it is still being used to launder money. The hon. Member for Bishop Auckland (Helen Goodman), who has done a lot of work on this, described there being an “explosion” of SLPs. In terms of the statistics, 82% of all SLPs registered at the end of 2016 and 70% of SLPs incorporated during this period are registered at just 10 addresses.
Getting to the core of the issue of transparency, this is about how business is being done now. We look at gender pay reporting and the impact that that has had on business in this country. That is a move forward. It was interesting to hear some Conservative Members talking about resources for us to have the power to investigate these companies. Our very limited and stretched public resources are being used so that our trained taskforces can investigate them. If we bring about a more transparent system and more transparent laws, our vital resources can be directed towards other crimes to protect our citizens. This is fundamentally about protecting our citizens across the UK.
With regard to Companies House, it is important to put it on record that I do not think anybody would want to criticise the staff or the job that they do, but what has happened to some consumers cannot be right. I have had constituency cases where people have bought services or goods, the company has gone bust, and they are left with nothing—neither their money back nor the items. A constituent of mine followed the individuals concerned through their registration in Companies House, and discovered that they had set up a new company and started trading again within a few weeks. She was told by the police that there was nothing that she could do because this was an entirely legitimate practice. It cannot be right that people are allowed to do that. That is why we feel that new clause 2 is so important.
Kelvin Hopkins
We have heard from earlier speakers that Companies House is desperately under-resourced, with a small number of staff. Is under-staffing a body not a simple way to make it ineffectual? It should have many more staff.
Hannah Bardell
I thank the hon. Gentleman for that point. It is also important to note the point made earlier about how difficult it was to make Companies House bigger or give it more resources or a greater remit. That seems bizarre. I sat on the Public Bill Committee on the Enterprise Bill, in which the Government, in a welcome move, introduced the Small Business Commissioner, which involved setting up a whole new organisation with new resources. The failings of Companies House, to my mind, will work against the Small Business Commissioner and give it more work.
It would be interesting to hear from the Minister on that point. Companies House needs more resource and better oversight. Companies that are not doing business properly and going about their business in the right way are surely a threat to good businesspeople across the UK. If the Government will not support new clause 2, it would be interesting to hear why.
The Panama and Paradise papers have been mentioned a number of times. We know from them that the Odessa oil mafia controls a number of British Virgin Islands companies collectively known as the Rubicon Group. One of those individuals controlled a number of BVI companies without officially declaring them, and that group owns at least eight high-end London properties worth tens of millions of pounds. The secrecy afforded to those individuals, who have questionable sources of income, has allowed them to hide their identities and their wealth.
In the point I made earlier to the hon. Member for Hornsey and Wood Green (Catherine West), I was not criticising the Labour party in any way. I was trying to get across that after the tragedy of Grenfell and given the housing crisis, the rise in homelessness and the fact that these kinds of people own 40,000 properties across London—that is four fifths of my Livingston constituency—and more than 86,000 across England and Wales, we surely face a huge issue and a massive challenge. If we want to tackle the housing crisis, this is how to do it. The Government should be doing something about it, rather than standing by and saying that we already have the powers, when we clearly do not.
I commend the Government for new clause 6, which is an excellent and positive move. However, if the Prime Minister was really serious when she took office about governing for all the people of the UK, there is a great gulf still to cross. There are some serious and important amendments tabled by Members across the Chamber that the Government could put their support behind and in doing so make a real difference to our citizens.
Question put and agreed to.
New clause 4 accordingly read a Second time, and added to the Bill.
New Clause 5
Retained EU rights
‘(1) If and to the extent that anything in the European Union (Withdrawal) Act 2018 would, in the absence of this section, prevent any power within subsection (2) from being exercised so as to modify anything which is retained EU law by virtue of section 4 of that Act (saving for certain rights etc), it does not prevent that power from being so exercised.
(2) The following powers fall within this subsection—
(a) any power conferred by this Act, or by regulations under this Act, on a Minister of the Crown within the meaning of the Ministers of the Crown Act 1975 (however that power is expressed);
(b) any power conferred by regulations under Schedule 2 on a supervisory authority.
(3) In this section “modify” has the same meaning as in the European Union (Withdrawal) Act 2018.”—(Sir Alan Duncan.)
This new clause is consequential on government amendments to the European Union (Withdrawal) Bill, and makes clear that any restrictions in that Bill on the modification of retained EU law do not prevent powers under this Bill (for example, powers to impose an asset-freeze or immigration sanction) from being exercised in cases where their exercise will interfere with a retained right that a person would otherwise have under clause 4 of the European Union (Withdrawal) Bill.
Brought up, read the First and Second time, and added to the Bill.
New Clause 15
Enforcement: goods etc on ships
‘(1) The provision that may be made by virtue of section 17(2) (enforcement of prohibitions or requirements) includes provision as to the powers and duties of prescribed persons in relation to—
(a) British ships in foreign waters or international waters,
(b) ships without nationality in international waters, and
(c) foreign ships in international waters.
(2) Regulations may make provision by virtue of this section only for the purpose of enforcing relevant prohibitions or requirements.
(3) A prohibition or requirement is a “relevant prohibition or requirement” for the purposes of this section if it is—
(a) a prohibition or requirement specified by the regulations which is imposed by regulations for a purpose mentioned in any of paragraphs 2 to 7, 15(a), (b) or (c) or 16(a) of Schedule 1, or
(b) a prohibition or requirement imposed by a condition of a licence or direction issued by virtue of section 15 in relation to a prohibition or requirement mentioned in paragraph (a).
(4) The powers that may be conferred by virtue of this section include powers to—
(a) stop a ship;
(b) board a ship;
(c) require any person found on a ship boarded by virtue of this section to provide information or produce documents;
(d) inspect and copy such documents or information;
(e) stop any person found on such a ship and search that person for—
(i) prohibited goods, or
(ii) any thing that might be used to cause physical injury or damage to property or to endanger the safety of any ship;
(f) search a ship boarded by virtue of this section, or any thing found on such a ship (including cargo), for prohibited goods;
(g) seize goods found on a ship, in any thing found on a ship, or on any person found on a ship (but see subsection (8));
(h) for the purpose of exercising a power mentioned in paragraph (e), (f) or (g), require a ship to be taken to, and remain in, a port or anchorage in the United Kingdom or any other country willing to receive it.
(5) Regulations that confer a power mentioned in subsection (4)(a) to (f) or (h) must provide that a person may not exercise the power in relation to a ship unless the person has reasonable grounds to suspect that the ship is carrying prohibited goods (and the regulations need not require the person to have reasonable grounds to suspect that an offence is being or has been committed).
(6) Regulations that confer a power mentioned in subsection (4)(e)(i) or (f) must provide that the power may be exercised only to the extent reasonably required for the purpose of discovering prohibited goods.
(7) Regulations that confer a power mentioned in subsection (4)(e)(ii) on a person (“the officer”) may permit the search of a person only where the officer has reasonable grounds to believe that that person might use a thing in a way mentioned in subsection (4)(e)(ii).
(8) Regulations that confer a power mentioned in subsection (4)(g) on a person—
(a) must provide for the power to be exercisable on a ship only where that person is lawfully on the ship (whether in exercise of powers conferred by virtue of this section or otherwise), and
(b) may permit the seizure only of—
(i) goods which that person has reasonable grounds to suspect are prohibited goods, or
(ii) things within subsection (4)(e)(ii).
(9) Regulations that confer a power on a person by virtue of this section may authorise that person to use reasonable force, if necessary, in the exercise of the power.
(10) Regulations that confer a power by virtue of this section must provide that—
(a) the power may be exercised in relation to a British ship in foreign waters only with the authority of the Secretary of State, and
(b) in relation to foreign waters other than the sea and other waters within the seaward limits of the territorial sea adjacent to any relevant British possession, the Secretary of State may give authority only if the State in whose waters the power would be exercised consents to the exercise of the power.
(11) Regulations that confer a power by virtue of this section must provide that—
(a) the power may be exercised in relation to a foreign ship only with the authority of the Secretary of State, and
(b) the Secretary of State may give authority only if—
(i) the home state has requested the assistance of the United Kingdom for the purpose of enforcing relevant prohibitions or requirements,
(ii) the home state has authorised the United Kingdom to act for that purpose, or
(iii) the United Nations Convention on the Law of the Sea 1982 (Cmnd 8941) or a UN Security Council Resolution otherwise permits the exercise of the powers in relation to the ship.
(12) The reference in subsection (11) to the United Nations Convention on the Law of the Sea includes a reference to any modifications of that Convention agreed after the passing of this Act that have entered into force in relation to the United Kingdom.
(13) In this section—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);
“British ship” means a ship falling within paragraph (a), (c), (d) or (e) of section 7(12);
“foreign ship” means a ship which—
(a) is registered in a State other than the United Kingdom, or
(b) is not so registered but is entitled to fly the flag of a State other than the United Kingdom;
“foreign waters” means the sea and other waters within the seaward limits of the territorial sea adjacent to any relevant British possession or State other than the United Kingdom;
“goods” includes technology within the meaning of Schedule 1 (see paragraph 36 of that Schedule);
“home state”, in relation to a foreign ship, means—
(a) the State in which the ship is registered, or
(b) the State whose flag the ship is otherwise entitled to fly;
“international waters” means waters beyond the territorial sea of the United Kingdom or of any other State or relevant British possession;
“prohibited goods” means goods which have been, or are being, dealt with in contravention of a relevant prohibition or requirement (see subsection (3));
“regulations” means regulations under section 1;
“relevant British possession” has the same meaning as in section 7 (see subsection (14) of that section);
“ship” has the same meaning as in section 7 (see subsection (14) of that section);
“ship without nationality” means a ship which—
(a) is not registered in, or otherwise entitled to fly the flag of, any State or relevant British possession, or
(b) sails under the flags of two or more States or relevant British possessions, or under the flags of a State and relevant British possession, using them according to convenience.
(14) In the definition of “prohibited goods” in subsection (13), the reference to goods dealt with in contravention of a relevant prohibition or requirement includes a reference to a case where—
(a) arrangements relating to goods have been entered into that have not been fully implemented, and
(b) if those arrangements were to be fully implemented, the goods would be dealt with in contravention of that prohibition or requirement.”—(Sir Alan Duncan.)
This new clause allows regulations under section 1 to provide for powers to stop and search a ship outside the United Kingdom, and to seize goods or technology found on the ship. The powers are exercisable for the purpose of enforcing prohibitions in sanctions regulations relating to the goods or technology.
Brought up, read the First and Second time, and added to the Bill.
New Clause 16
Goods etc on ships: non-UK conduct
‘(1) Regulations may make provision conferring on prescribed persons powers exercisable—
(a) in relation to—
(i) British ships in foreign waters or international waters,
(ii) ships without nationality in international waters, and
(iii) foreign ships in international waters,
(b) for the purpose of—
(i) investigating the suspected carriage of relevant goods on such ships, or
(ii) preventing the continued carriage on such ships of goods suspected to be relevant goods.
(2) The powers that may be conferred by virtue of this section include powers to—
(a) stop a ship;
(b) board a ship;
(c) require any person found on a ship boarded by virtue of this section to provide information or produce documents;
(d) inspect and copy such documents or information;
(e) stop any person found on such a ship and search that person for—
(i) relevant goods, or
(ii) any thing that might be used to cause physical injury or damage to property or to endanger the safety of any ship;
(f) search a ship boarded by virtue of this section, or any thing found on such a ship (including cargo), for relevant goods;
(g) seize goods found on a ship, in any thing found on a ship, or on any person found on a ship (but see subsection (6));
(h) for the purpose of exercising a power mentioned in paragraph (e), (f) or (g), require a ship to be taken to, and remain in, a port or anchorage in the United Kingdom or any other country willing to receive it.
(3) Regulations that confer a power mentioned in subsection (2)(a) to (f) or (h) must provide that a person may not exercise the power in relation to a ship unless the person has reasonable grounds to suspect that the ship is carrying relevant goods.
(4) Regulations that confer a power mentioned in subsection (2)(e)(i) or (f) must provide that the power may be exercised only to the extent reasonably required for the purpose of discovering relevant goods.
(5) Regulations that confer a power mentioned in subsection (2)(e)(ii) on a person (“the officer”) may permit the search of a person only where the officer has reasonable grounds to believe that that person might use a thing in a way mentioned in subsection (2)(e)(ii).
(6) Regulations that confer a power mentioned in subsection (2)(g) on a person—
(a) must provide for the power to be exercisable on a ship only where that person is lawfully on the ship (whether in exercise of powers conferred by virtue of this section or otherwise), and
(b) may permit the seizure only of—
(i) goods which that person has reasonable grounds to suspect are relevant goods, or
(ii) things within subsection (2)(e)(ii).
(7) Regulations that confer a power on a person by virtue of this section may authorise that person to use reasonable force, if necessary, in the exercise of the power.
(8) Regulations that confer a power by virtue of this section must provide that—
(a) the power may be exercised in relation to a British ship in foreign waters only with the authority of the Secretary of State, and
(b) in relation to foreign waters other than the sea and other waters within the seaward limits of the territorial sea adjacent to any relevant British possession, the Secretary of State may give authority only if the State in whose waters the power would be exercised consents to the exercise of the power.
(9) Regulations that confer a power by virtue of this section must provide that—
(a) the power may be exercised in relation to a foreign ship only with the authority of the Secretary of State, and
(b) the Secretary of State may give authority only if—
(i) the home state has requested the assistance of the United Kingdom for a purpose mentioned in subsection (1)(b),
(ii) the home state has authorised the United Kingdom to act for such a purpose, or
(iii) the United Nations Convention on the Law of the Sea 1982 (Cmnd 8941) or a UN Security Council Resolution otherwise permits the exercise of the powers in relation to the ship.
(10) The reference in subsection (9) to the United Nations Convention on the Law of the Sea includes a reference to any modifications of that Convention agreed after the passing of this Act that have entered into force in relation to the United Kingdom.
(11) In this section—
“regulations” means regulations under section 1;
“relevant goods” means goods in relation to which relevant non-UK conduct is occurring or has occurred;
“relevant non-UK conduct” means conduct outside the United Kingdom by a person other than a United Kingdom person that would constitute a contravention of a relevant prohibition or requirement if the conduct had been—
(a) in the United Kingdom, or
(b) by a United Kingdom person;
“relevant prohibition or requirement” has the same meaning as in section (Enforcement: goods etc on ships) (see subsection (3) of that section);
“United Kingdom person” has the same meaning as in section 19 (see subsection (2) of that section).
(12) In the definition of “relevant non-UK conduct” in subsection (11), the reference to conduct that would constitute a contravention of a relevant prohibition or requirement if the conduct had been in the United Kingdom or by a United Kingdom person includes a reference to a case where—
(a) arrangements relating to goods have been entered into that have not been fully implemented, and
(b) if those arrangements were to be fully implemented (and if the conduct had been in the United Kingdom or by a United Kingdom person) the goods would be dealt with in contravention of that prohibition or requirement.
(13) In this section, the following expressions have the same meaning as in section (Enforcement: goods etc on ships)—
“arrangements”,
“British ship”,
“foreign ship”,
“foreign waters”,
“goods”,
“home state”,
“international waters”,
“relevant British possession”,
“ship”, and
“ship without nationality”.”—(Sir Alan Duncan.)
This new clause allows regulations under section 1 to provide for powers to stop and search a ship outside the United Kingdom, and to seize goods or technology found on the ship. The powers are exercisable for the purpose of seizing goods or technology where there has been conduct (or suspected conduct) which would be a contravention of a prohibition in sanctions regulations relating to the goods or technology, but for the fact that the conduct falls outside the territorial scope mentioned in Clause 19 of the Bill.
Brought up, read the First and Second time, and added to the Bill.
New Clause 17
Procedure for dealing with goods etc seized from ships
‘(1) The Secretary of State may by regulations make provision about the procedure to be followed in connection with goods seized under a power conferred by regulations under section 1 by virtue of section (Enforcement: goods etc on ships) or (Goods etc on ships: non-UK conduct).
(2) Regulations under this section relating to goods seized on suspicion of being prohibited goods or relevant goods may include provision—
(a) requiring prescribed persons to be notified of the seizure of the goods;
(b) requiring the Secretary of State to determine whether the seized goods were, at the time of their seizure, prohibited goods (where the goods were seized under a power conferred by virtue of section (Enforcement: goods etc on ships)) or relevant goods (where the goods were seized under a power conferred by virtue of section (Goods etc on ships: non-UK conduct));
(c) enabling the making of a claim by prescribed persons in relation to the seized goods;
(d) about the determination by a prescribed court of any such claim;
(e) about the publicity to be given to any such determination by a court;
(f) for and about the return of seized goods to prescribed persons before or after any such determination of a claim by a court;
(g) about the treatment of seized goods not so returned (including, in prescribed circumstances, their destruction or sale);
(h) for and about the payment of compensation by the Secretary of State following a determination by a court that the goods were not, at the time of their seizure, prohibited goods (where the goods were seized under a power conferred by virtue of section (Enforcement: goods etc on ships)) or relevant goods (where the goods were seized under a power conferred by virtue of section (Goods etc on ships: non-UK conduct)).
(3) In this section—
“goods” has the same meaning as in sections (Enforcement: goods etc on ships) and (Goods etc on ships: non-UK conduct) (see subsections (13) of those sections);
“prohibited goods” has the same meaning as in section (Enforcement: goods etc on ships) (see subsection (13) of that section);
“relevant goods” has the same meaning as in section (Goods etc on ships: non-UK conduct) (see subsection (11) of that section).”—(Sir Alan Duncan.)
