(9 years ago)
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Stephen Pound (Ealing North) (Lab)
I beg to move,
That this House has considered the matter of prosecuting corporate economic crime.
It is hardly necessary for me to point out what a pleasure it is to serve under your auspices, Mr Stringer, and I am sure that I speak for every person in the room when I say that it is marvellous to be here on this crisp autumnal morning. As the fog lifts from our city, I intend to cut through some of the fog around Government policy on the prosecution of economic crime. I have every confidence that the Minister will be able to illuminate this dark part of the legislative process. I called this debate to focus on economic crime and on whether our law enforcement agencies and related prosecuting authorities have the necessary tools to prosecute such crimes.
All current indicators seem to show that economic crime, such as fraud, tax evasion or bribery, are on the rise. City traders, previously perceived as paragons of virtue, are being convicted of rigging key bank lending rates, and some of our biggest banks and institutions are under investigation, challenging the very fabric of our society. This debate is clearly timely and important and comes at a point when the Government are sending out, if I may say, extremely mixed signals about their approach to holding individuals and companies to account for wrongdoing. It gives me no pleasure to say that they appear to have U-turned on a key manifesto pledge. It is widely accepted that a major issue in corporate economic crime in this country is how we can hold companies to account for their actions, and in particular make corporate wrongdoing a criminal offence. The UK’s corporate criminal liability framework is widely considered to be inadequate and lags far behind that of the US.
The Government have made some promising signals about finally getting to grips with the matter, with the Attorney General promising in September 2014 to introduce a corporate liability offence, a promise repeated—may I say, carved in stone?—in the Conservative’s manifesto. Yet, having heard nothing since the election, we learned just over a month ago that the Government no longer see any need for such an offence, even claiming that no such economic crimes go unpunished, which is a slightly Panglossian perspective that I hope to challenge in the next few paragraphs of my speech. Given what we know about economic crime, the impact that it has on businesses and the difficulties that law enforcement agencies face in prosecuting individuals and companies for such crimes, the decision is extremely disappointing. I hope that when the Minister has listened to the many concerns raised in the debate, he will be able to reassure hon. Members that he will look again at the proposals.
It is always a good idea to define what one is talking about. In response to the fairly reasonable question, “What is economic crime?” I turn, as sadly do so many people in the Labour party nowadays, to PricewaterhouseCoopers. Its economic crime survey defines economic crime as
“the intentional use of deceit to deprive another of money, property or a legal right.”
That includes money laundering, bribery, tax evasion and fraud, and such acts can be committed by employees of companies. The financial services industry, according to a recent Treasury risk assessment, is seen as being at most risk of harbouring money-laundering activities. I will return later to how we can prosecute or deter such activities, but one way is to hold companies liable if they have not adequately prevented such activities, and to make it an offence to have not prevented economic crime. For those present who sat through the debates on the Bribery Act 2010, this will be familiar territory.
The Government announced in late September that they were no longer pursuing proposals to introduce a corporate liability offence, on the basis that such an offence is unnecessary. That came to light in a fairly roundabout way following a written question from the hon. Member for Gower (Byron Davies),who is a prominent member of the all-party parliamentary group on anti-corruption, requesting an update, to which the Under-Secretary of State for Justice, the hon. Member for South West Bedfordshire (Andrew Selous), replied:
“The UK has corporate criminal liability and commercial organisations can be, and are, prosecuted for wrongdoing. The UK Anti-Corruption Plan tasked the Ministry of Justice to examine the case for a new offence of a corporate failure to prevent economic crime and the rules on establishing corporate criminal liability more widely. Ministers have decided not to carry out further work at this stage as there have been no prosecutions under the model Bribery Act offence and there is little evidence of corporate economic wrongdoing going unpunished.”
That prompts the question whether there is any evidence of economic crime going unpunished, and how prevalent economic crime is. The figures speak for themselves. KPMG’s twice-yearly fraud barometer—riveting reading that I recommend to all Members—reports that fraudulent activity in the UK totalled £385 million in the first half of 2015, which is up 22% on last year. The Government’s National Fraud Authority—a marvellous title—has reported a £52 billion-a-year loss to the UK economy from fraud. Indeed, the Attorney General himself has identified the growing threat of economic crime in this country. In a 2014 speech announcing his intention of pursuing the case for a new corporate liability offence, he observed that
“in the modern global economy, economic crime is more pervasive than ever before…the evolving nature of economic crime means we need to continue to find and develop new ways to expose and combat it.”
More high-profile cases of economic crime are being alleged or prosecuted. This summer saw the first prosecution of a UBS City trader following the LIBOR scandal. Tom Hayes was found guilty of rigging global LIBOR interest rates and sentenced to 14 years in prison for conspiracy to defraud in a case brought by the Serious Fraud Office. Two more British traders are also standing trial in New York for their alleged role in a scheme to rig LIBOR. That followed the extraordinary revelations in February that the Swiss private banking arm of HSBC, which is headquartered in London, had helped over 100,000 wealthy individuals to evade and dodge tax all over the world. HSBC has admitted to that. In spite of all that, the number of defendants prosecuted by the SFO and City of London police—as I presume everybody knows, as well as investigating crime, it is often the lead agency in such matters—has fallen by a fifth since 2011, from 11,261 then to 9,343 last year. According to the Financial Times, the fall in prosecutions has been largely put down to both a lack of resources, given the significant spending cuts of the past five years, and the fact that agencies are ill-equipped to pursue and prosecute white-collar crimes.
How do we make sure our law enforcement agencies are properly equipped to ensure that those who commit economic crimes are held accountable, punished and ultimately deterred? The answer many turn to is some form of corporate liability offence, which essentially makes it a crime if a company fails to prevent acts of economic crime, such as fraud and bribery. However, with one exception, such an offence does not exist in the UK. Instead, current UK corporate liability law is based on the identification principle. Again, this will be familiar territory to those who remember the passage of the 2010 Act. To prove that a company is guilty of an economic crime, the prosecutor must show that a person who is the directing or controlling mind of the company intended to commit, or had knowledge of, the criminal act. That requires identifying somebody at the most senior level in a company as being responsible. In the modern, globalised world in which we live, where companies span numerous national borders and jurisdictions, that is no small task; it is virtually impossible. Many believe that it sets the bar far too high for prosecutors to prove corporate liability. There is one exception: bribery, in which that burden of proof is essentially reversed.
Thanks to section 7 of the 2010 Act, which the previous Labour Government introduced, commercial organisations can be held liable if they are found to have failed to prevent bribery by their employees; unsurprisingly, that is known as the “failure to prevent” principle. As such, companies are required by law to prove that they have carried out adequate procedures to prevent acts of bribery by their employees. That acts as their statutory defence. Many see section 7 as a model that could be used to hold corporates criminally liable for all kinds of economic crime, not just bribery. The director of the SFO, David Green, has made it clear on a number of occasions that he would support such a move. In 2013, he said:
“A more sensible and just approach might be that embodied in Section 1 of the Bribery Act 2010. This creates the offence of a commercial organisation ‘failing to prevent’ bribery by its employees, with a statutory ‘adequate procedures’ defence. Extending this approach, a Corporate, or certain types of Corporate (such as banks and companies listed on stock exchange) could be liable for failing to prevent certain types of criminal offence by their employees subject to a statutory defence.”
Until recently, that view was echoed by the Attorney General, who said a little more than a year ago, in his first major speech in the role:
“Government officials are considering proposals for the creation of an offence of a corporate failure to prevent economic crime, modelled on the Bribery Act section 7 offence.”
That promising start from the Attorney General did not last, and the Government have now decided that no such offence is required, despite the fact that the leading prosecuting authority for white-collar crime, the SFO, clearly favours such an offence.
What people had to say about that decision can help us to understand how important many see a new corporate liability offence as being to strengthening the ability of law enforcement agencies to prosecute white-collar crime. Robert Amaee, a former head of anti-corruption at the SFO, said:
“This retraction by the government is unlikely to be welcomed by the prosecutors who have been calling for an extension of the law on corporate criminal liability. I expect that there will be renewed enthusiasm for revisiting this topic once the SFO has shown that it can bring successful prosecutions under the existing failing to prevent bribery offence.”
Alan Sheeley, head of civil fraud and asset recovery at Pinsent Masons, said:
“The new criminal offence of failure to prevent bribery might not have resulted in any dedicated prosecutions as yet, but its impact on the attitudes and policies of businesses of all sizes has been staggering. I would have expected the potential legislation of failing to prevent economic crime to have the same impact if and when implemented. Frankly, this seems like a wasted opportunity by the UK government to target economic crime and, at the same time, reinforce the role of the UK as a leader in tackling economic crime in global financial markets and businesses.”
The Conservative manifesto, a document that I study with great interest and care when I have difficulty getting to sleep at night, states:
“We are also making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to punish and deter.”
Without commenting on the rest of the Conservative manifesto, that was a sensible proposal that seemed to be supported universally. It is therefore disappointing that the Government have seemingly performed a screeching handbrake turn.
Only the month before last, the Treasury published its long-anticipated “UK national risk assessment of money laundering and terrorist financing activities”. We need only look at the report’s conclusions to understand the importance of equipping law enforcement agencies, and of ensuring that prosecuting authorities have the tools in the armoury to prevent and punish economic crime. The report stated:
“The size and complexity of the UK financial sector mean it is more exposed to criminality than financial sectors in many other countries, including abuse enabled by professional enablers in the legal and accountancy sector...The UK’s response is well developed, but more needs to be done to ensure it is commensurate with our status as a well regulated global financial centre.”
I speak as a London MP, and about 60% of the offences we are discussing take place in my city. More clearly needs to be done; that is the key.
A criminal offence of failing to prevent economic crime would enable agencies and authorities to do more; as we have heard from the director of the SFO, it would clearly help him and his teams to do more. In our increasingly interconnected, digital world, economic crime is arguably more prevalent than ever before, as the Attorney General has conceded. The tools at our disposal and the resources available to our agencies and authorities must evolve to keep pace with developments.
I hope that the Minister can today say proudly that the option of introducing a criminal offence for failing to prevent economic crime is still on the Government’s agenda and that they intend to propose one in due course. I hope the Minister will be able to provide that reassurance today, because given the events of 2007-08 and everything that followed, the public have a right to expect that those who defraud, launder money or commit other white-collar crimes are brought to justice.
In common with many Members of Parliament, I have a fantasy. My fantasy—don’t worry, Minister—relates to the marvellous “The Comic Strip Presents” television series. “The Strike” showed how Hollywood would imagine the miners’ strike. Al Pacino played Arthur Scargill, and Jennifer Saunders played Meryl Streep. At one stage a young Arthur Scargill entered the Chamber of the House of Commons and made an impassioned speech in favour of the mineworkers, whereupon the Speaker, who was apparently Leader of the Opposition and Head of Government at the same time, said, “You have convinced me, Sir. We will throw out all our existing policies on pit closures and reverse everything. We will do precisely what you, young Scargill, have asked for.”
I would not put myself in the place of Al Pacino or Arthur Scargill, but how wonderful it would be if the Minister said, “Having considered the matter, I will break free from the shackles of this Government and from the rigid centralism that permeates the Conservative party. I accept that a point has been made and that we need to do something. We will act; we will overturn the previous policy U-turn, and we will revert to the noble words in the Conservative party manifesto. We will introduce that crime.” The nation would be happy; the City might not be utterly delighted in the first instance, but it would be delighted as our reputation improved; and, above all, the SFO and decent people who care for the probity of our financial services in these islands would look to the Minister and thank him, were he to make that statement today.