This new clause provides a power for the Secretary of State to make regulations setting out how goods or technology seized from ships under the new clauses which would be inserted by NC15 and NC16 must be dealt with.
Brought up, read the First and Second time, and added to the Bill.
New Clause 8
Public Register of Beneficial Owners of Overseas Entities
“(1) The Secretary of State must, in addition to the provisions made under paragraph 6 of Schedule 2, create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts.
(2) The register must be implemented within 12 months of the day on which this Act is passed.
(3) For the purposes of this section “a register of beneficial ownership for companies and other legal entities registered outside of the UK” means a public register—
(a) which contains information about overseas entities and persons with significant control over them, and
(b) which in the opinion of the Secretary of State will assist in the prevention of money laundering.”—(Anneliese Dodds.)
This new clause would create a public register of beneficial ownership information for companies and other legal entities outside of the UK that own or buy UK property, or bid for UK government contracts, within 12 months.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Madam Deputy Speaker (Mrs Eleanor Laing)
I ask the Serjeant at Arms to investigate the delay in the No Lobby.
Sir Alan Duncan
I beg to move, That the Bill be now read the Third time.
It is a great pleasure to support the concluding stage of this Bill, which has been a long time in the making. Many might say it goes back many, many decades, because in this House we can all be proud that the United Kingdom is a country that fulfils its international obligations.
Ever since countries went to war with each other, we have been part of the institutions that try to create peace and try to introduce international order under a proper rules-based system. Inevitably, as the decades pass, the world changes and new measures are needed to tackle the problems the world faces.
We are founder members of the United Nations, and we sit on the Security Council, on which we fulfil our obligations dutifully. We have been a member of the European Union for 40 years, and our membership is now drawing peacefully to a close. That means we need to restructure the manner in which we fulfil our international duties, and to that end we need to pass legislation in this House that empowers us to do the many things we want to do.
Mr Nigel Evans (Ribble Valley) (Con)
Some people who want to diminish the vote of the British people to leave the European Union tend to say that standards will drop simply by our leaving the European Union. Does not the passage of this Bill prove how wrong people can be?
Sir Alan Duncan
I am grateful to my hon. Friend for raising that serious underlying benefit of the Bill.
At the moment, we implement various sanctions. Some we implement because, as members of the United Nations, we have to do so, and others we implement because, as members of the European Union, we do so collectively with the other 27 members. The power that currently allows us to implement sanctions derives from our membership of the European Union; it is not an autonomous legal power that we have sovereign to ourselves. This Bill is therefore needed to give to us, when we leave the European Union, the autonomous powers to have a proper, effective sanctions regime.
Mr Mark Francois (Rayleigh and Wickford) (Con)
This will allow us to work on sanctions, in accordance with our allies and with the wishes of the United Nations. The Minister will recall that one argument put in the debate on the referendum was that if we left the European Union, we would be without allies, friends and influence. Does the response to the appalling crime that took place in Salisbury, when 26 countries expelled more than 130 Russian diplomats between them, not show that when it came to it, Britain had friends, allies and influence, and that those allies stood with us when it really mattered?
Sir Alan Duncan
I am grateful to my right hon. Friend because he is absolutely right to say that in this dangerous and unstable world it is very important that there are moments when we act collectively. We do so through many forums: we are a member of the P5—a permanent member of the UN Security Council; we are a member of the G7, G20 and NATO; and, crucially, we are the only major western power to spend 0.7% of our national income on international development. We are therefore in a good position to retain our influence in the world, and we will do so partly by the powers we are taking under this Bill. It will allow us to continue to implement UN sanctions and to implement our own sanctions, no doubt often in concert with the remaining 27 members of the EU.
John Howell (Henley) (Con)
Does the Minister acknowledge, as I do, how important this Bill is in the context of dealing with terrorist money? Only last week, in the Council of Europe, we had a debate about trying to prevent the flow of funds that kept terrorist organisations, and Daesh in particular, afloat. This Bill will play a major role in helping towards that.
Sir Alan Duncan
As I have said, this Bill will not only ensure that we have the power to comply with our obligations under the UN charter but allow us to support our wider foreign policy and national security goals after we leave the EU. The powers and purposes in the Bill give us wide scope for applying sanctions wherever we think those powers need to be used in order to assist our foreign policy goals, and indeed for the wider decency and morality of the world of which we are a part. The Bill will enable us to keep up to date with anti-money laundering and counter-terrorist financing measures. It is an important piece of legislation, ensuring maximum continuity and certainty for individuals, businesses and international partners.
This Bill was one of the first pieces of legislation relating to the UK leaving the EU to come before Parliament. There were many uncertainties over how it would be received, but I feel it left the other place in good shape, mostly due to the brilliant stewardship of my ministerial colleague Lord Ahmad of Wimbledon. I am sure that, like me, this House would like to thank him for the way he steered this through the House of Lords, the Chamber in which it started.
I am grateful that Members of this House have similarly recognised the importance of this piece of legislation, and of the requirement to have the legal powers in place to impose, update and lift sanctions regulations, and change our anti-money laundering framework, once we leave the EU.
Luke Graham
Earlier this afternoon, this House accepted new clause 6, which puts new obligations on our overseas territories. Will my right hon. Friend assure the House and the overseas territories that we are not going to legislate and forget? Will he confirm that Members and the Government need to support our overseas territories to help them comply with the legislation we have passed this afternoon?
Sir Alan Duncan
I am very happy to say that very fulsomely, because during our debate on the decision to adopt new clause 6 I was at pains to say that we are not going to desert the overseas territories, or indeed the Crown dependencies. We are fully supportive of them. We are going to work very much with them and, I hope, with the grain of their own efforts. We are not, in any way, going to sell them down the river. May I say very publicly here, and to those in the overseas territories who may be able to see and take note of this, that we are and we remain full supporters of the overseas territories, that we will fulfil our obligations to them without reservation and that we are not going to dilute our efforts in doing so?
Victoria Prentis (Banbury) (Con)
The Minister is famed for his considerable charm and experience in overseas negotiations. Will he give the House some detail about how he is going to help the overseas territories to work with the new obligations?
Sir Alan Duncan
I will indeed.
We have had spirited discussions on many aspects of the Bill, both on the Floor of the House and in the Public Bill Committee. I thank in particular the Bill team, who have given up pretty much a year of their lives to work on every dot, comma and detail of the legislation. They have been dutiful, punctilious and hard-working. They have been burning the midnight oil and have put up with my occasional tetchiness—
Sir Alan Duncan
I salute them for all their efforts.
On what my hon. Friend the Member for Banbury (Victoria Prentis) said about the overseas territories, I am grateful that, in response to the point of order made by my hon. and learned Friend the Member for Torridge and West Devon (Mr Cox), Mr Speaker made it absolutely clear that procedurally the Government’s proposed amendments were in order. The compromise amendment was tabled rather late in the day, but it was not out of order for being late. We fully recognise that the Speaker has the discretion to select or not to select an amendment for debate. We were obviously disappointed that the compromise amendment was not selected, but we respect Mr Speaker’s decision.
Sir Alan Duncan
I am very short of time. Does the shadow Minister wish to speak?
Sir Alan Duncan
She does; I shall therefore not take an intervention so that I can leave a couple of minutes for her.
I thank my right hon. and hon. Friends on the Government Benches who would have supported the compromise amendment. I apologise if I marched them up to the top of the hill only for them to find that the hill had disappeared. I put on record my thanks to all who have helped with the Bill and, indeed, my thanks to the Opposition Front-Bench team for their co-operation on Magnitsky. Out of courtesy and shortness of time, with apologies for leaving her so little of it, I leave the last couple of minutes to the shadow Minister.
Helen Goodman
When the Minister began with his historical overview, I thought he was going to go back to Thucydides, who was of course the first person to write about sanctions; but no, his history was not quite so extensive.
The Opposition accept the need for this Bill in the post-Brexit environment. When it was first introduced in the other place, it had several major flaws. It presented a bundle of Henry VIII powers that gave the Government and the Executive too much power. An effective coalition of Labour and Cross-Bench peers improved the Bill substantially.
Another weakness of the Bill was that, although it was titled the Sanctions and Anti-Money Laundering Bill, only one of its 53 clauses was devoted to anti-money laundering. Through a series of measures, both those that the Government did not support and those that they were forced to support, we have inserted stronger anti-money laundering provisions.
When the Bill came to this House, it was clear that more needed to be done on the human rights front. We tabled Magnitsky amendments, and we are pleased that the House is now united on the need for a Magnitsky law in this country. The Paradise and Panama papers have shown how British overseas territories and Crown dependencies play a major role in aiding tax evasion and money laundering. Without the great investigative journalism, many of the cases to which we have referred might never have been uncovered. Under David Cameron’s Administration, the Government promised to extend the United Kingdom’s—
Sanctions and Anti-Money Laundering Bill [HL]
Monday 21st May 2018
(6 years, 6 months ago)
Lords ChamberRead Full debate Sanctions and Anti-Money Laundering Act 2018 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 101-I Marshalled list for consideration of Commons amendments (PDF, 96KB) - (18 May 2018)
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendments 1 to 3.
“(ea) provide accountability for or be a deterrent to gross violations of human rights, or otherwise promote—
(i) compliance with international human rights law, or
(ii) respect for human rights,”
The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)
My Lords, the abuse of human rights was an issue of significant concern to both your Lordships’ House and the other place, as was made clear by many people who spoke at various stages of the Bill. The Government fully recognise why noble Lords and Members of the other place wished to reference gross human rights abuses explicitly, particularly in reference to the abhorrent case of Sergei Magnitsky. In her speech to the other House on 14 March, the Prime Minister made clear the Government’s intention to bring forward a “Magnitsky amendment” to the Bill. As a result, the Government worked closely and constructively with all sides of the other House to table these amendments, which have captured the maximum possible consensus in this area.
Commons Amendment 1 puts gross human rights abuses in the Bill as a purpose for which sanctions may be imposed. Commons Amendment 5 links the existing definition of a,
“gross violation of human rights”,
to the definition in the Proceeds of Crime Act 2002, and so ensures that it includes the torture of a person,
“by a public official, or a person acting in an official capacity”,
where the tortured person has sought to,
“expose illegal activity carried out by a public official”,
or to defend,
“human rights and fundamental freedoms”.
This makes it clear that all gross human rights abuses or violations are explicitly captured within the Bill. Commons Amendments 2, 3, 6, 7, 8, 14, 15, 19 and 20 are consequential on the changes to Clause 1.
Amendment 17 requires reports to be made about the use of the power to make sanctions regulations. Reports must identify regulations that have been made for human rights purposes. They must also specify any recommendations made by a parliamentary committee about the use of that power in relation to gross human rights violations, and include the Government’s response to any recommendations. It is right and proper that scrutiny of the regulations is carried out by Parliament.
Commons Amendment 16 was tabled in recognition of the concerns, raised by both the Independent Reviewer of Terrorism Legislation and the Joint Committee on Human Rights, that the repeal of Part 1 of the Terrorist Asset-Freezing etc. Act 2010—TAFA—would remove the independent reviewer’s oversight of the UK’s counter-terrorism asset freezes. I can assure all noble Lords that there was never any intention by the Government to remove independent oversight of the UK’s counter- terrorism asset-freezing regulations made under this Bill. That is why a carefully drafted government amendment was tabled in the other place to replicate effectively the scope of the independent oversight currently provided under TAFA. This ensures that there will be no removal or narrowing of the oversight of counterterrorism asset freezes as a result of the Bill.
The amendment also makes the Government’s commitment to this clear by imposing a duty to appoint an independent reviewer. The duty applies to any part of sanctions regulations that imposes asset freezes that are not made for a purpose that implements international obligations in this area but would further the prevention of terrorism. This is consistent with the scope of the independent oversight provided for under TAFA, thereby ensuring there is no removal or narrowing of the oversight of counterterrorism asset freezes as a result of the Bill.
I put it on record again that the Government are committed to promoting and strengthening universal human rights, and holding to account states and individuals responsible for the most serious violations. We will continue to do this after we leave the European Union and we intend that the powers in the Bill should allow us to be part of a global network of like-minded jurisdictions, working together to tackle those who commit gross human rights violations. We will continue to work with international partners to this end. I beg to move.
Lord Anderson of Swansea (Lab)
My Lords, it is good to turn to a period of calm after the clash and clamour of Brexit. I congratulate the Government on responding to the pressures in this House and the other place, and on taking a stand that I hope will be followed by other countries where appropriate. The current amendments relate to sanctions on the perpetrators of human rights abuses, wherever committed, and against individuals rather than states. They are therefore smart sanctions and I congratulate Sir Alan Duncan in the other place and those who have worked together. The Minister stressed that it was an all-party group and I believe the amendments in the other place were signed by all parties. This is therefore very important.
I congratulate also Bill Browder, who has worked tirelessly following the murder in custody of Sergei Magnitsky. These amendments are made in the context of the poisoning of Sergei and Yulia Skripal in Salisbury and the murder of Magnitsky in Russia in 2009, but they are clearly not limited to Russia. They are much broader and universal, just as the Magnitsky Act of 2012 in the US was, in 2016, broadened to include perpetrators of gross human rights abuses wherever committed. As the Prime Minister has said:
“There is no place for these people—or their money—in our country”.
Lord Faulks (Con)
My Lords, I endorse everything that the noble Lord, Lord Anderson, rightly said. These matters were a concern across party in both the House of Commons and your Lordships’ House. The Magnitsky law was somewhat incomplete after the Criminal Finances Bill was enacted, and this is a necessary completion of those reforms. I share the noble Lord’s concern that, in our enthusiasm, we must not lose sight of the need for safeguards. This measure seems to be welcome not only here but in a number of other jurisdictions, and I agree that we should continue to do all we can to encourage its take-up worldwide.
Baroness Northover (LD)
My Lords, we, too, welcome Amendment 1 and the consequential amendments, which are the concession made by the Government in the Commons explicitly to include gross human rights abuses in the Bill, recognising the vote in the House of Lords led by the noble Lord, Lord Pannick, and others. We also welcome Amendment 16, which deals with the concern raised by the Independent Reviewer of Terrorism Legislation and the Joint Committee on Human Rights. We also welcome Amendment 17, requiring the Government to make periodic reports on the use of powers to make sanctions. How frequently may those occur and what form may they take? Most of all, I thank the Government for listening to the views expressed here and hope that we can take heart in relation to other legislation and votes we have seen in recent times.
Lord Hain (Lab)
My Lords, I, too, welcome government Amendment 1 and its associated amendments and applaud the Minister for the way he has spoken forthrightly on the human rights agenda and stewarded the Bill, which is a case study in how a Government and a Minister should and can respond to amendments from the Opposition, the Liberal Democrats and Cross-Benchers.
At the same time, I crave the indulgence of the Minister, the Whip sitting next to him and your Lordships’ House in returning to a subject which I have raised before—which, I am authoritatively told, has had some impact on the welcome change in the leadership of South Africa. This week marks South African President Cyril Ramaphosa’s first 100 days in office. I will be brief, but the official state money laundering and corruption virus he inherited from President Zuma is significantly more virulent and pervasive than even Ramaphosa could have anticipated, made immeasurably worse by the complicity of UK-based global corporates.
Take Hogan Lovells, the international law firm headquartered here in London and in Washington, its role starkly exposed in documents recently released to the parliamentary finance committee in South Africa. In your Lordships’ House, Report on the Bill on 15 January, I first criticised its role for whitewashing corruption by Tom Moyane, chief of the South African Revenue Service, now suspended by the new President. According to these documents, Hogan Lovells kept silent even when its findings related to money laundering and corruption by Moyane’s former deputy, Jonas Makwakwa, and even after Moyane misled the South African Parliament. Through its despicable, fee-grabbing complicity, Hogan Lovells spared these two notorious perpetrators of state capture in South Africa from accountability for their complicity in, and cover up of, serious criminal behaviour, including money laundering and corruption.
At the same time, Hogan Lovells has been undermining the criminal justice system in a series of other cases, as proven by the fearless Forensics for Justice NGO investigator, Paul O’Sullivan. Effectively, Hogan Lovells was acting as former President Zuma’s legal fudger-in-chief.
Brave investigative journalist Pauli van Wyk has exposed lies by the senior partner of Hogan Lovells in South Africa, Mr Lavery Modise. In the Daily Maverick, she pointed out:
“Despite having the benefit of the report by Price Waterhouse Coopers (who actually conducted the investigation), Modise and his team ultimately charged Makwakwa with everything he could explain, and with exactly nothing that he previously struggled to explain, or simply refuse to account for”.
Indeed, the more serious allegations in the PwC report were carefully filtered out of Hogan Lovells’s report, and the firm did not point out that Moyane was preventing critical evidence from being given to PwC.
Hogan Lovells’s most specious piece of lawyer sophistry was to claim that it could look only at the employer-employee issue involved and not at any criminal issue, giving the excuse that the employee, Makwakwa, could otherwise implicate himself. Surely all good employers, and indeed employees, should report on any criminality at their workplace, and surely even more so in the vital state revenue agency when the crime relates to money laundering and tax evasion. Effectively, Hogan Lovells turned a blind eye to the looting of the tax agency. It took a fat fee and ignored the truth. Most astonishing to me is that Hogan Lovells still refuses to acknowledge, let alone apologise for, its complicity, thereby actively supporting those still trying to undermine President Ramaphosa’s reform programme.