Christina Rees (Neath) (Lab)
It is a pleasure to serve under your chairmanship, Mr Stringer.
I congratulate my hon. Friend the Member for Ealing North (Stephen Pound) on securing this important debate. As we heard from him, economic crime is on the increase and fraud very much remains a hidden crime. I, too, turned to the 2014 PricewaterhouseCoopers global economic crime survey, which found that 44% of UK organisations reported some type of fraud—the global average is 37%. The majority of respondents felt that the number of instances and the financial impact of economic crime had increased since 2013. The proportion of employees committing economic crime increased from 34% to 41%, and most crimes are committed by junior staff.
The Treasury’s money laundering and terrorist financing national risk assessment found:
“The size and complexity of the UK financial sector mean it is more exposed to criminality than financial sectors in many other countries”.
The risk assessment also stated that the banking sector is at highest risk of money laundering because London is home to 250 foreign banks and is the largest centre of cross-border bank funding. We clearly need laws to combat economic crime.
Existing UK corporate liability law is based on the identification principle, which requires prosecutors to show a person who is the “directing” or “controlling” mind of the company—that is, that someone sufficiently senior intended to commit the criminal act—to prove the company guilty. In the case of large multinational corporations, however, it is difficult to identify individuals who are the directing or controlling mind. In other words, they are getting away with it.
Indeed, in 2013 the director of the Serious Fraud Office, David Green, said that
“a corporation is only liable if the top personnel can be shown to be complicit, but this is very hard to prove—rarely does the email chain go above a certain level”.
Furthermore, the identification principle creates perverse incentives for board-level officers to distance themselves from knowledge of wrongdoing, so any decision to engage in wrongdoing is split between individuals with different knowledge, making it difficult to prove that one person had the intent.
What are the alternatives? The Labour Government introduced the Bribery Act 2010, but there have not been many prosecutions, and the first convictions did not take place until December 2014, when three men were jailed for a £23 million biofuel investment scam. Those men, who worked for Sustainable Agroenergy plc, preyed on people, conning them into investing their savings and pension funds.
The Bribery Act overhauled laws that dated back 122 years and gave prosecutors new powers to fight modern internet bribery. As we have heard, section 7 of the Act made it an offence for a commercial organisation to fail to prevent bribery by its employer; the defence is adequate procedures. No prosecutions have been pursued under that section, so it has not been tested in the courts, but Alan Sheeley, the head of civil fraud and asset recovery at Pinsent Masons, said that the Act’s
“impact on the attitudes and policies of businesses of all sizes has been staggering.”
The Labour party sees section 7 as a model that could be used to prosecute all economic crimes. A company would be liable for failing to prevent certain offences of economic crime unless it showed that it had put adequate procedures in place to prevent it. As we have heard, however, although the Attorney General made that proposal in September 2014 and included it in the 2014 anti-corruption plan—and even though it was in the Conservative party’s manifesto and it received widespread cross-party support—the Under-Secretary of State for Justice, the hon. Member for South West Bedfordshire (Andrew Selous) responded to a written question from the hon. Member for Gower (Byron Davies) to say that the proposal had been dropped.
The Government have received much criticism for reneging on that promise. Indeed, Elly Proudlock, a member of WilmerHale’s white-collar crime team, said:
“It is surprising that the Government has decided not to pursue law reform in this area, given the small number of corporate prosecutions to date and the repeated insistence by David Green…that the threshold for establishing corporate criminal liability must be lowered.”
The new offence of failure to prevent bribery has had a profound effect on the attitudes and policies of businesses of all sizes. The threat of prosecution has reduced offending, so we need to change the culture in companies on committing economic crime. It is concerning that the attitudes of those in senior positions in companies contributes to the prevalence of economic crime committed by their employees. To broaden section 7 to include all economic crime may well have a positive effect on those senior people and, in turn, that may change the culture of their employees. The threat of prosecution may well be persuasive in itself.
The alternatives include introducing a new vicarious liability regime similar to the US model, whereby companies are liable for the illegal acts of employers and agents when such acts are in the scope of their employment and benefit the company. However, vicarious liability is notoriously difficult to prove.
What about deferred prosecution agreements, another import from the US, where they are used extensively? DPAs were introduced to the UK in 2014 by the Crime and Courts Act 2013. They are a method by which an organisation can avoid prosecution by entering into a contract with certain conditions, which may include paying a financial penalty, paying compensation or co-operating with future prosecutions of individuals. They can be used for fraud, bribery and other economic crimes. The SFO says that a DPA would be appropriate when the public interest is not best served by mounting a prosecution. No DPAs have been signed yet, but there is speculation that two small private companies, Barclays and Tesco are involved in discussions. The SFO’s director, David Green, suggested that two will be signed by the end of 2015.
On one hand, many see DPAs as a proven method of compensating for economic crime. In the US they brought in more than $4.2 billion last year and more than $9 billion in 2012. That may be evidence of their effect in reducing economic crime. On the other hand, they are a way for companies to get out of jail, because no one goes to jail.
Of greatest concern is whether DPAs will work in the UK. Without the threat of criminal liability prosecutions and the likelihood of an organisation being prosecuted, what is the incentive to sign a DPA? Why pay a significant fine, pay compensation or co-operate in prosecutions if there is no chance of getting caught in the first place?
One of my concerns is the practical question of the lack of resources needed to pursue large, complicated cases against well-resourced multinational corporations. If the resources are not there, adding new offences to the statute book will not be effective. We need new methods to combat economic crime, but we also need resources.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate my hon. Friend the Member for Ealing North (Stephen Pound) on his inspiring and passionate speech. The image he gave towards the end of his speech of Al Pacino playing Arthur Scargill will live with me for the rest of the day.
Before I start, I must declare two interests: I am the Parliamentary Private Secretary to the shadow Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Wallasey (Ms Eagle), and in a previous life, I worked for the World Economic Forum, many of whose members were FTSE 500 companies. In fact, my experience should reassure the City and our friends in the financial services sector that I am not here to attack them; on the contrary, I come here today with their best interests at heart.
We all remember the events that led up to the collapse of Lehman Brothers and the tumultuous events of the ensuing months and years—events that changed the course of history and caused many of the troubles that the world faces today: the sovereign debt crisis, chaos in the eurozone and the freezing of public and private sector investment. A sluggish economy with an uncertain future means that many who have been worst hit want to see “the bankers”, as they are characterised, punished. People feel that the law is broken and that those who broke it have been let off scot-free.
Cool heads have prevailed and blanket retribution has not been applied, which is a good thing, but the Government now seem to have swung far too far in the other direction, towards total and complete inaction, with the odd knighthood stripped but little more to show than that.
The City and the financial services sector need to be held accountable, for their own good as much as for the public’s, and our common interest should now be to rebuild trust. Right now, trust levels are at rock bottom. According to the Edelman Trust Barometer, financial services is the least trusted industry worldwide. Almost 60% of the British public rates the banking industry’s performance as poor or very poor. That is not sustainable if we want the City to carry on thriving. In fact, if we break the figures down, we see that the City’s trust score is artificially inflated by higher levels of trust in retail banks, while of those polled only 18% trust investment bankers and only 12% trust fund managers.
In the light of such a fundamental breakdown in confidence, hon. Members can imagine how pleased I was to read the following paragraph in the Conservative party’s 2015 manifesto:
“We are also making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to punish and deter.”
To Labour Members, that was music to our ears, so the Government’s recent decision to backtrack on corporate liability was all the more disappointing and puzzling. I am concerned that, in backtracking on that vital manifesto pledge, Ministers will have opened themselves up to suggestions—totally unfounded, of course—that they are acting on the demands of a number of those who donate large sums of money to the Conservative party. I urge the Minister to dispel those nasty rumours.
The Conservatives’ courageous and correct manifesto commitment had teeth and was a wholly proportionate response to the fact that fraudulent activity increased by 22% in the first half of 2015 compared with the first half of 2014. That is not good for our financial security or for the future of an industry that fundamentally requires public trust and backing more than ever before. Despite promises to the contrary, there have been no criminal sanctions for reckless management, nor have we seen any sign of the much touted rule that bars managers of failed banks from running other companies.
I want the City to succeed, because it is vital to our economy, but I am concerned that the Government are too short-sighted to see what real, long-term, sustainable success means. Success means rebuilding trust and changing how the City is perceived. In closing, therefore, I would like to make a number of recommendations on smart regulation.
First, the Government must act on their own manifesto and enforce corporate liability. Criminal sanctions for bad management are almost universally supported by the public and are key to establishing a new corporate culture based on transparency. Secondly, the Government must act on the Treasury’s “UK national risk assessment of money laundering and terrorist financing” by cracking down on professional enablers in the legal and accountancy sector. Thirdly, they must get serious about investing in the tools and technology necessary to keep pace with these criminals.
Labour Members want only to see a thriving financial services sector. For the sector to thrive and prosper, it must regain the trust of the British people and reclaim its licence to operate. That is why the measures in the Conservative party manifesto were so welcome, and why it is vital that they are urgently incorporated into law. It is absolutely right to be pro-business, but it is wrong to be pro-business as usual.
Kate Osamor (Edmonton) (Lab/Co-op)
It is a pleasure to serve under your chairmanship, Mr Stringer. I thank my hon. Friend the Member for Ealing North (Stephen Pound) for securing the debate.
Like many of my hon. Friends here today, I was disappointed to learn that the Government appear to have dropped their plans to introduce a corporate liability offence. By going back on their manifesto pledge to prosecute economic crime, this Government are pandering to corporations. They are not following through on their promise to tackle tax evasion. They are not adequately holding corporate criminals to account, in the same manner as other criminals. After the crash of 2008, the public have a right to expect those who launder money, defraud or commit other white-collar crimes to be brought to justice. The bail-out cost UK taxpayers was £133 billion—more than £2,000 per person.
As the Attorney General identified in September 2014, in the modern economy, economic crime is more pervasive than ever. According to the Financial Conduct Authority, white-collar crime is estimated to cause the UK losses of more than £40 billion a year. The number of defendants prosecuted by the Serious Fraud Office and the City of London police has fallen by a fifth since 2011, despite an increase in tip-offs. Figures from June 2014 show that the number of leads reported to Action Fraud—a national crime reporting centre that is part of the City of London police force—had jumped 46% year on year. According to Pinsent Masons, the Serious Fraud Office received more than 2,000 reports of suspected white-collar crime from whistleblowers last year.
The clear disparity between the evidence of rising economic crime and rising tip-offs and the falling number of prosecutions highlights the fact that the mechanisms in place are not working. Current legislation is inadequate to prosecute economic crime. That point is acknowledged by the SFO’s director, David Green, who would support extending section 7 of the Bribery Act. The Government’s lack of political will to address this issue is acting against the public interest.
Stephen Pound
My hon. Friend makes an important point when she talks about existing legislation but an absence of will. When deferred prosecution agreements were introduced, as part of the Crime and Courts Act 2013, we could have gone the way of the United States, which uses them with great skill and effectiveness, but for some reason not a single DPA has been signed off in this country. Does she agree that that is an example of where the legislation exists, but the will demonstrably does not?
Kate Osamor
That is a fantastic point, and I totally agree.
I end by urging the Government both to honour their manifesto pledge to tackle economic crime and to reassess their rejection of extending the Bribery Act to cover all kinds of economic crime.