The behaviour of Hogan Lovells in South Africa is a classic example of a British-based company obfuscating its behaviour, using the complexities afforded by the law, including client confidentiality, to conceal the crimes of money laundering and corruption. Hogan Lovells fits exactly the behaviour exposed by investigator Pauli van Wyk when she concluded:
“The tale of State Capture ... co-exists in a mutually parasitic relationship where the public purse is the feeding ground and corporates are the enablers and agents of whitewash”.
British based corporates such as Hogan Lovells should be supporting, not thwarting, President Ramaphosa’s anti-money laundering agenda.
The Solicitors Regulatory Authority has now declared that Hogan Lovells South Africa is a “connected party” to its UK firm and I therefore request—I hope that I will have the Minister’s support—that the SRA withdraws recognition from Hogan Lovells UK and suspends its UK senior partners from practising here for its scandalous activities in South Africa. I also ask British Ministers to ensure that Hogan Lovells UK receives no more UK public sector contracts until it at least apologises for its shameful and shameless South African role. Additionally I can report that, after I raised this matter at Second Reading in November, the Financial Conduct Authority has recently informed me that it is engaging with the whistleblower who has supplied evidence that I believe should see HSBC prosecuted for conspiracy for facilitating money laundering.
I conclude: unless Ministers ensure that there are penalties for UK-based corporates like Hogan Lovells, HSBC, the Bank of Baroda, Standard Chartered, Bell Pottinger, KPMG, McKinsey—and who knows how many others?—for their complicity in protecting criminals engaged in money laundering in the South African case, I am afraid this legislation will not be worth a candle.
Lord Pannick (CB)
The Minister was asked about safeguards. Can he confirm that the safeguards in the Bill, which we debated at great length in its various stages to ensure fairness to those listed, will apply in exactly the same way to those persons accused of human rights violations as they apply to all those listed for other reasons under the Bill?
Lord Collins of Highbury (Lab)
My Lords, I will be very brief. The noble Lord, Lord Anderson, asked the questions that I considered appropriate. I will not delay the House, but will repeat what the noble Lord, Lord Pannick, said in terms of an amendment we jointly agreed to, ensuring that fair process is considered in relation to this aspect of the Bill.
I very much join other noble Lords in welcoming the Government’s change of heart. There was opposition from the Government on these principles, and we had a successful amendment on human rights being the centre of foreign policy.
I welcome completely the noble Lord’s commitment. My honourable friend Helen Goodman also took the rather unusual step of signing the Government’s Magnitsky amendments, despite the fact that, in Committee, the Government had opposed her own amendments. I welcome very much the new consensus and hope that it is a sign that we can move forward with greater clarity in terms of foreign policy and human rights.
Lord Ahmad of Wimbledon
My Lords, I am grateful to all noble Lords who have taken part in this short debate. From the outset, I thank Members for their engagement during this Bill, both in your Lordships’ House or in the other place. I commend the efforts of the noble Lord, Lord Pannick, my noble friend Lord Faulks and others who over a lengthy period of time, from all sides of the Chamber, have talked on the importance of such a clause. I am mindful that I do not see the noble Baroness, Lady Kennedy, in her place, but I know that she has a Private Member’s Bill in this respect as well, and I acknowledge her efforts in that regard.
I shall pick up on the specific points. The noble Lord, Lord Anderson, asked when the Bill was likely to be implemented in relation to all things considered around Brexit. As he acknowledges, the Bill provides the framework to impose sanctions, and under the Bill will sit a series of regulations that will put specific sanctions regimes into place. This will be done in accordance with the timetable of Brexit. He also asked about the implementation period, which we will have to take into account. As some of the specifics come on board on this, I shall share them with your Lordships’ House. He also asked about the procedure for listing individuals. The sanctions regulations will be set out, and the activities targeted by sanctions. If the Minister concerned has sufficient evidence to meet the thresholds in the Bill, they can place a person on an administrative list of designated persons to whom sanctions apply. That list will also be made public.
The noble Lord, Lord Anderson, and my noble friend Lord Faulks asked about encouraging others. As I have said during the Bill, when it comes to sanctions generally—and specifically on this clause—I can assure them that the UK will continue to play a leading and constructive role. As such, we will continue to work with all our international partners to achieve the maximum consensus possible on issues of concern to the UK, including those in these clauses.
I thank the noble Baroness, Lady Northover, and her team for her engagement on this Bill. She asked specifically about the reports and their frequency. They will be made annually, and the report to Parliament will also be laid before Parliament as well.
The noble Lord, Lord Hain, raised important issues around South Africa and the SRA’s withdrawal of the registration around Hogan Lovells. I have listened, as I always do, to his various contributions very carefully, and shall ensure that his concerns are relayed to the relevant departments and authorities.
The noble Lord, Lord Pannick, asked whether the Minister can confirm whether safeguards could apply on HR sanctions. I am always mindful when he asks questions because he knows the answer already, and I am pleased to answer very shortly and succinctly—yes, they will.
Lord Ahmad of Wimbledon
Moved by
That this House do agree with the Commons in their Amendment 4.
Lord Ahmad of Wimbledon
My Lords, this amendment relates to the important area of enforcing trade sanctions on board ships outside of UK territorial waters. I know that the noble Lord, Lord Collins, has an amendment in this respect, and I am cognisant that the Delegated Powers and Regulatory Reform Committee has expressed some concerns. I assure him and your Lordships’ House that I commit to respond to the committee in writing. In the meantime, I hope that I can reassure noble Lords about the necessity and appropriateness of these powers.
In a moment, I will turn to the specific issues which the committee has raised. I want to make it clear from the outset that these powers are needed to address exceptional and potentially dangerous situations in which goods sanctioned by the UK are being transported to or from a sanctioned country in international and foreign waters; to ensure adherence to the standards set out in the relevant UN Security Council resolutions; and to provide protection against the transportation of dangerous and harmful goods in international waters—strengthening our ability to counter foreign policy and national security threats via the enforcement of sanctions regimes. Especially in light of recent events, noble Lords will appreciate that it is both necessary and important for the UK to have such powers and that is why we have sought to include these clauses.
Amendment 11 would enable UK officials to board and search ships where there are reasonable grounds to suspect that the ship is carrying sanctioned goods or technology. Amendment 12 also allows these powers to be exercised in circumstances where Amendment 11 does not apply but where there are reasonable grounds to suspect that the ship is carrying goods that would be sanctioned if there were a UK link. The powers could be exercised against British ships in both foreign and international waters, and against foreign and stateless ships in international waters. These clauses would also allow officials to seize goods that are being dealt with in contravention, or deemed contravention, of sanctions regulations.
Amendment 18 would allow the procedures for dealing with goods once seized to be set out in regulations. We expect these powers to be exercised, for example, in circumstances where the UK is aware that a ship is carrying goods such as components of chemical weapons, military materials heading towards a conflict zone in breach of an arms embargo, or even illicit nuclear materials heading towards a sanctioned state.
The clauses contain important safeguards limiting the use of these powers. The Bill makes it clear that there must be reasonable grounds to suspect that the ship in question is carrying sanctioned goods before any action can be taken. Further, consent from a foreign state is required before these powers can be exercised in relation to a British ship in foreign waters. The powers may be exercised in relation to a foreign ship in international waters only with the authorisation of the Secretary of State, which may be given only in certain limited circumstances, thereby ensuring that these powers will be used only on foreign ships with either flag-state consent or under the authority of international law. Where there is no flag state, as in the case of a stateless ship, such safeguards are not required as the ship is not subject to the jurisdiction of, and protection from, any other state.
These powers are analogous to those contained in other provisions of domestic legislation. For example, Chapter 5 of the Policing and Crime Act 2017 allows for these same powers to be exercised in circumstances where there are reasonable grounds to suspect that an offence under the law of England and Wales is being committed on board a ship in international waters. We intend to confer these new powers on the same UK authorities which are already capable of exercising those existing powers, namely constables, NCA officers and customs officials. In addition, we intend to add commissioned officers of Her Majesty’s ships to that list, as we expect that the Navy is likely to be the authority best placed to exercise these powers in respect of ships in international waters. This is not a novel approach as such officers are, for example, already designated maritime enforcement officers under the Criminal Justice (International Co-operation) Act 1990.
I draw noble Lords’ attention to the fact that the various maritime enforcement powers contained in existing legislation go further in some respects. For example, they allow for the arrest and detention of persons on board the ship. The purpose of these powers is not to target individuals, but to ensure that we can prevent the improper transportation of goods to or from a sanctioned country. These maritime powers are both necessary and important because the UK has legal obligations to enforce sanctions regimes on board British ships whether these ships are in domestic waters or not, which these powers will allow us to do. The UK also has legal obligations to seize and dispose of UN-sanctioned goods; we will be able to meet those under these powers. The UN Security Council also calls on the UK to search foreign ships for such goods, and expects the same approach to be taken in relation to stateless ships. The powers contained in this clause will allow us to do this as well.
On the concerns raised by the Delegated Powers and Regulatory Reform Committee in particular, I will explain why these amendments provide for the powers to be set out in regulations. This mirrors the approach that has been taken to the sanctions Bill as a whole. The Bill sets out the framework to be applied in sanctions regulations. The purpose of these maritime powers is to enforce UK trade sanctions, and so they should be exercisable in relation to any country on which trade sanctions have been imposed by the United Kingdom. For the sake of clarity and accessibility, it makes sense for there to be one regulation per sanctions regime which sets out all the detail pertaining to that regime, and that includes these powers.
However, it must be remembered that almost all the detail around these powers has been set out in the primary legislation already: the nature of the coercive powers that may be exercised, the circumstances in which these powers must be exercised, and the nature of the procedure that is to be followed when goods have been seized under these powers. Ministers therefore have very little discretion about what can be set out in the regulations in relation to these powers. For this reason, we consider this approach to be appropriate. For the same reasons, we consider that there is no reason for any additional parliamentary scrutiny of sanctions regulations based on the inclusion of these powers in those regulations, beyond the parliamentary scrutiny already provided for in the Bill in relation to those regulations.
The Delegated Powers Committee has also raised concerns about the particular wording of Amendments 11 and 12 and about whether the powers set out there are a non-exhaustive list. I reassure noble Lords that there is no intention to exercise any coercive powers that are not explicitly set out in Amendments 11 and 12. Indeed, if the intention was to have additional powers to take any other coercive action of the sort provided for in these amendments, one would expect the primary legislation to set out those additional powers, and it does not do so.
Turning briefly to the other amendments in this group, Amendments 4, 13, 23 and 30 are consequential on these clauses. Amendment 4 would ensure that the reference to supplemental provision, in Clause 1, includes these clauses. Amendment 13 ensures that the exercise of these powers in international and foreign waters is not limited by Clause 19 on extraterritorial application. Amendment 23 would ensure that the Bill does not affect powers exercised by the royal prerogative in relation to ships, and Amendment 30 would allow amendments to be made to the Customs and Excise Management Act to be able to properly enforce UK sanctions.
These maritime powers are necessary and important to ensure that we can take steps against the transportation of dangerous and harmful goods in international waters. Their inclusion in the Bill is an important step in enhancing the integrity and impact of sanctions regimes. I beg to move.
Lord Collins of Highbury
My Lords, I read the report of the Delegated Powers Committee on Friday and thought that I needed to act immediately, because I wanted to ensure that this House had the opportunity to fully debate its implications. I welcome what the Minister said and his commitment to respond fully to the committee’s report.
With regard to the powers, one of the biggest concerns at Second Reading in this House, through to Committee, has been the power grab—the concept of legislation being made by regulation, which seems to be expanding the whole time. I was particularly concerned about Clause 4 and how its powers appear not to be limited. I know that we have safeguards in the Bill, and I thank the noble Lord, Lord Pannick, and the noble and learned Lord, Lord Judge, who is not in his place, for moving substantial amendments, which the Government listened to, on how you can confine and constrain the powers that are needed. We know that at some time in the future, a Government will simply look at what the law gives them power to do and use it, because it could apply in different circumstances. Therefore I was responding in particular to Clause 4 and the committee’s report. I hear what the Minister said about the safeguards and the constraints on Ministers in making regulations, and I hope that other noble Lords will be satisfied with the response. At this stage, I am.
Baroness Northover
My Lords, as the Minister will know, and as the noble Lord, Lord Collins, expressed, the Delegated Powers Committee was very concerned about Amendments 11 and 12. I must say that I found it astonishing to read that yet again, at this late stage of the Bill, the same issues are coming up that we had at the beginning, and to hear the Delegated Powers Committee noting,
“the Department’s failure to explain the width of the powers being granted, and why it is not possible to limit the powers … and to specify on the face of the Bill the persons who are to exercise the powers”.
I hear what the Minister says. I note that the Delegated Powers Committee is reluctantly saying that, if the Lords accepts the way that these amendments have come forward, the powers should be subject to the affirmative procedure in both cases. I wonder what the noble Lord, Lord Pannick, makes of the amendments.
Lord Pannick
I am very disappointed—at other noble Lords are—at the approach of the Government. All these points were fully debated at Second Reading, in Committee and on Report, and the constant theme across the House was that it was vital to constrain the powers that Ministers were giving themselves in relation to the Bill. The Minister was very receptive to those concerns and accepted a number of amendments, and it is therefore very disappointing that at this very late stage we see again the same vice. So I share the disappointment and regret that, given the stage we are at, it is too late to do anything about it. But I hope that the Minister will take back to his department our concern and the promise—it is not a threat—that, if similar powers are put before us in another Bill, no doubt noble Lords will have more to say about it.
Lord Ahmad of Wimbledon
My Lords, I thank noble Lords for their comments on this amendment and, of course, I have noted what all noble Lords said and the concerns they expressed. Let me assure them once again—I mention in particular the noble Baroness, who mentioned Amendments 11 and 12—that I will address specifically the powers of the Minister, and give the assurance once again that a detailed response will be provided to the Delegated Powers Committee. I am seeking to ensure that this response will be provided before the Recess.
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendments 5 to 8.
“(6A) In this Act any reference to a gross violation of human rights is to conduct which—
(a) constitutes, or
(b) is connected with,
the commission of a gross human rights abuse or violation; and whether conduct constitutes or is connected with the commission of such an abuse or violation is to be determined in accordance with section 241A of the Proceeds of Crime Act 2002.”
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendments 9 and 10.
“( ) Regulations—
(a) may create criminal offences for the purposes of the enforcement of prohibitions or requirements mentioned in subsection (2)(a) or (b) or for the purposes of preventing such prohibitions or requirements from being circumvented, and
(b) may include provision dealing with matters relating to any offences created for such purposes by regulations (including provision that creates defences).
( ) Regulations may not provide for an offence under regulations to be punishable with imprisonment for a period exceeding—
(a) in the case of conviction on indictment, 10 years;
(b) in the case of summary conviction—
(i) in relation to England and Wales, 12 months or, in relation to offences committed before section 154(1) of the Criminal Justice Act 2003 comes into force, 6 months;
(ii) in relation to Scotland, 12 months;
(iii) in relation to Northern Ireland, 6 months.”
“Report in respect of offences in regulations
(1) In this section “relevant regulations” means regulations under section 1 which create any offence for the purposes of—
(a) the enforcement of any prohibitions or requirements imposed by or under regulations under section 1, or
(b) preventing any such prohibitions or requirements from being circumvented.
(2) The appropriate Minister making any relevant regulations (“the Minister”) must at the required time lay before Parliament a report which—
(a) specifies the offences created by the regulations, indicating the prohibitions or requirements to which those offences relate,
(b) states that the Minister considers that there are good reasons for those prohibitions or requirements to be enforceable by criminal proceedings and explains why the Minister is of that opinion, and
(c) in the case of any of those offences which are punishable with imprisonment—
(i) states the maximum terms of imprisonment that apply to those offences,
(ii) states that the Minister considers that there are good reasons for those maximum terms, and
(iii) explains why the Minister is of that opinion.
(3) Subsection (4) applies where an offence created by the regulations relates to a particular prohibition or requirement and the Minister considers that a good reason—
(a) for that prohibition or requirement to be enforceable by criminal proceedings, or
(b) for a particular maximum term of imprisonment to apply to that offence,
is consistency with another enactment relating to the enforcement of a similar prohibition or requirement.
(4) The report must identify that other enactment.
(5) In subsection (3) “another enactment” means any provision of or made under an Act, other than a provision of the regulations to which the report relates.
(6) In subsection (2) “the required time” means—
(a) in the case of regulations contained in a statutory instrument which is laid before Parliament after being made, the same time as the instrument is laid before Parliament;
(b) in the case of regulations contained in a statutory instrument a draft of which is laid before Parliament, the same time as the draft is laid.
(7) This section applies to regulations which amend other regulations under section 1 so as to create an offence as it applies to regulations which otherwise create an offence.”
Lord Ahmad of Wimbledon
My Lords, we now come to the important issue of criminal offences. This group of amendments would allow powers in the Bill to be used to create criminal offences and penalties in regulations for both sanctions and money laundering breaches, subject to new safeguards.
I say at the outset that I recognise that your Lordships’ House had serious concerns about the inclusion of these powers, and the noble and learned Lord, Lord Judge, in particular, remains very concerned. I assure all noble Lords that once the Bill left your Lordships’ House we continued to listen to those concerns and have sought to address them. That is why these amendments also include an important new procedural safeguard of a requirement to report to Parliament, meaning that the Government have to inform Parliament specifically about the use of the powers to create criminal offences in secondary legislation. This is intended to enable Parliament to be better informed about the use of these powers and to be able to properly hold the Minister to account.