Richard Arkless (Dumfries and Galloway) (SNP)
It is a pleasure for me, too, to serve under your chairmanship, Mr Stringer. I thank the hon. Member for Ealing North (Stephen Pound) for introducing the debate. I also thank the hon. Members for Neath (Christina Rees), for Aberavon (Stephen Kinnock) and for Edmonton (Kate Osamor) for their thoughtful and insightful contributions.
The debate is predicated on the widely held public view that the bankers seem to have got away with it over the last five, six or seven years. Whether that is correct or not, it is certainly the widely held public perception. The urgings from the Opposition and the Conservatives’ manifesto pledge seemed to indicate that they were inclined to address that widely held view. I welcome that, and it is right that the issue is addressed. As we have heard from Opposition Members, corporate economic crime has increased over the last few years, and there is a question about whether both the means and the inclination and the will to tackle it exist.
I speak on behalf of the Scottish National party, of course, and section 7 of the Bribery Act applies only to England and Wales, not to Scotland. Most of the prosecutions that could be brought by the Serious Fraud Office or another entity relate to subjects—financial crime and financial regulation—that are reserved functions. However, Scotland has a long and well established criminal court system, which could bring charges for individual crimes to bear on individual directors, but as we have heard, those tools may not be up to the job. The SNP would be very interested, to say the least, in Government proposals on this point, but we recognise that there are difficulties. We, too, live in a jurisdiction where the prevalent public perception is that the bankers have got away with it. My constituents, like people across Scotland, are demanding that something be done.
I should declare a slight interest as a former practising lawyer, qualified on both sides of the border. Having come to this debate fairly recently, one difficulty I would point to is the difference between holding a company, as opposed to an individual, criminally liable. I am not saying that we could not get around that problem in law, but it strikes me, as a legally qualified person, that there are difficulties involved in bringing an entity into the realms of criminal liability. However, if the Government come up with proposals to get round that, I would certainly look at them.
The message to the Government from the SNP and Scotland is that if they do consider giving Scotland more tools to address these reserved issues, they should carefully consider the provisions that already exist in Scots law and make sure that the principles of Scots law are not set aside. It is in that spirit of co-operation that I come to the debate, and I am very interested to hear what the Minister has to say. We welcome moves to tackle this issue, but we are cautious about how they can be achieved.
When it comes to how the bankers have apparently got away with it, the message I hear from my constituents and from people across Scotland is really about actions and consequences. Over the last five to eight years, many ordinary people have, they would argue, suffered enormous consequences as a result of the actions of others. The public’s view in Scotland—I suppose this is replicated across the rest of the UK—is that there are people in the financial services industry who are earning huge sums and have suffered no consequences as a result of their actions or the actions of the company they are employed by. On the face of it, that needs to be addressed. We in Scotland are very interested to hear what the Minister has to say about what seems to be a substantial tide of opinion. Of course, we recognise that there are difficulties, which need to be addressed in any proposals.
Stephen Pound
The hon. Gentleman brings a wealth of experience and knowledge to the matter, which is welcome. In the context of what he was saying about perceptions, is he aware that in the summer BIS consulted the business community about whether to water down Labour’s Bribery Act guidance to businesses? That surely sends completely the wrong signal to business. Does the hon. Gentleman agree that when there is consultation on whether even a measure as modest yet effective as the Bribery Act 2010 is potentially dilutable—if there is such a word—it sends an appalling signal?
Richard Arkless
Yes, wholeheartedly. The public perception is real and tangible, and in my view it is entirely based in fact. The Government’s reluctance to continue on the road, and the suggestion that the 2010 Act, which does not apply to Scotland, might even be watered down, sends entirely the wrong message. If we can convince the public that we are serious about the issue, the trust in financial services that has evaporated in the past five to 10 years can, I hope, be restored. The reason Parliament thought it right to bail out the banks was their intrinsic role in the economy, and that has not changed; however, the public need to have confidence in the financial services sector. For the time being, they do not have such confidence, and I will be interested to see what the Government will propose.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate my hon. Friend the Member for Ealing North (Stephen Pound) on securing this important debate on prosecuting corporate economic crime, and on his argument, which he put forward with his customary elegance. The debate is timely, in the light of recent announcements by Ministers. I congratulate all the hon. Members who have taken part in the debate, who made powerful contributions and set out strongly the arguments that the Government should listen to. Each of them made important points, to which I shall refer. I do not mean to diminish the Minister’s presence when I say that I am disappointed that neither of the Law Officers could attend the debate. I hope that is not a sign of Government obfuscation on these important issues.
Like my hon. Friend the Member for Aberavon (Stephen Kinnock), I am not here to bash bankers. The City of London is the world’s second-largest financial centre and a major contributor to the UK economy. Its success is clearly founded on the professionalism and integrity—for the most part—of those who work in the sector. That is why we cannot allow its reputation to be undermined by the actions of the minority who engage in fraud, corruption and market manipulation. Yet despite the events of 2007 and 2008, and all that has followed—parliamentary commissions, Select Committee inquiries and the setting up of new regulators—economic or white-collar crime remains a serious problem in the UK. We need only look at the horrifying spectre of LIBOR rate rigging to be reminded of why the Government cannot rest on their laurels in this matter; yet the ability of our law enforcement agencies and prosecutors to tackle such pernicious crimes remains limited.
As my hon. Friend the Member for Ealing North pointed out, the Government gave some promising signals. They announced the introduction of a senior managers regime to hold named executives to account for their actions, and they pledged to introduce a new corporate offence of failure to prevent economic crime. It is disappointing that that was not, as my hon. Friend pointed out, etched in stone, but it was in the manifesto for all to see. Both proposals were seen as vital to prevent the repetition of the failings of the past and bring the UK regime into the 21st century. However, in both cases, the Government have backtracked.