I shall go through each of the amendments in more detail. Amendments 9 and 21 restore the ability to provide for criminal offences and penalties in sanctions and money laundering regulations. In tabling these amendments, I acknowledge your Lordships’ recognition of the importance of rigorous anti-money laundering and sanctions regimes. In order to ensure the robustness of future sanctions and anti-money laundering regulations, corresponding powers to create criminal offences for breaches of those future regimes are necessary so as to preserve the ability of future Governments to impose effective and dissuasive sanctions for breaches of regulations.
I recognise that some in your Lordships’ House had concerns about the scope of these powers when the Bill was first introduced. These amendments address those concerns through additional safeguards, which must be met before the powers can be used. When I come to Amendments 31, 32 and 34, I shall elaborate upon the safeguards, which the Government have discussed with noble Lords since the Bill’s passage through this House.
The amendments restore our ability to enforce sanctions. As noble Lords are aware, sanctions are used to prevent serious threats to national and international peace and security. It is therefore right that breach of them is a criminal offence, and it is also right that penalties should be set at a level that acts as a proper deterrent for these serious crimes. The Bill gives us the ability to set penalties at up to 10 years’ imprisonment, but that does not mean that we will set them at the maximum in every case.
In respect of trade sanctions, offences for breaches of prohibitions made under the Export Control Act 2002 all have maximum penalties of 10 years’ imprisonment. That does not apply to the trade sanction prohibitions created under the European Communities Act 1972, which are capped at two years’ imprisonment, despite the breaches being just as serious a matter. This Bill will enable us to remedy that disparity by harmonising maximum penalties for breaches of all trade sanctions at 10 years.
Currently, breaches of financial sanctions can be punished by up to seven years’ imprisonment, and we plan to continue to set penalties at this level for financial sanctions. We also plan for breaches of other sanctions, such as transport sanctions, to have penalties set to match this level. There will also be offences, such as the failure to provide information when required to do so by law, that require lesser penalties, such as up to two years’ imprisonment, and we do not plan to increase penalties in those areas either.
I have set out in previous debates how the enforceability of new regulations would be seriously weakened without the power to create criminal offences, and how it is not unusual for requirements in delegated legislation to be enforced using criminal penalties. I now turn to the procedural safeguards we have introduced, which I hope will constitute sufficient reassurance to noble Lords who have expressed concerns.
Amendments 10, 25 and 32 introduce the important safeguard of requiring the Government to lay a report before Parliament whenever criminal offences are created or amended in sanctions regulations made under Clause 1 or in anti-money laundering regulations made under Clause 43. The amendments require the report to be laid at the same time as the regulations are laid or when the draft statutory instrument containing the relevant regulations is laid, depending on which parliamentary procedure is used. The report will facilitate effective parliamentary scrutiny of future use of criminal offences in sanctions regulations and goes further than the status quo in enabling Parliament to scrutinise the creation of criminal offences through sanctions or money laundering regulations.
The amendment specifies what elements should be included in these reports. Specifically, this will include: first, the details of the offences that have been created and the requirements to which they refer; secondly, the good reasons why a breach of these requirements should be enforced via criminal offences; thirdly, the maximum prison terms for any offences created which are punishable by imprisonment; and, fourthly, the reasons why those maximum terms have been set at the level they have. I trust noble Lords will agree that these reports will provide increased transparency as to the reasons for creating future criminal offences, and so give both Houses of Parliament a new and solid basis for holding the Government to account on the use of these powers when debating regulations made under the Bill. Nevertheless, the Government remain very aware that creating criminal offences and setting penalties in regulations is a serious matter and not one to be undertaken lightly. We hope that these amendments address that.
I would also like to take this opportunity to assure your Lordships’ House that the requirement contained in Amendment 25—for a Minister, when for whatever reason a report is not laid on time, to make a statement about that failure to the House—does not in any way circumvent the obligation to make the statement. It is an additional requirement, meant to create a further obligation to Parliament that if, for example, there has been some administrative error in publishing a statement, Ministers must provide an explanation to Parliament for that failure.
Amendment 31 is consequential to new paragraph 20A inserted by Amendment 32. The envisaged paragraph 20A(1) of Schedule 2 clarifies the scope of potential offences created for the purposes of the enforcement of requirements imposed by or under regulations under Clause 43.
Amendment 32 also makes the power to create criminal offences in money laundering regulations subject to the requirement for a report to Parliament along the same lines as the amendments for Part 1 of the Bill. This amendment clarifies that the scope of the power for creating future offences is restricted to offences for the purposes of enforcing future anti-money laundering regulations. It is both necessary and, importantly, proportionate.
Amendment 34 ensures that references made to regulations made under Clause 43, with respect to paragraph 15 of Schedule 2, and requirements imposed by regulations made under Clause 43, with respect to paragraph 20A of Schedule 2, also include reference to or requirements imposed by the Money Laundering Regulations 2017. This amendment ensures that new money laundering offences can be created by amending the Money Laundering Regulations 2017. It will therefore enable the Government to create new offences in order to respond, for example, to emerging risks identified by the national risk assessment of money laundering and terrorist financing, which was published in October of last year, or in response to the ongoing review by the Financial Action Task Force of the UK’s anti-money laundering and counterterrorist finance regime. I beg to move.
Lord Pannick
My Lords, in the early stages of this Bill, my noble and learned friend Lord Judge, who is not in his place, expressed the concerns that many of us felt about Ministers being given a power to create new criminal offences and, indeed, to specify maximum sentences. I am very pleased that the Government have recognised a need for safeguards in this context. This is an exceptional circumstance, and I very much hope that the Government will not see this as a precedent to be used in other contexts.
Baroness Northover
My Lords, the potential creation of new criminal offences by Ministers was of course the subject of major debate in the Lords, and the Government were defeated. It is the Government’s compromise that we are considering here. I know that the Government and the noble and learned Lord, Lord Judge, spent a great deal of time on this, as did my noble friend Lady Bowles. Noble Lords did not quite get to where they would have liked, but I know that they thought progress had been made. We are therefore content to accept the position that we have reached. However, the noble Lord, Lord Pannick, makes an important point about this not being a precedent.
Lord Ahmad of Wimbledon
I thank the noble Lord and the noble Baroness who have spoken. When this issue left your Lordships’ House, I emphasised and assured noble Lords that we would continue to work, particularly, with the noble and learned Lord, Lord Judge, and officials continue to do so. Every time I saw him in a Division Lobby or outside it—often he was going in the opposite direction, but we will park that for a moment—he reassured me that progress was being made, and this is the culmination of that. I thank noble Lords for their support.
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendment 11.
“Enforcement: goods etc on ships
(1) The provision that may be made by virtue of section 17(2) (enforcement of prohibitions or requirements) includes provision as to the powers and duties of prescribed persons in relation to—
(a) British ships in foreign waters or international waters,
(b) ships without nationality in international waters, and
(c) foreign ships in international waters.
(2) Regulations may make provision by virtue of this section only for the purpose of enforcing relevant prohibitions or requirements.
(3) A prohibition or requirement is a “relevant prohibition or requirement” for the purposes of this section if it is—
(a) a prohibition or requirement specified by the regulations which is imposed by regulations for a purpose mentioned in any of paragraphs 2 to 7, 15(a), (b) or (c) or 16(a) of Schedule 1, or
(b) a prohibition or requirement imposed by a condition of a licence or direction issued by virtue of section 15 in relation to a prohibition or requirement mentioned in paragraph (a).
(4) The powers that may be conferred by virtue of this section include powers to—
(a) stop a ship;
(b) board a ship;
(c) require any person found on a ship boarded by virtue of this section to provide information or produce documents;
(d) inspect and copy such documents or information;
(e) stop any person found on such a ship and search that person for—
(i) prohibited goods, or
(ii) any thing that might be used to cause physical injury or damage to property or to endanger the safety of any ship;
(f) search a ship boarded by virtue of this section, or any thing found on such a ship (including cargo), for prohibited goods;
(g) seize goods found on a ship, in any thing found on a ship, or on any person found on a ship (but see subsection (8));
(h) for the purpose of exercising a power mentioned in paragraph (e), (f) or (g), require a ship to be taken to, and remain in, a port or anchorage in the United Kingdom or any other country willing to receive it.
(5) Regulations that confer a power mentioned in subsection (4)(a) to (f) or (h) must provide that a person may not exercise the power in relation to a ship unless the person has reasonable grounds to suspect that the ship is carrying prohibited goods (and the regulations need not require the person to have reasonable grounds to suspect that an offence is being or has been committed).
(6) Regulations that confer a power mentioned in subsection (4)(e)(i) or (f) must provide that the power may be exercised only to the extent reasonably required for the purpose of discovering prohibited goods.
(7) Regulations that confer a power mentioned in subsection (4)(e)(ii) on a person (“the officer”) may permit the search of a person only where the officer has reasonable grounds to believe that that person might use a thing in a way mentioned in subsection (4)(e)(ii).
(8) Regulations that confer a power mentioned in subsection (4)(g) on a person—
(a) must provide for the power to be exercisable on a ship only where that person is lawfully on the ship (whether in exercise of powers conferred by virtue of this section or otherwise), and
(b) may permit the seizure only of—
(i) goods which that person has reasonable grounds to suspect are prohibited goods, or
(ii) things within subsection (4)(e)(ii).
(9) Regulations that confer a power on a person by virtue of this section may authorise that person to use reasonable force, if necessary, in the exercise of the power.
(10) Regulations that confer a power by virtue of this section must provide that—
(a) the power may be exercised in relation to a British ship in foreign waters only with the authority of the Secretary of State, and
(b) in relation to foreign waters other than the sea and other waters within the seaward limits of the territorial sea adjacent to any relevant British possession, the Secretary of State may give authority only if the State in whose waters the power would be exercised consents to the exercise of the power.
(11) Regulations that confer a power by virtue of this section must provide that—
(a) the power may be exercised in relation to a foreign ship only with the authority of the Secretary of State, and
(b) the Secretary of State may give authority only if—
(i) the home state has requested the assistance of the United Kingdom for the purpose of enforcing relevant prohibitions or requirements,
(ii) the home state has authorised the United Kingdom to act for that purpose, or
(iii) the United Nations Convention on the Law of the Sea 1982 (Cmnd 8941) or a UN Security Council Resolution otherwise permits the exercise of the powers in relation to the ship.
(12) The reference in subsection (11) to the United Nations Convention on the Law of the Sea includes a reference to any modifications of that Convention agreed after the passing of this Act that have entered into force in relation to the United Kingdom.
(13) In this section—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);
“British ship” means a ship falling within paragraph (a), (c), (d) or (e) of section 7(12);
“foreign ship” means a ship which—
(a) is registered in a State other than the United Kingdom, or
(b) is not so registered but is entitled to fly the flag of a State other than the United Kingdom;
“foreign waters” means the sea and other waters within the seaward limits of the territorial sea adjacent to any relevant British possession or State other than the United Kingdom;
“goods” includes technology within the meaning of Schedule 1 (see paragraph 36 of that Schedule);
“home state”, in relation to a foreign ship, means—
(a) the State in which the ship is registered, or
(b) the State whose flag the ship is otherwise entitled to fly; “international waters” means waters beyond the territorial sea of the United Kingdom or of any other State or relevant British possession;
“prohibited goods” means goods which have been, or are being, dealt with in contravention of a relevant prohibition or requirement (see subsection (3));
“regulations” means regulations under section 1;
“relevant British possession” has the same meaning as in section 7 (see subsection (14) of that section);
“ship” has the same meaning as in section 7 (see subsection (14) of that section);
“ship without nationality” means a ship which—
(a) is not registered in, or otherwise entitled to fly the flag of, any State or relevant British possession, or
(b) sails under the flags of two or more States or relevant British possessions, or under the flags of a State and relevant British possession, using them according to convenience.
(14) In the definition of “prohibited goods” in subsection (13), the reference to goods dealt with in contravention of a relevant prohibition or requirement includes a reference to a case where—
(a) arrangements relating to goods have been entered into that have not been fully implemented, and
(b) if those arrangements were to be fully implemented, the goods would be dealt with in contravention of that prohibition or requirement.”
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendment 12.
“Goods etc on ships: non-UK conduct
(1) Regulations may make provision conferring on prescribed persons powers exercisable—
(a) in relation to—
(i) British ships in foreign waters or international waters,
(ii) ships without nationality in international waters, and
(iii) foreign ships in international waters,
(b) for the purpose of—
(i) investigating the suspected carriage of relevant goods on such ships, or
(ii) preventing the continued carriage on such ships of goods suspected to be relevant goods.
(2) The powers that may be conferred by virtue of this section include powers to—
(a) stop a ship;
(b) board a ship;
(c) require any person found on a ship boarded by virtue of this section to provide information or produce documents;
(d) inspect and copy such documents or information;
(e) stop any person found on such a ship and search that person for—
(i) relevant goods, or
(ii) any thing that might be used to cause physical injury or damage to property or to endanger the safety of any ship;
(f) search a ship boarded by virtue of this section, or any thing found on such a ship (including cargo), for relevant goods;
(g) seize goods found on a ship, in any thing found on a ship, or on any person found on a ship (but see subsection (6));
(h) for the purpose of exercising a power mentioned in paragraph (e), (f) or (g), require a ship to be taken to, and remain in, a port or anchorage in the United Kingdom or any other country willing to receive it.
(3) Regulations that confer a power mentioned in subsection (2)(a) to (f) or (h) must provide that a person may not exercise the power in relation to a ship unless the person has reasonable grounds to suspect that the ship is carrying relevant goods.
(4) Regulations that confer a power mentioned in subsection (2)(e)(i) or (f) must provide that the power may be exercised only to the extent reasonably required for the purpose of discovering relevant goods.
(5) Regulations that confer a power mentioned in subsection (2)(e)(ii) on a person (“the officer”) may permit the search of a person only where the officer has reasonable grounds to believe that that person might use a thing in a way mentioned in subsection (2)(e)(ii).
(6) Regulations that confer a power mentioned in subsection (2)(g) on a person—
(a) must provide for the power to be exercisable on a ship only where that person is lawfully on the ship (whether in exercise of powers conferred by virtue of this section or otherwise), and
(b) may permit the seizure only of—
(i) goods which that person has reasonable grounds to suspect are relevant goods, or
(ii) things within subsection (2)(e)(ii).
(7) Regulations that confer a power on a person by virtue of this section may authorise that person to use reasonable force, if necessary, in the exercise of the power.
(8) Regulations that confer a power by virtue of this section must provide that—
(a) the power may be exercised in relation to a British ship in foreign waters only with the authority of the Secretary of State, and
(b) in relation to foreign waters other than the sea and other waters within the seaward limits of the territorial sea adjacent to any relevant British possession, the Secretary of State may give authority only if the State in whose waters the power would be exercised consents to the exercise of the power.
(9) Regulations that confer a power by virtue of this section must provide that—
(a) the power may be exercised in relation to a foreign ship only with the authority of the Secretary of State, and
(b) the Secretary of State may give authority only if—
(i) the home state has requested the assistance of the United Kingdom for a purpose mentioned in subsection (1)(b),
(ii) the home state has authorised the United Kingdom to act for such a purpose, or
(iii) the United Nations Convention on the Law of the Sea 1982 (Cmnd 8941) or a UN Security Council Resolution otherwise permits the exercise of the powers in relation to the ship.
(10) The reference in subsection (9) to the United Nations Convention on the Law of the Sea includes a reference to any modifications of that Convention agreed after the passing of this Act that have entered into force in relation to the United Kingdom.
(11) In this section—
“regulations” means regulations under section 1;
“relevant goods” means goods in relation to which relevant non-UK conduct is occurring or has occurred;
“relevant non-UK conduct” means conduct outside the United Kingdom by a person other than a United Kingdom person that would constitute a contravention of a relevant prohibition or requirement if the conduct had been—
(a) in the United Kingdom, or
(b) by a United Kingdom person;
“relevant prohibition or requirement” has the same meaning as in section (Enforcement: goods etc on ships) (see subsection (3) of that section);
“United Kingdom person” has the same meaning as in section 18 (see subsection (2) of that section).
(12) In the definition of “relevant non-UK conduct” in subsection (11), the reference to conduct that would constitute a contravention of a relevant prohibition or requirement if the conduct had been in the United Kingdom or by a United Kingdom person includes a reference to a case where—
(a) arrangements relating to goods have been entered into that have not been fully implemented, and
(b) if those arrangements were to be fully implemented (and if the conduct had been in the United Kingdom or by a United Kingdom person) the goods would be dealt with in contravention of that prohibition or requirement.
(13) In this section, the following expressions have the same meaning as in section (Enforcement: goods etc on ships)—
“arrangements”,
“British ship”,
“foreign ship”,
“foreign waters”,
“goods”,
“home state”,
“international waters”,
“relevant British possession”,
“ship”, and
“ship without nationality”.”
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendments 13 to 21.
“( ) Nothing in this section limits the provision that may be made in regulations under section 1 by virtue of section (Enforcement: goods etc on ships) or (Goods etc on ships: non-UK conduct).”
“Independent review of regulations with counter-terrorism purpose
(1) The Secretary of State must appoint a person to review the operation of such asset-freeze provisions of relevant regulations made by the Secretary of State as the Secretary of State may from time to time refer to that person.
(2) The Treasury must appoint a person to review the operation of such asset-freeze provisions of relevant regulations made by the Treasury as the Treasury may from time to time refer to that person.
(3) The persons appointed under subsection (1) and (2) may be the same person.
(4) In each calendar year, by 31 January—
(a) the person appointed under subsection (1) must notify the Secretary of State of what (if any) reviews under that subsection that person intends to carry out in that year, and
(b) the person appointed under subsection (2) must notify the Treasury of what (if any) reviews under that subsection that person intends to carry out in that year.
(5) Reviews of which notice is given under subsection (4) in a particular year— (a) may not relate to any provisions that have not been referred before the giving of the notice, and
(b) must be completed during that year or as soon as reasonably practicable after the end of it.
(6) The person who conducts a review under this section must as soon as reasonably practicable after completing the review send a report on its outcome to—
(a) the Secretary of State, if the review is under subsection (1), or
(b) the Treasury, if the review is under subsection (2).
(7) On receiving a report under this section the Secretary of State or (as the case may be) the Treasury must lay a copy of it before Parliament.
(8) The Secretary of State may pay the expenses of a person who conducts a review under subsection (1) and also such allowances as the Secretary of State may determine.
(9) The Treasury may pay the expenses of a person who conducts a review under subsection (2) and also such allowances as the Treasury may determine.
(10) For the purposes of this section, regulations are “relevant regulations” if—
(a) they are regulations under section 1, and
(b) they state under section 1(3) at least one purpose which—
(i) is not compliance with a UN obligation or other international obligation, and
(ii) relates to counter-terrorism.
(11) A purpose “relates to counter-terrorism” if the report under section 2 in respect of the regulations indicated that, in the opinion of the appropriate Minister making them, the carrying out of that purpose would further the prevention of terrorism in the United Kingdom or elsewhere.
(12) For the purposes of this section a provision of relevant regulations is an “asset-freeze provision” if and to the extent that it—
(a) imposes a prohibition or requirement for a purpose mentioned in section 3(1)(a), (b) or (d), or
(b) makes provision in connection with such a prohibition or requirement.
(13) If a provision is referred under this section which contains a designation power, any review under this section of the operation of that provision may not include a review of any decisions to designate under that power.”
“Periodic reports on exercise of power to make regulations under section 1
(1) The Secretary of State must as soon as reasonably practicable after the end of each reporting period lay before Parliament a report which—
(a) specifies the regulations under section 1, if any, that were made in that reporting period,
(b) identifies which, if any, of those regulations—
(i) stated a relevant human rights purpose, or
(ii) amended or revoked regulations stating such a purpose,
(c) specifies any recommendations which in that reporting period were made by a Parliamentary Committee in connection with a relevant independent review, and
(d) includes a copy of any response to those recommendations which was made by the government to that Committee in that reporting period.
(2) Nothing in subsection (1)(d) requires a report under this section to contain anything the disclosure of which may, in the opinion of the Secretary of State, damage national security or international relations.
(3) For the purposes of this section the following are reporting periods—
(a) the period of 12 months beginning with the day on which this Act is passed (“the first reporting period”), and
(b) each period of 12 months that ends with an anniversary of the date when the first reporting period ends.
(4) For the purposes of this section—
(a) regulations “state” a purpose if the purpose is stated under section 1(3) in the regulations;
(b) a purpose is a “relevant human rights purpose” if, in the opinion of the Secretary of State, carrying out that purpose would provide accountability for or be a deterrent to gross violations of human rights.
(5) In this section—
“the government” means the government of the United Kingdom; “gross violation of human rights” has the meaning given by section 1(6A);
a “Parliamentary Committee” means a committee of the House of Commons or a committee of the House of Lords or a joint committee of both Houses;
a “relevant independent review”, in relation to a Parliamentary Committee, means a consideration by that Committee of whether the power to make regulations under section 1 should be exercised in connection with a gross violation of human rights.”
“Procedure for dealing with goods etc seized from ships
(1) The Secretary of State may by regulations make provision about the procedure to be followed in connection with goods seized under a power conferred by regulations under section 1 by virtue of section (Enforcement: goods etc on ships) or (Goods etc on ships: non-UK conduct).
(2) Regulations under this section relating to goods seized on suspicion of being prohibited goods or relevant goods may include provision—
(a) requiring prescribed persons to be notified of the seizure of the goods;
(b) requiring the Secretary of State to determine whether the seized goods were, at the time of their seizure, prohibited goods (where the goods were seized under a power conferred by virtue of section (Enforcement: goods etc on ships)) or relevant goods (where the goods were seized under a power conferred by virtue of section (Goods etc on ships: non-UK conduct));
(c) enabling the making of a claim by prescribed persons in relation to the seized goods;
(d) about the determination by a prescribed court of any such claim;
(e) about the publicity to be given to any such determination by a court;
(f) for and about the return of seized goods to prescribed persons before or after any such determination of a claim by a court;
(g) about the treatment of seized goods not so returned (including, in prescribed circumstances, their destruction or sale);
(h) for and about the payment of compensation by the Secretary of State following a determination by a court that the goods were not, at the time of their seizure, prohibited goods (where the goods were seized under a power conferred by virtue of section (Enforcement: goods etc on ships)) or relevant goods (where the goods were seized under a power conferred by virtue of section (Goods etc on ships: non-UK conduct)).
(3) In this section—
“goods” has the same meaning as in sections (Enforcement: goods etc on ships) and (Goods etc on ships: non-UK conduct) (see subsections (13) of those sections);
“prohibited goods” has the same meaning as in section (Enforcement: goods etc on ships) (see subsection (13) of that section);
“relevant goods” has the same meaning as in section (Goods etc on ships: non-UK conduct) (see subsection (11) of that section).”
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendment 22.
“Public registers of beneficial ownership of companies registered in British Overseas Territories
(1) For the purposes of the detection, investigation or prevention of money laundering, the Secretary of State must provide all reasonable assistance to the governments of the British Overseas Territories to enable each of those governments to establish a publicly accessible register of the beneficial ownership of companies registered in each government’s jurisdiction.
(2) The Secretary of State must, no later than 31 December 2020, prepare a draft Order in Council requiring the government of any British Overseas Territory that has not introduced a publicly accessible register of the beneficial ownership of companies within its jurisdiction to do so.
(3) The draft Order in Council under subsection (2) must set out the form that the register must take.
(4) If an Order in Council contains requirements of a kind mentioned in subsection (2)—
(a) it must be laid before Parliament after being made, and
(b) if not approved by a resolution of each House of Parliament before the end of 28 days beginning with the day on which it is made, it ceases to have effect at the end of that period (but without that affecting the power to make a new Order under this section).
(5) In calculating a period of 28 days for the purposes of subsection (4), no account is to be taken of any time during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than four days.
(6) For the purposes of this section, “British Overseas Territories” means a territory listed in Schedule 6 of the British Nationality Act 1981.
(7) For the purposes of this section, “a publicly accessible register of the beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006.”
Lord Ahmad of Wimbledon
My Lords, Amendment 22 would put a duty on the Government to provide all reasonable assistance to our overseas territories to help them set up public registers of company beneficial ownership by 31 December 2020. If they do not do so, the amendment would require the Secretary of State to prepare a draft Order in Council requiring the Government of the overseas territories to introduce such registers.
Noble Lords are aware that the issue of the register of beneficial ownership was debated extensively in your Lordships’ House. I welcomed the insight and the expertise and, while there were differences of views, there was a robust debate. In this regard, the Government tabled on Report in the other place a package of amendments that sought to enhance the existing measures on beneficial ownership in the overseas territories but stopped short of the preparation of any legislation for the overseas territories ahead of the introduction of a public register as an international standard. As is his prerogative, Mr Speaker did not, however, select these amendments for debate. Therefore, the Government in the other place listened to the strength of feeling on this issue and accepted that it was the overwhelming view of the other place that the overseas territories should take steps to put public registers in place ahead of them becoming international standard as set by the Financial Action Task Force. Therefore, the Government did not oppose the new clause tabled by the right honourable Member for Sutton Coldfield and the right honourable Member for Barking.
Given the views expressed in the other place and the fact that we respect the will of Parliament, the Government do not now propose to table any new amendments. However, I would, nevertheless, like to make a number of points on this issue, not least as Minister for the Overseas Territories. I want to make it clear from the outset that we would have preferred a different approach to this question, as evidenced by the amendments we had tabled in the other place and my response to this debate in your Lordships’ House. Our approach has always been, and remains, as a priority to work consensually, constructively and collaboratively, with the overseas territories. Indeed, we have established strong channels with the overseas territories.
Let me be absolutely clear: the overseas territories are British, but they are separate jurisdictions with their own democratically elected Governments, responsible for their own fiscal matters and are not represented in this Parliament. We have legislated for them without their consent only in exceptional circumstances, for example to decriminalise homosexuality in certain territories to ensure that they were compliant with international human rights obligations. By contrast, financial services are an area of domestic responsibility for territory Governments, where they surpass—an important point to remember—international standards in the context of beneficial ownership. Legislating for these jurisdictions without their consent in this field effectively disenfranchises their elected representatives.
We are also fully cognisant of the territories’ concerns that the economic impact of imposing public registers on them will be significant—and these are not under normal circumstances. As noble Lords know, the British Virgin Islands, Anguilla and the Turks and Caicos Islands are still recovering from the two unprecedented category 5 hurricanes of last September. In the British Virgin Islands, nine out of 20 schools still remain closed and are accommodating their students in tents. The tourism industry has experienced a drop of 50% and is only now starting to recover. There remains a real risk that this will destabilise the reconstruction efforts of the hurricane affected territories, and all of this shortly before the next hurricane season begins in June. Accordingly, our preference would have been not to legislate in this manner without the territories’ consent, and let me assure noble Lords that our aim remains to work consensually and collaboratively with them to achieve the best possible outcome following the amendment.
As the reaction of the territories and their leaders has demonstrated, legislating for them without their consent risks damaging not only our long-standing constitutional arrangements respecting their autonomy but also our very proactive, positive and progressive relations with the overseas territories. Let me assure noble Lords that I have held a number of meetings with leaders and their London-based representatives since our debates at Report stage, and I have reaffirmed the importance that the United Kingdom attaches to our relationship with their jurisdictions. Equally, I would place on the record our gratitude to the overseas territories and to the Crown dependencies for the work that they have undertaken to implement the bilateral arrangements on the exchange of beneficial ownership information we concluded with them in 2016. In a relatively short timeframe, they have passed new primary legislation and delivered technological improvements to comply with the terms of these arrangements.
All Crown dependencies have central registers in place. Of the seven overseas territories with financial centres, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar and the Turks and Caicos Islands already have central registers or similarly effective systems in place. Montserrat has also committed to establishing a public register, and we have recently signed a memorandum of understanding with Anguilla to fund its electronic search platform. In the case of Anguilla, the British Virgin Islands and the Turks and Caicos Islands, progress has been made notwithstanding some of the most challenging circumstances caused by last year’s hurricanes.
These arrangements, which provide UK law enforcement authorities, on request, with access to beneficial ownership information within 24 hours and within one hour in urgent cases, are already bearing fruit. As of 8 February, they had been used more than 70 times and the information obtained by UK law enforcement authorities as a result has been used to enhance intelligence leads and to support ongoing criminal investigations into illicit finance. It is important that we continue to work with the overseas territories and the Crown dependencies to implement fully these arrangements and, where necessary, to make improvements to the mechanisms for the exchange of information. We also have the statutory review of these arrangements that will report to Parliament by July 2019, and I remain confident that that will provide further evidence to all concerned of the benefits this provides to law enforcement authorities.
We should be clear that the arrangements go beyond the current international standards set by the Financial Action Task Force; these do not yet require private, let alone public, registers, reflecting a lack of international consensus in this important area. Imposing public registers on the overseas territories now carries with it the risk of a flight of business from them to other less regulated jurisdictions where our law enforcement authorities would not have the same level of access to beneficial ownership information as they do under the existing arrangements.
The Government have been consistently clear about their desire for public registers to become the global standard. Let us also be clear that the overseas territories do not oppose this, once there is an international standard. As I set out in my Written Ministerial Statement on 1 May, the Government will use their best endeavours, diplomatically and with international partners, to promote public registers of company beneficial ownership as the global standard by 2023. We would also expect the Crown dependencies to adopt public registers in that event.
I should also like to take this opportunity to place on record my deep concern about some of the intemperate language that was used in the other place about our overseas territories. References to “slave labour” and “money will go to where it is darkest” are liable to be misconstrued and are quite unacceptable in this context.
I would also like to use this opportunity to rebut the widely held misconceptions about the overseas territories. They are important financial centres for investors around the world. They have successful industries because they comply with regulatory standards and have taken significant steps on transparency. All overseas territories with financial centres have committed to greater tax transparency, by adopting the new global OECD standard for the automatic exchange between jurisdictions of taxpayer financial account information, and have started to exchange this information. In addition, HMRC has received data since September 2016 on accounts held in the overseas territories by UK taxpayers. Taken together, these measures are an important tool in combating tax evasion, and we welcome the co-operation and collaboration that we have received from both the overseas territories and the Crown dependencies in this area.
I thank noble Lords for their indulgence in allowing me to put on record the Government’s position and our thoughts on where we currently are. The overseas territories are an important part of what constitutes Britain today. However, notwithstanding the arguments I have made, the other place has sought to change the basis. Let me reiterate, with the words with which I started, that the Government will ultimately respect the will of Parliament on this issue and will now work constructively and collaboratively with the overseas territories towards the best possible outcomes. Let me assure noble Lords—and our overseas territories as well—that we will use our best endeavours and a supportive, constructive and collaborative approach in the international sphere to promote public registers of company beneficial ownership as the global standard, so that we can, as the overseas territories agree, achieve a level playing field in this area—a principle that we are all agreed on. I beg to move.
Amendment 22A (as an amendment to the Motion on Amendment 22)
Lord Naseby (Con)
My Lords, in speaking to Amendment 22A I declare an interest as vice-chairman of the All-Party Group for the Cayman Islands; I also have family working in financial services in the Cayman Islands.
Last weekend, 100,000 people lined the route of the wedding party. There was great joy there and in the rest of the country. Some 100,000 people in the overseas territories shared the joy of the Royal Family, except that every one of them was fearful for the future of their families. As matters stand today, what happened in the Commons—we have now heard from the Minister that the Government are not prepared to overturn it—is a catastrophe for financial services in the overseas territories. That cannot be taken lightly.
Your Lordships will remember that Prime Minister Cameron, who started the idea of public registers, thought he should lead in the world. He did not work out, however, what the impact would be on the rest of the overseas territories. He was more interested, I suspect, to lead, and to lead at a time when, if you look at our own Companies House, you cannot today get a really up-to-date situation on a great many companies, because Companies House is rarely up to date. Indeed, Companies House looks carefully at perhaps only one-third of companies that register. So that is not the answer. Why did Her Majesty’s Government not think a little further at that time about what was going to happen?
Lord Flight (Con)
My Lords, I want to speak out against Amendment 22 and in favour of Amendment 22A. I also declare my own interests as in the register: I am a regulator in the island of Guernsey.
As the Minister argued well, Amendment 22 raises major constitutional issues which the noble Lord, Lord Naseby, has described in even greater detail, but it is also the wrong approach to addressing the very problem of money laundering. It is shameful that the UK has a far worse record than the overseas territories. The reforms in the UK do not work because they do not include any non-British company and have no verification, whereas the arrangements that both the Crown dependencies and overseas territories have put in place provide all the necessary information to the appropriate authorities on asking. It is also a much more tightly and accurately kept register.
The legislation invites the overseas territories to discuss the constitutional position with government; it may be suitable to go for judicial review. I am sure that some will feel that the UK Government are trying to push them in the direction of a UDI. The UK Government’s position was set out extremely well back in 2015, at the beginning of debates on this territory, by the noble Baroness, Lady Neville-Rolfe, when she was Under-Secretary of State at the Department for Business. She said:
“The noble Lords, Lord Watson, Lord Mitchell and others, asked why we are not including the overseas territories and Crown dependencies in this legislation. The Prime Minister made clear that he would like a publicly accessible central registry of company beneficial ownership information to be the new international standard. We would therefore like the overseas territories and Crown dependencies to match our policy. We respect, however, the fact that the overseas territories and Crown dependencies are separate jurisdictions with their own elected Governments, under which they are responsible for fiscal matters”.—[Official Report, 19/1/15; col. GC 321.]
That was the British Government setting out our position quite straightforwardly, but they are now standing on their head and, as commented, putting the overseas territories out to dry.
The UK treats overseas territories and Crown dependencies alike, so it is rather strange that there is one arrangement for one category and one for another. Amendment 22 empowers the United Kingdom Government to impose publicly accessible registers on overseas territories but not on Crown dependencies. If any overseas territory has not met the timetable by the end of December 2020 as advised, the Secretary of State is apparently mandated to draft Orders in Council requiring them so to do. I hope that, as time passes, if this legislation goes ahead, ways will be found to implement it in a more balanced manner and, potentially, for it to be amended at some future stage.
In the other place, Sir Alan Duncan repeated the point about overseas territories being,
“separate jurisdictions, with their own democratically elected Governments”.
He went on:
“They are responsible for their own fiscal matters, and they are not represented in this Parliament”,—[Official Report, Commons, 1/5/18; col. 181.]
which does not legislate for them. A deal was done 30 or 40 years ago in which, in essence, the British Government said, “We’re not going to support you financially. You’ve got to develop your own economy but we won’t interfere with your doing that”. However, they now represent a serious threat, as my noble friend Lord Naseby pointed out, to these jurisdictions.