What do we know about the reasons for the Government’s change of heart about the corporate liability offence? According to a response to a written question to the Ministry of Justice,
“there is little evidence of corporate economic wrongdoing going unpunished”,
despite the fact that according to the Financial Conduct Authority banks have paid an estimated £1.8 billion in compensation for mis-selling financial products such as interest rate swaps and have already set aside an additional £27 billion to compensate for payment protection insurance mis-selling. That is not to mention the £4.4 billion lost each year to tax evasion, according to the latest estimates from Her Majesty’s Revenue and Customs, or the countless banks and financial institutions that are being investigated by the Serious Fraud Office for various types of misconduct, but have not yet been prosecuted. Why have the Government concluded that no action is required? I hope that the Minister can enlighten us.
Some recent disclosures are cause for concern. Last month, the Treasury published the national risk assessment, the first comprehensive assessment of the risks of money laundering and terrorist financing—both from within the UK and flowing through it. It is the first assessment of its kind and has been highly anticipated since the Government committed themselves to producing it, in their 2014 anti-corruption plan. The Government’s assessment of the risks posed by elements in the financial sector is clear:
“The size and complexity of the UK financial sector mean it is more exposed to criminality than financial sectors in many other countries, including abuse enabled by professional enablers in the legal and accountancy sector”.
Nevertheless, the report notes that the UK has “significant intelligence gaps” with respect to money laundering, despite what is judged to be a serious threat from, for example, the legal, banking and accountancy sectors. The conclusions are not encouraging:
“The UK’s response is well developed, but more needs to be done to ensure it is commensurate with our status as a well regulated global financial centre.”
The message is clear: far more needs to be done. I would therefore welcome reassurance from the Minister that something is being done. The aim must be to ensure that the appropriate measures are in place to deter behaviour that facilitates or contributes to the committing of economic crime. That would not only encourage good practice and the right corporate culture, but mean that wrongdoers were held accountable, which would be a deterrent. There is widespread concern that the UK’s current corporate liability regime is not up to the job. That is the view of the Law Commission and the OECD’s working group on bribery, both of which have produced seminal work on the subject. Both concluded that the current regime does not allow the UK to hold corporations and key persons within them to account effectively for their part in economic crimes.
In its extensive work on the UK’s corporate liability measures, the Law Commission described the present regime as
“an inappropriate and ineffective method of establishing criminal liability of corporations”.
It also noted the unfairness inherent in the identification doctrine, explained by my hon. Friend the Member for Ealing North, which makes it far easier to prosecute smaller companies, where the “directing mind” is more easily determined, than large corporations with much more diffuse chains of command.
Stephen Pound
My hon. Friend raises a point that has given me pause for thought. Does she agree that there is such a thing as a corporate culture in certain companies—I think that there is ample evidence of such behaviour—and that if, often, the culture is not in the interest of probity or the wider public, it is difficult to identify the person of whom an example should be made? If the culture is allowed to fester and permeate, inevitably it spreads. Does my hon. Friend agree that there is an issue of identifying an individual, pour encourager les autres at the very least?
Catherine McKinnell
My hon. Friend makes an important point that goes to the heart of the argument. My hon. Friend the Member for Aberavon argued cogently that, ultimately, we need a better way of establishing responsibility for the actions of a company and those who serve within it. It is not enough for those at the top to wash their hands of responsibility for the actions of the officers and employees who operate, act and work under the company’s name.
There needs to be much greater clarity about the legal framework. Many bodies, including the Law Commission, have called for that. What is even more key is that the Government seem to share that view. In a consultation undertaken in July 2015 on the introduction of a new corporate offence of failure to prevent tax evasion, the Government concluded:
“Under the existing law it can be extremely difficult to hold the corporations to account for the criminal actions of their agents”.
That observation has been made by the Government and Ministers on several occasions, as well as by my hon. Friends in their contributions today.
The Law Commission, the OECD working group and the director of the Serious Fraud Office point to section 7 of Labour’s Bribery Act as a potential solution. As my hon. Friend the Member for Ealing North set out in his speech, section 7 of the Bribery Act makes it an offence to fail to prevent bribery. It places the onus on companies to prove that they have put in place adequate procedures to prevent bribery and is widely seen as a far more effective way of holding companies and the individuals within them to account, which is why many want to see that model extended to other types of economic crime.
Stephen Kinnock
We have talked a lot about accountability and trust today, but another important word here is “risk”. We saw in the events leading up to 2008 and the collapse of Lehman Brothers a systemic failure to manage risk. It is in the interests of both Government and the private sector more broadly—the real economy and the financial services sector—to put systemic measures in place to manage risk in a way that ensures the appalling events in and following 2008 never happen again. Some regulation of the market is therefore, by definition, required as a risk management tool. Does my hon. Friend agree?
Catherine McKinnell
My hon. Friend makes an important point and anticipates my next point. First, I want to clarify exactly where the Government seem to be on this issue.
The Government’s recent announcement has caused much confusion among those who care about this issue, because it seems to be very much at odds with what they have been saying and the messages and signals they have been sending out. In his first speech as Attorney General over a year ago, the right hon. and learned Member for Kenilworth and Southam (Jeremy Wright) suggested that he was considering the section 7 proposal. We then discovered, in an answer to a written parliamentary question, that it had been dropped. We need clarity from the Minister today about exactly why that decision was made and what the Government will do to ensure that our concerns are addressed if they are not proceeding with that proposal.
The director of the Serious Fraud Office, David Green, has made clear his support for the expansion of section 7 of the Bribery Act. He has described how useful it would be to better facilitate the use of deferred prosecution agreements. My hon. Friend the Member for Neath (Christina Rees) set out eloquently how deferred prosecution agreements work and their potential importance in dealing with some of the issues that have been highlighted. It is no secret that the Serious Fraud Office director favours the use of DPAs, which are currently more widely used in the United States. To clarify, they provide for a corporation to avoid prosecution by entering into an agreement with a number of conditions attached, which may include paying a financial penalty, paying compensation or co-operating with future prosecutions of individuals. In doing so, they avoid prosecution. The aim is to hold key individuals to account, to secure significant financial penalties from companies that have committed wrongdoing and, ultimately, to prevent future wrongdoing by encouraging or mandating reforms within those companies.