Lord Anderson of Swansea
My Lords, the use by Russia of dirty money was highlighted in the report today of the Foreign Affairs Committee in respect of counterterrorism and so on. It is clear that although the two Members who have just spoken did so with great passion and knowledge, they failed to take on board the actual figures. Global Witness says that at the moment there is £34 billion of Russian money in the overseas territories, £30 billion of which is in the BVI. Why does the Russian money go there? Is it suggested that all that money is clean? Noble Lords will recall that when the noble Lord, Lord Faulks, and I among others were pointing out areas of property investment in London, we said there are several streets in the Royal Borough of Kensington and Chelsea, which we both know well, where the lights never go on at night because money—
Lord Flight
My Lords, does the noble Lord, Lord Anderson, have the figure for black Russian assets in the UK? I imagine that there is substantially more than £30 billion.
Lord Anderson of Swansea
My Lords, with the public register of beneficial ownership it should be possible to obtain those figures. It would be absurd if money that fled from the London property market went to the overseas territories and sought a haven there. Anyway, the figures that are given—I am very happy be told that the they are incorrect—are that £34 billion of Russian money is currently in the overseas territories, £30 billion of which is in the BVI, and there has been over £100 billion over the past decade. Surely a proportion of that at the very least is dirty money, and the question must therefore be posed: are we prepared to countenance dirty money finding a haven in the overseas territories? That is what is suggested.
We have to respond very sensitively. Of course there will be an economic impact, and that will only be exacerbated by the impact of the hurricane, particularly in the BVI. Because of the UK’s responsibility to these overseas territories, we will have to bear at least part of the cost, but surely we should not countenance the position that I have mentioned. If the Minister has figures other than this £34 billion, I am very happy to hear them, and if he suggests that none of that is dirty money then I will be happy to hear his view, but surely it is in everyone’s interest that dirty money be pursued wherever it is and that there be a publicly accessible register.
At the same time, the economic impact should be recognised, along with the possible damage to the constitutional position. If those countries wish to go independent, so be it. Fairly recently there was a report on the contingent liabilities to the British taxpayer of the overseas territories. I wonder where the balance would lie, if a number of these countries went independent, regarding the amount currently spent by the British taxpayer. I am happy with that, but the question must remain: if these figures are correct, and if it must be that a portion of that sum is dirty, are we prepared to allow that to continue?
Lord Northbrook (Con)
My Lords, is the noble Lord, Lord Anderson, aware that none of the overseas territories is on the EU blacklist of non-co-operative tax jurisdictions as of December last year?
Lord Anderson of Swansea
That may well be the case, but I pose the question again. There is this £34 billion of Russian money. We know that the oligarchs look for areas where they can usefully hide their assets. Are we prepared to continue to allow that?
Lord Neuberger of Abbotsbury (CB)
My Lords, I strongly support the amendment of the noble Lord, Lord Naseby. The clause which he seeks to remove from the Bill is a classic example of a proposal which may seem right to many people—for the reasons given so clearly by the noble Lord, Lord Anderson of Swansea—but, after proper consideration can be seen to be very wrong.
Unlike most countries, our constitutional arrangements are based on conventions and mutual respect rather than pieces of paper, and we break those conventions and trample on that mutual respect at our peril. As the 2012 White Paper on the territories recognised, the UK’s legislative power over the territories is in practice and by convention limited to,
“external affairs, defence, internal security (including the police) and the appointment, discipline and removal of public officers”—
and, I would add, compliance with the UK’s international obligations. Accordingly, the proposal would run contrary to the established distribution of powers—quite apart from the points made about the constitution of some of the territories.
Not only that, it would do so in a most inappropriate way. There has been no consultation with the democratically elected Governments of any of the territories about the legislation. There has been no investigation of the effectiveness of this law in relation to any of the territories. There has been no inquiry as to the economic and social consequences of the legislation on any of the territories. That is in circumstances where, to go back to what the White Paper said, the UK Government aim,
“to work with Territories to strengthen good governance arrangements, public financial management and economic planning”,
to work with the territories.
I regret to say that the proposed law appears to be old-style colonialism at its worst: damaging legislation which has no cost for the legislating country but which will cause hardship to the victim countries, and does so not merely without representation but without consultation or full investigation. But it gets worse. The law is imposed in circumstances in which it is indisputable that the BVI, Cayman and Bermuda comply with all current international transparency and taxation requirements, such as those laid down by the OECD. This was recognised by the very full and generally rather critical December 2017 EU Muscovici report, which identifies which countries are unco-operative by hiding assets, and so on, and it does not include any of the territories.
Lord Flight
Is it not the case that they also comply with all the FATF requirements, which the UK does not?
Lord Neuberger of Abbotsbury
I believe that is the case, yes. I was going on to say that in many respects it appears that all three territories which I mentioned have a regulatory regime which in many respects is stricter than that of this country.
On top of all this, this proposal imposes a financially damaging regime on at least three territories in the Caribbean area with significant financial service industries for which the UK has responsibility, while not doing so for the Crown dependencies with substantial financial service industries closer to home: Jersey, Guernsey and the Isle of Man, for example. That adds discriminatory insult to unconstitutional and unfair injury. Let me make it clear to the Crown dependencies that I say this to oppose the proposed law applying to the territories, not to support it applying to the dependencies.
Finally, what will happen if this unfair and unjustified law is brought into force, apart from leading to a real sense of grievance and of being let down on the part of small states which it is our duty to protect? It will do no good. If there is the hot money to which the noble Lord, Lord Anderson of Swansea, referred, it will quickly move away from the BVI, Cayman and Bermuda to places which do not have respected democratic Governments and independent and respected courts, where the Judicial Committee of the Privy Council, which I had the honour to chair for five years, has no power. In effect, it will not be upholding the rule of law, it will be undermining it.
It will be only when we have universal acceptance of such regulation that, I respectfully suggest, it will be appropriate to impose it on these territories.
Lord Anderson of Swansea
With respect, is that not avoiding the question in an Augustinian way: make me good, but not yet, not until everybody else is good?
Lord Neuberger of Abbotsbury
So we have to sacrifice other people many miles away who have no say in it for the purpose of feeling good and leading the way? That seems to me, if I may say so, a very selfish attitude to take. It is simply inappropriate for us to do this for other countries.
Lord Collins of Highbury
If there was international agreement, is the noble and learned Lord suggesting that we should then impose on the territories?
Lord Neuberger of Abbotsbury (CB)
Judging by how the territories have behaved in the past, it seems pretty clear that we would not need to. They would comply, as they are currently doing, as the noble Lord, Lord Flight, said, with all their international requirements—indeed, going further than what is required. I would respectfully suggest that we should be supporting the amendment of the noble Lord, Lord Naseby.
Lord Beith (LD)
We should surely consider very carefully when what seems like a very necessary measure to tackle a great evil confronts a constitutional objection; this is not the way in which such a measure ought to be introduced. There are also qualifications I might make about the potential effectiveness of the public open registers to be imposed on these territories in dealing with the evil being addressed. But there is no question that those who are advancing the case are doing so because they see an urgent need to tackle this evil and see this as likely to help.
However when it comes to a constitutional objection, we have to think carefully. There are two constitutional issues at play: one is that the elected House has made a clear decision, following debates in both Houses, that we should proceed along this road. We have to accept that, as the Government have done. But we cannot do so without reflecting on the impact this will have, and in particular on the constitutional status of the territories concerned. They are, of course, a wide variety of territories, defined in Schedule 6 to the Nationality Act. That includes not just the British Virgin Islands, the Cayman Islands and Bermuda but the British Antarctic Territory, the British Indian Ocean Territory and the Pitcairn Islands, with about 50 inhabitants. It is not entirely clear how the Minister with responsibility—the noble Lord, Lord Ahmad, of course—will deal with the situation as it will affect some of those territories.
That variety also illustrates that there is a range of democratic and other development in this list of territories which includes many at different stages. The territories that have attracted most attention are those which, by and large, have well-embedded constitutional arrangements, introduced by this country, of which a major component is legislative autonomy. The question that we now have to answer is: what do we do about the legislative autonomy that we purport to have given to people, if outside the parameters set when we gave that autonomy we then seek to legislate for them? That question remains unanswered in this process.
When Britain decided what its policy towards former colonies would be, it did not take the French approach. The French approach, in relation to a number of territories, including neighbours of the territories we are talking about today, was to treat them as integral parts of France and give them representation in the National Assembly. We are having this argument and nobody from any of the overseas dependent territories is able to take part in the debate; it is all being done by people who, for different reasons, are aware of them, friendly towards them or simply, in my case, see it as a constitutional issue for them.
We did not take that approach. Are we now saying that the idea of developing them as separate democracies through legislative autonomy is not one that we will pursue any more? We will have to give them some kind of assurance if they are to understand what their constitutional relationship is. Britain is not just a franchise brand that we offer and take away at a moment’s notice. It is a country which has promoted the democratic development of its former colonies and we have to ask whether we can really do that if we insist on legislating for them in areas for which we have given legislative autonomy.
There was a question from the Labour Front Bench a moment ago about what would happen if there was an international standard and one of the territories declined to implement it which, as has been pointed out, has not been their practice up to now. They have implemented all the international standards. However, it is a perfectly legitimate question and the answer is that this is an area in which we have not given legislative autonomy to those territories. We have retained UK responsibility to deal with their international relations and their compliance with international treaties. We would indeed impose, in those circumstances, exactly within the parameters of legislative autonomy that has been given.
I pay tribute to the efforts devoted to this subject by the Minister, which I think are partly motivated by the fact that he has to deal with the consequences. He is the person who is responsible for our relations with these territories. But how can we reassert the constitutional relationship between the United Kingdom and those territories to which it has given legislative autonomy in the context presented by the decision that the House of Commons has taken?
Baroness Butler-Sloss (CB)
My Lords, I am a vice-chairman of the All-Party Parliamentary Group for Gibraltar, which, apart from one brief mention by the Minister, has not been so far commented on. Listening to the noble Lord, Lord Anderson, I wondered, as between the United Kingdom and many of the overseas territories, where the mote and the beam lay. I will not pursue that any further, but I think that it may be where the noble Lord may not appreciate that it is.
Gibraltar is entirely compliant with all the current requirements. It is bringing a public register into its law early next year. It is unnecessary, unhelpful and inappropriate that Gibraltar should be held under the clause proposed in Amendment 22. It is not an appropriate way in which to deal, as the noble and learned Lord, Lord Neuberger, and the noble Lord, Lord Beith, have already said, with a country that has had its own constitution since 2006 and is entirely compliant. It is sad to find that countries such as Gibraltar should be under a proposed regime that would interfere with its constitution, as has already been set out.
It is obvious that what should have happened—it seems to me that the Minister was making it very clear—is that there should be encouragement to those countries that are not yet sufficiently compliant. However, that does not apply to any of the countries that have so far been referred to. It is very sad indeed that the way in which the other place has behaved on this matter brings us to this unhappy situation, pointed out so admirably by the noble Lord, Lord Beith.
Lord Faulks
My Lords, I think that the noble and learned Baroness is quite right with her mote and beam analogy. We must think about London, as my noble friend Lord Naseby, said. In 2016, David Cameron announced his intention in respect of anti-corruption and a register of beneficial interests. Since then we have had the Criminal Finances Act 2017 and this Bill. In both of those, my noble friend Lord Hodgson and I were keen to ensure that the Government did their best to stem the flood of dirty money, particularly into property money in London, by setting up a register of beneficial ownership which, when combined with unexplained wealth orders, might really do something to prevent what is a real obscenity about London property at the moment. So much money is flooding into the market yet so few people who start their work in London can afford to live. That is the mote that we have in London.
I wanted to press the matter to a vote, because our intention was to hurry this up, but I was met with formidable opposition from the Government, explaining how difficult the whole thing was. Finally, just before a vote might otherwise have taken place, I was reassured that there was much activity in this regard and there would be regular updates and a ministerial Statement. Sadly, the earliest the register would be legislation-ready was 2021—so five years after David Cameron’s summit. Here we have an amendment put down in the Commons after very little of the preliminaries, as has been quite rightly pointed out, with no consultation and nothing of the sort that one would expect with such a radical procedure. It states:
“The Secretary of State must, no later than 31 December 2020, prepare a draft Order in Council”.
It is a “must”, not a “may”. The only part of this amendment which is, perhaps, acceptable, is the very first part, describing the reasonable assistance to be given to the Governments of the British Overseas Territories. However, I apprehend that that is being—and has been—given for some considerable time. I disagree with my noble friend Lord Naseby on only one point: the Minister, not only today but in responding to the amendment so eloquently moved by the noble Baroness, Lady Stern, on Report, vigorously defended the position of the Government and of the British Overseas Territories in their attempt to comply with the natural desire that we all have to stamp out corruption.
This amendment goes on to require an Order in Council to be laid before Parliament, but then provides that it ceases to have effect,
“if not approved by a resolution of each House of Parliament before the end of 28 days”.
I wonder if a resolution of that sort would meet with the approval of both Houses of Parliament, having regard to the hasty way in which this amendment was introduced and to the real difficulties that it will cause to our friends in the British Overseas Territories.
This amendment is ill thought out, no doubt born out of an entirely proper desire to stem the flood of corruption. However, in so doing it damages our relationship with the British Overseas Territories at a time when we need all the friends we can get outside this country. The amendment asks them to do what is required in a timeframe which is much shorter than that for this country: the mote and beam analogy is entirely appropriate.
The Earl of Kinnoull (CB)
My Lords, I declare my interests as set out in the register of the House, particularly those in respect of financial services. I support Amendment 22A, in the name of the noble Lord, Lord Naseby. How well we know what a stramash would result if Westminster sought to legislate for Scotland, in a matter of devolved competence, without even consulting the Scottish Parliament. Parliament developed the Sewel convention to cope with this very situation. We have heard, in a very powerful speech, from the noble and learned Lord, Lord Neuberger, and others just how this convention now expressly extends to our overseas territories.
The overseas territories are proud and sophisticated countries and deserve our respect. Constitutionally, our respect includes conventions. Money laundering is, rightly, a devolved matter for them. Bermuda, the Cayman Islands and the British Virgin Islands are large and sophisticated financial centres with well-respected regulators. Accordingly, to legislate without even consulting these Parliaments is conventionally wrong. This is why I feel that the Sewel convention should apply. Westminster has the power to intervene and should exercise this only when things are badly awry. However, evidence of “awryness” is, in fact, the other way.
As other noble Lords have mentioned, Pierre Moscovici delivered a report last year, and this was adopted by the European Council on 5 December. On page 5 of that 35-page report, the Council affirms that,
“these actions collectively taken by EU Member States are in line with the agenda promoted by the G20, the OECD and other international fora”.
None of the overseas territories is on the blacklist.
Annexe 2 of the adopted conclusions, which was updated twice in March this year, lists countries in various categories that have agreed to make changes by the end of this year; it is a large list. In other words, provided that changes are made by those countries, in the EU Council’s view they will be fully compliant with EU, G20 and OECD thinking in this area. Only four of the 14 overseas territories feature on the list of co-operative countries. The other 10 do not; in other words, they are absolutely clean in the eyes of Pierre Moscovici and his very substantial and hard-working staff. In that respect, the 10 that are clean are doing rather better than Switzerland or Hong Kong, which both appear on the list. Indeed, 29 countries are making changes to improve transparency; none of the overseas territories is listed. Twenty-seven countries are making changes to anti-BEPs measures, which are sophisticated corporate tax dodges; none of the overseas territories is listed. Twenty-eight countries, including Switzerland and Hong Kong, are making changes to amend or abolish harmful tax regimes. None of the overseas territories is listed. Nine countries, including Bermuda, Anguilla, the BVI and the Cayman Islands, have agreed to,
“address concerns relating to economic substance”.
Among those nine countries are Guernsey, Jersey and the Isle of Man, the only time their names appear in the annexe at all. Those three islands do not appear in the Commons amendment and, as other noble Lords have observed, I cannot believe that is fair.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, if it is not improper to say so, I hugely regret the decision of the Speaker in the other place not to have permitted the Government to suggest other solutions to this problem without the need to override the overseas territories’ sovereignty rights. However, we are now faced with the Commons amendment and, although I recognise how powerful the speeches of all those who have supported the amendment in the name of the noble Lord, Lord Naseby, have been, and although I am deeply sympathetic to the overseas territories for the wholly undeserved insult to which this provision now appears to expose them, for my part I hope that the amendment in the name of the noble Lord, Lord Naseby, will not be pressed. If it is, I should, regretfully, feel unable to support it. This is not an appropriate occasion for yet another vote in this House that would override the considered view of the elected Chamber—after a full debate, which I read in Hansard this morning—moreover, in circumstances in which it would be bound most mischievously to be misrepresented as a vote by a privileged, unelected body intent, no doubt in the view of some, on preserving opportunities for the continued secretion of illicit funds abroad. It would be a wholly false slur on us, but I fear that it would be placed upon us by many. I hope that this is not judged an unduly pusillanimous approach.
Assuming the new clause is agreed, one can only hope that, two and a half years hence, it will not have proved necessary to make the contemplated Order in Council and, accordingly, that we shall never learn whether the opinion of the noble Lord, Lord Pannick, on its prospects were it to be challenged by the Judicial Committee of the Privy Council, was or was not correct.
Lord Hope of Craighead (CB)
My Lords, I had not intended to speak in this debate. With respect to the noble and learned Lord, Lord Brown of Eaton-under-Heywood, we owe a debt to the noble Lord, Lord Naseby, for tabling his amendment, because it has given us an opportunity to set the record straight. I hope that those in the affected overseas territories will take some comfort from the points in the very powerful speeches that have been made right across this House to express the great dismay at what happened in the other place.
I emphasise the opportunity that the noble Lord has given us to express our feelings, and personally endorse entirely what was said by the noble and learned Lord, Lord Neuberger, and the noble Earl, Lord Kinnoull, who set out very fully the arguments for supporting the noble Lord, Lord Naseby—although I know he will not press his amendment to a vote. It is very important, as I am sure the Minister will agree, that we have debated this and made the House’s position absolutely plain—while regretting that we have to accept the decision of the House of Commons.
Lord Judd (Lab)
My Lords, first let me say how much I appreciate the tremendous amount of work undertaken by the Minister in all that he has done on this front. I know that he has shown a great deal of personal commitment—as indeed did his predecessor. That should be put on record by all of us. We have moved a long way forward.
The noble Lord, Lord Naseby, said that he would not take lessons from Oxfam and Save the Children because of their record. I declare an interest: in the 1980s and 1990s I was a director of Oxfam and I have stayed very close to that organisation all my life, and remain as close now as I ever was—perhaps closer. I want to tell the noble Lord that the dismay and disgust in Oxfam at what happened in Haiti at the beginning of the decade cannot be overstated. There is profound dismay at what some people decided to do, and at the damage it has inevitably done both to the organisation and, more importantly, to thousands of people whom the organisation is now unable to help in the way that it would have liked because resources have inevitably dwindled.
That brings me to why this debate is so important. We have been discussing the technicalities of law and the constitution, and talking about the democratic rights of people—but what we are really talking about is justice, social responsibility and the accountability of wealth and power in the world. My noble friend Lord Anderson referred to the Select Committee’s report. It is a very important report, which we should all take very seriously, but it is operating in the context of parliamentary democracy and responsibility. All this Russian and other accumulated wealth that we are talking about—let us not dodge it; we have had allusions to property wealth finding its way to some of these territories as well—is not simply the wealth of those who are handling it; it is wealth that has come from countless ordinary people throughout society. That means that we all have a responsibility to ask: what are we doing, with teeth, to make sure that people who deceive, cheat and accumulate riches wrongly and unfairly are brought to account?
That is why I say how much I appreciate the tremendous work that the Minister has been doing. He has demonstrated the importance of diplomacy and the reality of the world that we live in. It is a matter not just of stating these things, however strongly we state them, but of how you move towards achieving what you want to achieve, and I take his arguments very seriously.
In the time that remains for this debate, I ask your Lordships to remember that we are talking not about money, although that may be a way of measuring the size of the problem, but about people—people from whom this money was accumulated and the countless people across the world for whose benefit it could be used through fair systems of taxation and through policies devised to meet the needs and help the development and emancipation of those who are exploited. This is not just a technical debate. I know that it is not fashionable to say it in this House but it has to be said: it is a debate about morality, justice and fairness. We have to stop sentimentalising about our commitment to those things; we have to make sure that there are teeth and muscle in meeting that commitment.
Perhaps I may come back for a moment to the challenge thrown down by the noble Lord, Lord Naseby, about my old organisation. I invite any of your Lordships to come and meet the staff, the trustees, the volunteers and the people across the world in the organisation who are busting a gut to make sure that something that happened at the beginning of the decade and let down the whole cause can never occur again.
Lord Northbrook (Con)
My Lords, I support the amendment in the name of my noble friend Lord Naseby. The Minister, to his credit, spent quite a lot of his speech arguing against government Amendment 22. I wondered why the Deputy Speaker did not call the government amendments and had some suspicions, now proved, that they were tabled too late. I add my disappointment at the seemingly lackadaisical attitude of the FCO. That, as my noble friend Lord Naseby said, is deeply disappointing when the issue is so important.
I should like to refer to one or two points that have been raised. First, none of the overseas territories ais on the EU blacklist of non-co-operative tax jurisdictions. Secondly, as I understand it, money laundering is a devolved issue for the overseas territories. Therefore, I question the assertion of the noble Lord, Lord Beith, that it comes under the area of international relations or international treaties. To legislate without even consulting their parliaments, let alone asking for their consent, is deeply wrong. In addition, the EU withdrew its proposal for public registers in December 2016 on the ground of concern about human rights. Could this be another case that the overseas territories could pursue?
Most countries are not adopting public registers. For the Caribbean overseas territories, the rival centres are the USA, Hong Kong and Singapore. They do not have public registers. To use an Order in Council for financial regulation, when the overseas territories have already adopted international standards, could expose the UK to legal challenge and be overturned on judicial review. I do not regard this as an exceptional circumstance where the UK Government should make laws.
The other place may think it good short-term politics, but the serious economic consequences and damage to our relationship with the overseas territories, and with the Commonwealth, will be long lasting. Perhaps one of the noble and learned Lords in the House will give their services pro bono for judicial review.
Lord Mackay of Clashfern (Con)
My Lords, I want to raise with the Minister the question of how the amendment we are discussing can come into force. It is not covered by the existing list of sections that come into force when the Bill receives Royal Assent. Therefore, it requires to be brought in by regulation. If it is correct—and I must say, I assume that the authorities who have spoken on it already are certainly correct—that it is contrary to the legal rights of the territories, it may be that the regulations seeking to bring this provision into force would be challengeable by judicial review.
In any case, we know from experience that the mere fact that something has been put into statute does not mean that it will happen; if it is subject to being brought into law by a ministerial action, it may never be brought into law at all. I have fairly profound experience of that myself. Certainly, considerable consideration of this by the law officers of the Crown would be required if the Government were going to make an order under the commencement provisions in respect of something that is legally challengeable.
I raise this question as a matter of justice, and justice of course requires that justice be done to all. One of the difficulties with this provision is that attempting to do justice in these territories may lead to injustice to these territories, in that the business they have will go to other places where there is no such regulation, doing nothing to help the ultimate situation and in fact bringing into effect a different type of injustice. Justice is a difficult thing to operate across the world, as we all know, and it may not be easy to effect it in this situation.
My main point is on the commencement provision and the extent of the Bill, which is subject to Privy Council regulation. There is a fair amount to be done before this becomes law.
Lord McNally
My Lords, I gladly gave way to the noble and learned Lord, Lord Mackay, because I know from long experience that his contributions are always of great help to the Minister at the Dispatch Box, as they were for me for a number of years.
The overseas territories cannot say that they have not been represented in the House this afternoon. There have been passionate speeches, not least by the noble Lord, Lord Naseby. I am not going to be so hypocritical as to advise him that he should not challenge the wisdom of the other place, having only a couple of hours ago extolled to your Lordships the very virtues of this House occasionally challenging the views of the other place.
Following on from the intervention of the noble Lord, Lord Judd, this has to be put in context. The noble and learned Lord, Lord Neuberger, said that we had no direct interest in this legislation, but when places are called the British Virgin Islands or the British Overseas Territories, we have a reputational responsibility we cannot avoid. If we do, we will damage our reputation. It is therefore right to look at this issue.
I was Minister for the Crown Dependencies—I see the noble Lord, Lord Faulks, nodding—and my noble friend Lord Beith and I worked closely together precisely to avoid the impasse we have now reached. We recognised that we had to work out the problems so that Britain could take on its proper responsibilities for these matters without doing too much damage to the dependencies which were trying to catch up. The way it has worked is one of the reasons why the dependencies qualify so well in the temperature-taking of various international organisations.
However, we have to go beyond the technicalities. Much of the cynicism, particularly among young people, is caused by issues such as the Panama papers and other exposures. Yes, the City of London has to take responsibility for the obscene avoidance of taxes and its co-operation with criminality in moving large amounts of money around in a dark economy. It is that which produces the cynicism that undermines our democracies. Ever since I have been in politics we usually blame the French, but we cannot simply use the argument that if we stop doing it, the French will do it. That is not an excuse for not doing the right thing and trying to set standards. David Cameron was quite right in trying to do this.
It is quite clear, not least from the interventions of the distinguished jurists we have in this House, that there is a problem. The solution was given by the noble and learned Lord, Lord Brown. My opinion of the Minister is boundless—he is going to have a couple of tough years ahead—and it would give him an opportunity to engage with the overseas territories to see whether the full implications of this legislation can be avoided by co-operation and initiatives, rather than the kind of process suggested by the noble and learned Lord, Lord Mackay. We have to see this in the context of a general public who are looking with nausea at what seems to be the ability of this money to find a home outside proper accountability.
I refer the noble Lord, Lord Naseby, to the briefing from 12 highly respected charities, and I understand the passion of the noble Lord, Lord Judd, in defending Oxfam. Although he did not name the Members of the other place, I will do so. In fact, Margaret Hodge and Andrew Mitchell are very well respected for their knowledge of and interest in these areas. We have to realise that the other place has been neither impetuous nor ill-informed in what it wants to do. But within the wider moral context set out by the noble Lord, Lord Judd, I hope that the Minister will find this debate useful in the very difficult diplomatic task that he now faces.
Lord Hunt of Wirral (Con)
My Lords, I declare my interests as set out in the register. I want only to say how much I agree with the noble and learned Lord, Lord Hope of Craighead, when he paid tribute to my noble friend Lord Naseby for giving us the opportunity to discuss this matter. When the noble Lord, Lord McNally, was in charge of our overseas territories, together with others, he embarked on a very positive consultation with them. What we are now trying to put right are a number of intemperate comments made in the House of Commons during its debate, and here I want to thank my noble friend the Minister for the way in which he opened the debate in this House. He recognised that a number of people in the British Overseas Territories feel outraged about some of those comments. However, as the noble and learned Lord, Lord Neuberger of Abbotsbury, pointed out, we are in the process of legislating for British Overseas Territories without proper prior consultation with their respective parliaments. I think it was my noble friend the Minister who said that this in effect disenfranchises their elected representatives.
Because of my connections to one of the territories, Bermuda, I am aware of the huge concern about some of the comments which have been made. It is sad that this year Bermuda’s constitution will celebrate 50 years of enactment. Moreover, Bermuda’s Parliament dates back to 1612 and is the third-oldest continuous parliament in the world, with the first assembly meeting in 1620. The Bermudians are very proud of that, and rightly so. When those intemperate comments were made, one person emailed me immediately to say that the Bermudian Mary Prince was the first slave to present an anti-slavery petition to these Houses and the first black woman to write and publish an autobiography in 1831. Her experience of the horrors she endured was the first of its kind to be documented by a slave and her words were instrumental in this House in contributing to the abolition of the slave trade in British colonies in 1838, some 30 years following the abolition of slavery in this country. We have to recognise the huge amount of pride among Bermudians about their history. I think that they have every right to feel insulted, which is the word that several of them have used to me.
Furthermore, under the Bermudian constitution, the application of an Order in Council to the island would be technically illegal, and I hope that my noble friend the Minister will think carefully about the words of my noble and learned friend Lord Mackay of Clashfern, in that there really must be a way through this somewhere. I suppose we ought to put on the record that for some 80 years Bermuda has been a world-leading public authority with a central register of beneficial ownership which long predates those in developed countries, including the United Kingdom. At every stage the island has shared this information upon request with legitimate international authorities. Moreover, Bermuda provides the information within 24 hours or, in extreme cases, two hours. I hope that my colleagues understand that we must have this debate to put on record the case for the overseas territories and what they have done so well for so long.
Baroness Hooper (Con)
My Lords, with all due respect to those who have spoken against the amendment, anybody listening to the arguments that have been put forward in support of my noble friend Lord Naseby’s amendment would happily follow him into the Division Lobby should he decide to test the opinion of the House. I declare a long-standing interest in the overseas territories: I am a vice-chairman of the Overseas Territories All-Party Parliamentary Group and an officer of many of those for individual overseas territories.
It seems extraordinary that these territories, which keep all the required records available to be shown to the appropriate authorities, should be required to publish them as a result of what seems to have been a last-minute decision in the other place. I had not intended to speak to the amendment, but I was tempted to do so to show my support for the overseas territories and my noble friend’s amendment.
Baroness Northover
My Lords, I will address the principles of this. The proposal was narrowly defeated in the Lords and has been debated for many years. Personally, I was delighted by the coalition across the parties in the Commons on this issue and I commend the Government on recognising that coalition. I especially commend the noble Baroness, Lady Stern, my noble friends Lady Kramer and Lord McNally, and others on their long fight on this issue. The transparency of public registers of beneficial ownership is the key issue and it will bring change. I have seen the positive effect of the unexpected spotlight provided, for example, by the Panama papers in some of the areas on which I focus in Africa. I have seen steady change and I welcome the decision to adopt public registers of beneficial ownership in the United Kingdom. London has not collapsed: Brexit may do more damage. I have seen the effect that bribery legislation in the United States, Europe and elsewhere has had on companies trading around the world and I have seen the change as a result, which we will see here too.
I recall some saying that the Bribery Act would differentially damage UK business. Ken Clarke saw those people off and rightly so. The noble Lord, Lord Naseby, did his right honourable friend Andrew Mitchell a disservice: he worked for many years in banking and spent many years supporting international development, so he does know both sides. Therefore our position is that we do not support the amendment of the noble Lord, Lord Naseby, for the reasons I have given of that change occurring across the world over time: it is very beneficial and if the overseas territories are concerned about losing that business then it is probably, as the noble Lord, Lord Anderson, indicated, business that they should not wish to have.
Lord Collins of Highbury
My Lords, I might as well begin by declaring what is not really a direct interest. My father was born in Bermuda and his father was born in Bermuda, so I think that entitles me to go and live there at some point and not have to deposit the $30 million that I think is currently needed if you want to live there. It is a very nice island, and I do love it and I love its people.
This debate is a reflection of constitutional concerns. There are concerns over the rights of people to determine their own laws and no one can disagree with that. But it is also a very strong moral debate, because we know that developing countries lose three times as much in tax avoidance as they get in all the international aid that is available to them. That is the scandal of this world we now live in. The Paradise papers and the Panama papers highlighted just how much of an issue this really is, and that is why we have such huge public concern. If we want to break the business model of stealing money and hiding it in places where it cannot be seen, transparency is the answer. I agree completely with the words of David Cameron in 2013 when he spoke about ripping aside “the cloak of secrecy” and repeated the well-known mantra that “sunlight is the best disinfectant”. I think that that commitment by David Cameron in 2013 is what this debate is about.
Last week, I had the opportunity of meeting the Prime Minister and Leader of the Opposition of the British Virgin Islands. They made their case very strongly to me about their concerns over this amendment. However, whatever position you are taking constitutionally, no matter what the concerns are, there is one thing that everyone agrees on, and that is that the scandal of money flowing out of countries and being hidden is something that has to stop. The Prime Minister of the British Virgin Islands acknowledges that transparency is important. We have heard about the actions of Bermuda and other places. David Cameron was actually trying to change the global position, to get to a position where we would have global agreement on addressing this issue.
How do we get global agreement? David Cameron believed it was by giving a lead. There is an issue here about reputation and being able to influence things. While we are in the European Union and saying, “You’ve got to ensure that all territories within the European Union comply with this”, and when we are in other global fora, we should be able to say that we will be acting on this. We know that the excuse of the overseas territories is often used by others to say, “If you’re not doing it there, why should we do it here?”. That is something that we have to address.
I absolutely understand the need to ensure that all the territories have the proper opportunity to consider this, but this is something that they have been acting on for some time. I respect the Minister’s undertaking to ensure that they have the necessary means as well as the necessary policy and advice.
Lord Northbrook
When the noble Lord talks about the relevant means, does that mean he expects the UK Government to substitute the revenue that these overseas territories are going to lose? He may say that some dodgy money will go out there, but some reputable people with money out there will take their money elsewhere. Is he saying the UK Government will have to take their place with our duty of supporting these overseas territories?
Lord Collins of Highbury
I am grateful to the noble Lord for raising that point. We have been talking about money flowing out. We have had debates elsewhere. I have also spent time working in Gibraltar and I know that on financial matters—Bermuda is another good example—it has built its reputation on having proper transparency and controls. That is what we need to establish: that there is a good way of doing this that will help expand the industry. Reputational interests are incredibly important.
The noble and learned Lord, Lord Brown, is absolutely right that we do have time; the point was also addressed by the noble and learned Lord, Lord Mackay. We have had some considerable time already on this issue, but we have time to ensure that we can get everybody on board with this principle. The only way we will get global agreement is for the United Kingdom to go into those international fora and say, “No more—we need transparency”, because transparency is what will ensure that we can find all those activities, particularly tax avoidance.
Lord Faulks
The noble Lord says that we have time. I understand why he says that. But the provision of the new clause says that all this must be done—the Order in Council must be drafted—no later than 31 December 2020. Is he satisfied that that is sufficient time, given the complexities?
Lord Collins of Highbury
Since David Cameron first made this commitment in 2013, there has been a substantial amount of time. When people say, “When will this come into effect? Will it be done by regulation? What is the commencement date?”, all these things are important considerations, but what the world sees, what the public see—what the citizens of developing countries have seen—is that this country makes a declaration in 2013 and by 2020 nothing has happened. That is what Parliament decided; that is what the debate in the other place was about. I stress that the debate saw cross-party concern about this issue. They know that the court of public opinion will judge this Parliament if we fail to act on the biggest problem that the world faces.