Deferred prosecution agreements are not without their critics, but they have been widely used in the US for the past 20 years or so and brought in some $4.2 billion to the Department of Justice in 2014 alone. One key problem with importing the use of DPAs to the UK is that they are intended to be a carrot, while the stick is the prospect of prosecution for corporate economic offences.
Stephen Pound
My hon. Friend is giving us a masterclass, and it is greatly appreciated. I am sure that she, like me, felt her heart leap when the American authorities started to act against FIFA using their Foreign Corrupt Practices Act. Does she agree that we can learn much, for once, from the American example and the action they took against the appalling, utterly corrupt situation regarding FIFA? I am not remotely comparing any British business to FIFA—it would be hard to find anything outside the Augean stables or the seventh circle of hell that compared to that organisation. The Americans seem able to achieve things that we cannot. Is that because of the quality of the excellent US Attorney General and her staff, or should we be learning from the American legislation?
Catherine McKinnell
My hon. Friend makes an important point. We should not shy away from learning lessons from any jurisdiction that manages to control risk, as my hon. Friend the Member for Aberavon highlighted, and to hold companies to account where wrongdoing has occurred. Where there are lessons to be learned from the US, we should learn them and do what we can to implement them within our own system. We could then hold ourselves up as a beacon for other countries and hold our heads high as a well-regulated, world-leading financial centre. That has to be our aim in all of this.
As my hon. Friend the Member for Neath pointed out, without the fear of corporate economic crime being prosecuted, there is little incentive for companies to enter deferred prosecution agreements and no incentive for companies to co-operate with the SFO to change their practices as mandated under a DPA. Unlike in the US, which has far stronger vicarious liability laws, there are still far too few corporate prosecutions in the UK under the current identification principle. No matter how much we may wish to learn from the United States—if that is what we see as the right way forward—without a strengthened corporate liability regime, we will be hampered in our efforts to implement such changes.
Finally, I turn to another area that shows concerning signs of backtracking by the Government and in which we would otherwise have seen individuals in companies held accountable for their own and others’ actions. In its 2013 report on the banking sector and how to prevent the failings that led to the 2008 crash, the Parliamentary Commission on Banking Standards similarly recognised the difficulty in identifying individuals and holding them to account. One of its key recommendations was to introduce a senior managers regime to hold named executives personally responsible for key risks in the bank. That issue was raised by my hon. Friend the Member for Aberavon, who made a powerful speech about encouraging better and more responsible management within companies to change bad practice where it is found. The commission recommended that the regime place a burden of proof on those named executives, who would have to show the regulator that they had done all they reasonably could to prevent failings or misconduct if they were to avoid sanction.
Christina Rees
Does my hon. Friend agree that even though we have the legislation in place in section 7, there is no will to use it? That is the problem. There has not been a single prosecution.
Catherine McKinnell
My hon. Friend raises a concern relating to the Bribery Act, but there are two ways of looking at the Act’s implementation and the fact that no prosecutions have yet happened under it. There is evidence that it has already brought about significant changes in corporate culture and that the managers tasked with the responsibility of ensuring that they have taken all the steps they could reasonably be expected to have taken to prevent bribery in their organisations have taken those steps. Some positives can therefore certainly be derived from the situation, but I agree that a very close eye needs to be kept on prosecutions. I note that there are already murmurings from the Government about backtracking on the Bribery Act and trying to weaken that legislation, and we must stay vigilant about that.
On the senior managers regime, the commission recommended that the regime place a burden of proof on those named executives. The recommendation was accepted by the Government and enshrined in the Financial Services (Banking Reform) Act 2013. However, the Bank of England and Financial Services Bill, which is currently in the other place, is set to reverse that burden of proof, meaning that instead, the regulator—the Financial Conduct Authority—will be required to prove that senior managers have failed in their duty to prevent misconduct or prudential failings. The onus will be back on the regulator, and not on the named senior executives. Is that just more backtracking from the Government, who seem to be going soft on economic crime? I would be grateful if the Minister provided reassurance that that is not the case.
Ministers urgently need to look again at their approach to tackling economic crime, because without change, the prospect of ensuring that justice is served to those who have mis-sold financial products, evaded tax, laundered money and defrauded seems as remote as ever, and the risk of the scandals of recent years being repeated has far from disappeared.
Graham Stringer (in the Chair)
I remind the Minister that although he has an unusually large amount of time in which to wind up, under the new procedure, there is time at the end for Stephen Pound, the proposer of the debate, to sum up.
The Parliamentary Under-Secretary of State for Justice (Mr Dominic Raab)
I am grateful for your advice, Mr Stringer, and it is a great pleasure to serve under your chairmanship. At the outset, I should say on behalf of the Solicitor General that he is caught up in the Immigration Bill Committee, and although I understand the chagrin about that of the shadow Justice Minister, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), my hon. and learned Friend is attending to important business there.
I pay tribute to the hon. Member for Ealing North (Stephen Pound) for securing the debate and for delivering a tenacious, eloquent speech in his usual fashion. He made some excellent points. I fear that he may have rather lost me at Arthur Scargill, even if other Opposition Members were rather more enthused, but none the less, he made some very important points. I also formally recognise the important contributions from the hon. Members for Neath (Christina Rees), for Aberavon (Stephen Kinnock), for Dumfries and Galloway (Richard Arkless), for Edmonton (Kate Osamor) and from the shadow Justice Minister.
I think that we all agree that the prosecution of corporate economic crime is vital and can be complex. We have heard about some of the challenges this morning and there are others, but there are opportunities, too, and we should be mindful of seizing them as best we can. One issue has been the identification principle, which applies in many instances of economic crime and sets a clear bar that must be met before a corporate can be found criminally liable. Technical challenges around the disclosure of material, for example, can also be very significant, not least given the huge volumes of material that need to be sifted and potentially disclosed in many of these cases.