We have had debates in this Chamber about ODA and development support. I have argued that we should create a world where people are self-sufficient; we do not want people to be dependent on aid, but we are giving the means for that aid to be spirited away. That is what we need to stop.
Lord Ahmad of Wimbledon
My Lords, I am grateful to all noble Lords for an extensive, well-reasoned, well-argued and expert debate in your Lordships’ House. I am grateful in particular to my noble friend Lord Naseby, who presented a case for the overseas territories which I empathise with. Noble Lords who were in the Chamber when I opened this debate would have heard the points that I made. I will respond to a few specific points and questions raised, but I want first to set the record straight. First and foremost, the Government’s position is what it was when the Bill left your Lordships’ House. As the noble Baroness, Lady Northover, said, the Government defeated the amendment tabled by the noble Baroness, Lady Stern. That was done because of reasoned debate and expert insight, which has been reflected in your Lordships’ House again today.
As my noble friend Lord Hunt said, my noble friend Lord Naseby has allowed us all an opportunity again to demonstrate the wisdom, insight and expertise your Lordships have, but the point of principle highlighted by the noble and learned Lord, Lord Brown, remains: notwithstanding the valuable discourse that we have had, the House of Commons has sought to vote otherwise. In that regard, I want to clarify a few points.
My noble friend Lord Northbrook mentioned that it was a government amendment. Of course, it was not; it was tabled from the government Benches—it was a joint amendment. In light of the support that the amendment had gathered, the Government decided not to oppose it. My noble friend Lord Naseby referred to the Government’s amendment being tabled late in the day. Let me assure my noble friends and your Lordships’ House that we had been in extensive negotiations with many Members of Parliament, including those of other parties and most notably the Scottish National Party, on the important issues of the constitution and about this Parliament voting on something that would apply to parliaments that did not have a say in the debate taking place—a point well made by the noble Earl, Lord Kinnoull. We were trying to find a way forward that respected both the drive for transparency, which many noble Lords have raised today, and the constitutional settlement with the overseas territories and Crown dependencies. It was also important that we continued to do this to reach the cross-party consensus that was being sought. We brought further amendments forward on 30 April and brought that to the attention of the House to find that consensus. That is why conversations were still ongoing throughout that morning. The amendment we tabled was taken as in order but, as I said in my opening remarks, it was not then debated or taken for debate by the Speaker of the House of Commons.
That said, we have had an extensive debate. The noble Lord, Lord Anderson, who I see is not in his place as such, asked for comment on the Foreign Affairs Committee’s report. We are looking at that report, which was issued this morning, carefully but the Prime Minister has made the general principle clear. I say to all noble Lords that there is not a difference between ourselves and the Governments of the overseas territories. Everyone wants to see us tackle illicit finance effectively. Let me assure the noble Lord, Lord Collins, that it remains a priority for this Government and that we will continue to take a leading role in this respect.
The noble Lord, Lord Beith, my noble friend Lord Naseby and my noble and learned friend Lord Mackay all touched on the important issues of the constitutional arguments. Our position in the light of the circumstances set out in the 2012 White Paper has not changed. We believe that the fundamental structure of our constitutional relationships is the right one. Of course, we retain the power to legislate directly and have done so, as I said in my opening remarks, but in this case we would prefer not to have done so without consent. However, as we have all heard, we are all in this situation since the decision taken by the House of Commons.
My noble and learned friend Lord Mackay raised how this provision will come into force. As I always do, I listened carefully to his insight on this matter and I can confirm that it will not come into force through Royal Assent; it will come into force and commence by regulations. We need to establish the detail, as he said, but I listened carefully to the points he raised in this respect.
My noble friend Lord Faulks asked about the next Bill and I again pay tribute to his efforts in this regard. Let me assure him once again that we have committed to bring forward legislation early in the next Session on the important issue, which he has raised during debate on this Bill, of the register of overseas companies that own UK property. We anticipate that that register will be ready for use in 2021.
The noble and learned Baroness, Lady Butler-Sloss, pointed to other jurisdictions such as Gibraltar. At this point, I acknowledge the contributions of my noble friend Lord Naseby and other noble friends, and noble Lords across the Chamber, who acknowledged the efforts that our overseas territories have made. While I totally accept the principle highlighted by the noble Lord, Lord Collins, and the noble Baroness, Lady Northover, of the importance of transparency—of seeing that flow of illicit finance coming to an end—let us not forget that, in the UK, we have a public register. This is not a panacea to end this issue. It needs concerted action, which is why I have been vocal in my defence of the overseas territories and not just, as the noble Lord, Lord Beith, pointed out, because I am the Minister responsible. Genuinely, when we look at the track record from the overseas territories—the exchange of notes that are operational and which we are reporting back on, or the accessibility for tax and law enforcement agencies—those jurisdictions have been co-operating fully and effectively. That is why I, as the Minister responsible, made that robust defence of the overseas territories. Not only has progress been made; the overseas territories are ahead of the curve. There is just not a case for not doing something until the others catch up, as they are already fully co-operating.
Several noble Lords alluded to the EU list. Anguilla, Bermuda, the BVI, the Cayman Islands and all three Crown dependencies are not included on any list because they are deemed to have been holding back by the EU Code of Conduct Group. They have been put on lists and acknowledged for being co-operative jurisdictions. All our Crown dependencies and overseas territories with financial centres are already committed to global tax transparency standards, which we all agree on, and the commitments that they have made go beyond those. I say again for the record that there is no grey list. All the overseas territories, as the noble Earl, Lord Kinnoull, highlighted, have made great strides, ahead of many other jurisdictions, in ensuring that they adhere not to any international standard but to the principles of ensuring that they can address the fact that law authorities and tax authorities can access such registers.
That said, we are in a position where the other place has decided—on a cross-party basis in certain respects, as the noble Lord, Lord Collins, said—that it is its will to go forward with public registers for the overseas territories, and it is the Government’s position that we have accepted that point of the elected Chamber. In doing so, though, I assure my noble friend Lord Naseby and others who have spoken about the overseas territories that from a government perspective we will seek to ensure that we collaborate and co-operate fully and work with the overseas territories to ensure that we get the results we want. We do not want to disable the overseas territories and we do not want them to lose out, but there is a reality of decisions that this Parliament has taken, and they have implications. We need to ensure that we work effectively and collaboratively with those overseas territories to ensure that we can still sustain and strengthen their economies for years to come.
I put on record for my noble friend Lord Naseby that I am very grateful to him for once again allowing me to articulate the Government’s position and my position as the Minister responsible for the overseas territories. I am also grateful for, as I am sure my noble friend has acknowledged, the great and wise expertise that we have heard from around your Lordships’ House, demonstrating again the wise insight on this subject and many. However, mindful of the fact that the other place has decided to pursue the issue of public registers with the overseas territories, an amendment that the Government have now accepted, I hope that after listening to the debate my noble friend is minded to withdraw his amendment.
Lord Naseby
My Lords, those were fine words from the Minister, and we have heard fine words from my colleagues who have supported me this evening. I hope those fine words have some strength behind them. Many noble Lords will know that I have been in the two Houses for 44 years. I deeply respect the rights of the House of Commons, so it is not with an easy heart that I resist the temptation to test the views of this House.
I have reflected deeply on this. I am trusting my noble friend on the Front Bench to move this forward. As my noble and learned friend Lord Mackay of Clashfern said: justice for all—which means, in particular, justice for all the overseas territories. I shall watch, be vigilant and challenge, but on this occasion I beg leave to withdraw the amendment.
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendment 23.
“( ) Nothing in this Act affects any power exercisable in relation to ships by virtue of the prerogative of the Crown.”
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendment 24.
“(3) Regulations under section 1 may amend the definition of “terrorist financing” in section 43(4) so as to remove any reference to a provision of regulations that is revoked by regulations under section 1.
(3A) Regulations under section 1 may amend the definition of “terrorist financing” in section 43(4) so as to add a reference to a provision of regulations under section 1 that contains an offence, but only if—
(a) each purpose of the regulations containing the offence, as stated under section 1(3), is compliance with a UN obligation or other international obligation, or
(b) paragraph (a) does not apply but the report under section 2 in respect of the regulations containing the offence indicates that, in the opinion of the appropriate Minister making those regulations, the carrying out of a purpose stated in those regulations under section 1(3) would further the prevention of terrorism in the United Kingdom or elsewhere.”
Lord Ahmad of Wimbledon
I am sure the House willed that I move this formally but for good order I should speak to it, although I am sure I am not expressing the Deputy Speaker’s sentiments in any way.
This group contains the remainder of the amendments to the Bill made in the other place. Amendment 26 seeks to clarify the interaction of the powers in the sanctions Bill and the European Union (Withdrawal) Bill. It has been prompted by amendments to the European Union (Withdrawal) Bill tabled by the Government during its passage. Amendment 26 does not change the intent of the sanctions Bill, nor does it change the scope of the powers contained in the Bill. It makes clear that any restrictions in the European Union (Withdrawal) Bill on the modification of retained EU law do not prevent sanctions Bill powers being exercised as they were intended. The Government believe that the amendment is necessary to provide certainty and avoid any confusion about the interaction of the two Bills in this area.
Amendment 29 is a routine procedural amendment that removes the privilege amendment inserted in this House, which ensures that there are no amendments that would raise taxes or impose charges.
Amendment 24 makes changes to the ability to update the definition of terrorist financing, fulfilling a commitment that the Government made on Report in your Lordships’ House. It retains the ability to remove obsolete references from the definition, but restricts the ability to add new terrorist financing measures by way of sanctions regulations. Those new measures can now be added to the definition of terrorist financing only if the new measures are made either for the purpose of compliance with international obligations, or for the purpose of furthering the prevention of terrorism in the UK or elsewhere.
Noble Lords will be aware that Schedule 2 to this Bill, as already approved by your Lordships’ House, provides an express power permitting the Government to make anti-money laundering regulations that correspond or are similar to the money laundering regulations 2017, or to amend or revoke those regulations. These powers will enable the Government to update the UK’s anti-money laundering regime to reflect evolving international standards and address emerging risks.
Amendment 33 is also consequential on amendments to the EU withdrawal Bill, and confirms that these powers can be used once we leave the EU, in connection with the EU funds transfer regulation—which regulates payment service providers—and other EU-level legislation made under the fourth money laundering directive. This applies in particular to the existing EU list of high-risk third countries, in connection with which enhanced due diligence is required. This amendment provides legal certainty regarding the Government’s ability to update this legislation, which will be part of UK law, using the powers conferred through the Bill. This will ensure consistent treatment of the money laundering regulations 2017 and the closely interlinked legislation which also came into force last year. With those explanations, I beg to move.
Baroness Northover
I could say that I am going to test the opinion of the House, but I do not think that that would work. I just take the opportunity of this group to thank the Minister and the Bill team for their careful and constructive engagement on the Bill. Obviously, we would prefer that we were not having to take this legislation through, but if we leave the EU it will indeed be needed.
I also thank those on these Benches who have assisted on the Bill: my noble friends Lady Sheehan and Lord McNally and, especially on the anti-money laundering part, Lady Kramer and Lady Bowles, who single-handedly analysed and proposed restructuring of that part of the Bill and engaged with the Bill team and the Treasury, drawing on her experience as a former chair of the economics committee of the EU.
I also thank the noble Lord, Lord Collins, and his team, and the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, for their deep and constructive engagement.
As the Minister quickly discovered, although the subject matter of sanctions and anti-money laundering is not exactly controversial, the means of tackling it and the carryover into wider Brexit legislation in terms of powers taken meant that this was a forerunner to the EU withdrawal Bill. Above all, I thank the Minister and his team for their patience and engagement. Judging by the previous group, it sounds as though he still has much to do.
Lord Ahmad of Wimbledon
My Lords, I am grateful to the noble Baroness, Lady Northover, and again put on record my thanks to her—and to the noble Baroness, Lady Bowles, in particular, on the issue of money laundering. In the same way, I extend my thanks to the Labour Front Bench, particularly the noble Lord, Lord Collins, and others in your Lordships’ House.
As I said when the Bill passed from your Lordships’ House, we have seen co-operation and your Lordships at their best. I said right at the beginning that we were in listening mode, and I think that has been reflected during the course of the Bill in both your Lordships’ House and the other place. I hope that the noble Baroness is also minded to note that we learn from the wise words of others such as the noble Lord, Lord McNally, and that in introducing this group, I resisted using the word “technical”. I commend the amendments.
Lord Ahmad of Wimbledon
That this House do agree with the Commons in their Amendments 25 to 34.
“Duties to lay certain reports before Parliament: further provision
(1) In this section “a reporting provision” means section 2(4), (Report in respect of offences in regulations)(2) or 40(2) or paragraph 20A(2) of Schedule 2 (duties to lay before Parliament certain reports relating to regulations).
(2) Where more than one reporting provision applies in relation to particular regulations under section 1, the reports to which those provisions relate may be contained in a single document.
(3) If a reporting provision is not complied with, the appropriate Minister who should have complied with that provision must publish a written statement explaining why that Minister failed to comply with it.
(4) Subsection (5) applies where a reporting provision applies and—
(a) a statutory instrument containing the regulations concerned, or
(b) a draft of such an instrument, is laid before the House of Commons and House of Lords on different days.
(5) Where this subsection applies, the reporting provision in question is to be read as requiring the laying of a copy of the report to which that provision relates—
(a) before the House of Commons at the time the instrument or draft mentioned in subsection (4) is laid before the House of Commons, and
(b) before the House of Lords at the time that instrument or draft is laid before the House of Lords.”
“Retained EU rights
(1) If and to the extent that anything in the European Union (Withdrawal) Act 2018 would, in the absence of this section, prevent any power within subsection (2) from being exercised so as to modify anything which is retained EU law by virtue of section 4 of that Act (saving for certain rights etc), it does not prevent that power from being so exercised.
(2) The following powers fall within this subsection—
(a) any power conferred by this Act, or by regulations under this Act, on a Minister of the Crown within the meaning of the Ministers of the Crown Act 1975 (however that power is expressed);
(b) any power conferred by regulations under Schedule 2 on a supervisory authority.
(3) In this section “modify” has the same meaning as in the European Union (Withdrawal) Act 2018.”
“( ) section (Periodic reports on exercise of power to make regulations under section 1);”
“27A(1) For the purpose of the enforcement of any relevant prohibition or requirement, regulations under this paragraph may modify any provision of CEMA which—
(a) determines whether any thing is liable to forfeiture under CEMA by virtue of a contravention of the prohibition or requirement,
(b) provides for the treatment of any thing which is so liable by virtue of such a contravention, or
(c) confers any power exercisable in relation to a ship, aircraft or vehicle.
(2) In sub-paragraph (1) a “relevant prohibition or requirement” means a prohibition or requirement—
(a) imposed for a purpose mentioned in Part 1, and
(b) specified in the regulations under this paragraph.”
(a) creating criminal offences for the purposes of the enforcement of requirements imposed by or under regulations under section 43, and
(b) dealing with matters relating to any offences created for such purposes by regulations under section 43,
but see paragraphs 18 and 19.”
“20A(1) In this paragraph “relevant regulations” means regulations under section 43 which create any offence for the purposes of the enforcement of any requirements imposed by or under regulations under section 43.
(2) The appropriate Minister making any relevant regulations (“the Minister”) must at the required time lay before Parliament a report which—
(a) specifies the offences created by the regulations, indicating the requirements to which those offences relate,
(b) states that the Minister considers that there are good reasons for those requirements to be enforceable by criminal proceedings and explains why the Minister is of that opinion, and
(c) in the case of any of those offences which are punishable with imprisonment—
(i) states the maximum terms of imprisonment that apply to those offences,
(ii) states that the Minister considers that there are good reasons for those maximum terms, and
(iii) explains why the Minister is of that opinion.
(3) Sub-paragraph (4) applies where an offence created by the regulations relates to particular requirements and the Minister considers that a good reason—
(a) for those requirements to be enforceable by criminal proceedings, or
(b) for a particular maximum term of imprisonment to apply to that offence,
is consistency with another enactment relating to the enforcement of similar requirements.
(4) The report must identify that other enactment.
(5) In sub-paragraph (3) “another enactment” means any provision of or made under an Act, other than a provision of the regulations to which the report relates.
(6) In sub-paragraph (2) “the required time” means the same time as the draft of the statutory instrument containing the regulations is laid before Parliament.
(7) This paragraph applies to regulations which amend other regulations under section 43 so as to create an offence as it applies to regulations which otherwise create an offence.”
“(a) subject to any modifications the appropriate Minister making those regulations considers appropriate, make provision corresponding or similar to any provision of retained money laundering Regulations as those Regulations have effect immediately after being saved by section 2 or 3 of the European Union (Withdrawal) Act 2018;
(b) amend or revoke any retained money laundering Regulations.
(1A) In sub-paragraph (1) “retained money laundering Regulations” means— (a) the Money Laundering Regulations 2017;
(b) Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds;
(c) any provision made under Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing by virtue of Article 290 or 291(2) of the Treaty on the Functioning of the European Union.”
“( ) In paragraph 15 (offences), any reference to regulations under section 43 includes the Money Laundering Regulations 2017.
( ) In paragraph 20A (report in respect of offences)—
(a) the reference in sub-paragraph (1) to requirements imposed by or under regulations under section 43 includes requirements imposed by or under the Money Laundering Regulations 2017, and
(b) the reference in sub-paragraph (7) to other regulations under section 43 includes the Money Laundering Regulations 2017.”
Royal Assent
Wednesday 23rd May 2018
(6 years, 6 months ago)
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