Much has been made of section 7 of the Bribery Act, which makes it an offence for corporates to fail to prevent bribery in certain circumstances. As important as that provision and model is, I did rather feel that hon. Members have pinned a huge amount of confidence—I would not say blind faith—in a model and provision which has not yet secured any convictions, although I appreciate that it was authored under a previous Government. To be clear—I am not saying that the hon. Member for Neath was suggesting this—I do not think that anyone seriously blames the Government for failing to enforce that. Prosecutions in this country are rightly independent from Government interference and we want to see full use made of the measure. I just say—the hon. Member for Ealing North will perhaps want to address this point—that Opposition Members have pinned rather a lot on a measure that has not yet delivered a prosecution, much as we wish it will in the near future.
Stephen Pound
I entirely agree with the Minister’s point, but there has, in fact, been one self-referred case under section 7 of the Bribery Act. It took place in Scotland and I am not entirely sure how the jurisdiction applies, but it was a self-referred case using precisely that template.
Mr Raab
I am grateful for that intervention. I stand better informed than I was before, but obviously I cannot comment on individual prosecutions or cases until they are in a position to conclude.
Much has been made of the Conservative manifesto commitment, rather caricaturing the nature of what was very clearly stated and ignoring the fact that we are specifically further considering legislation relating to tax evasion. As hon. Members will know, but this is an opportunity to remind them, the consultation on that closed on 8 October. I am sure that further announcements will be made in due course.
The shadow Justice Minister made some of her most powerful points on deferred prosecution agreements, which were introduced in the last Parliament and represent a significant opportunity for prosecutors to take action. I think that they rather refute the suggestion that this Government have been either lax or demonstrating inertia in trying to develop the tools we need to deliver convictions and accountability in this area.
It is also worth saying that, as a basic principle, we should try to exercise existing law enforcement powers to the full before we go back to Parliament and ask for more. I fear that it was rather the epitaph of the previous Labour Government to legislate hyperactively and leave the statute book littered with offences that were not really ever used in practice, so I make no apology for saying that we really ought to be crafting criminal legislation on the statute book that will deliver convictions in practice.
The hon. Member for Aberavon, who unfortunately is no longer in his place, made an interesting speech. He widened the debate to talk about systemic risk, which is an important point, and expressed some of the concerns about the 2007-08 financial crisis that are understandably still feeding calls for further action to be taken now. In that context, I highlight the action that has been taken on the banks by the coalition Government and this Conservative Government in relation to capital ratios, the bank levy and regulating to ensure proper separation between the investment and retail arms of banks. He was absolutely right to make that point, but the whole system of regulation on systemic risk looks fundamentally different today from when the Labour Government left office in 2010.
Going back to the identification principle, we have heard that the law on corporate and criminal liability has that very much at its heart. The identification principle means that a corporate is criminally liable only if a person who is its controlling mind and will is criminally liable. In most cases, there will be liability only if a director is criminally liable. Hon. Members made perfectly reasonable points about that and about the related difficulties and challenges. Many other assertions were made about the state of the current law, such as that the evidential threshold is too high and that it makes it easier to prosecute smaller businesses than larger corporates and particularly difficult to prosecute large and complex multinational corporations. Those are all valid points, rather inherent, though, in trying to regulate and enforce offences in this sector. We certainly do not want small businesses to be hammered while the big ones get off scot-free. That is absolutely the wrong approach and one that we are mindful of the need to avoid.
Other points made about the current state of the law are that it can result in corporates escaping prosecution where there is criminal wrongdoing on behalf of a corporate and the corporate benefits; it does not do enough to deter economic crime in the UK or to promote good corporate governance; and it puts UK prosecutors at a disadvantage compared with some law enforcement agencies overseas where the attribution of corporate criminal liability does not have such a high threshold. The hon. Member for Ealing North made the point about the United States very well. Some have called for a much broader vicarious liability for companies, closer to the US model.
I recognise the point that a different approach, combined with the DPAs introduced in 2013, could have a powerful impact. We need to consider the criminal legal basis along with the prosecutorial tools. That combination is the key to getting more convictions and plea bargains under the DPA arrangements. Notwithstanding the common desire for accountability and convictions, we need to take half a step back and acknowledge the need to be careful to guard the basic principles of justice that we all, at least notionally and rhetorically, hold dear—the presumption of innocence and the burden of proof—and ensure that we have a focused, targeted law enforcement system.
The Bribery Act 2010 contains the much-discussed new offence of failure to prevent bribery by a person associated with the company, which allows prosecutions of corporates for failure to prevent bribery in cases in which the identification principle threshold could not be reached. There have been suggestions for further change by extending the Bribery Act model to other areas. Under that legislation, a commercial organisation is guilty of an offence if a person associated with it bribes another person while intending either to obtain or retain business for the organisation, or to obtain or retain an advantage in the conduct of its business. The legislation sets out that it is a defence for the organisation to prove that it had in place adequate procedures designed to prevent people from undertaking such conduct. That is the balance struck.
The legislation relates specifically to bribery—a very serious economic crime—and is designed to encourage more responsible corporate behaviour. Extending section 7 as some have suggested could criminalise commercial organisations that fail to prevent other types of economic crime, including fraud and tax evasion; I am sure that hon. Members can think of other examples. Some people have urged the Government to go even further and advocated a more dramatic change, calling for legislation to create an offence of vicarious liability. That would be far more like the US model.
As I think was mentioned, the Government published last December the “UK Anti-Corruption Plan”, which included the commitment to consider the case for a new offence of a corporate failing to prevent economic crime. Much has been made of the statement made on 28 September by the Under-Secretary of State for Justice, my hon. Friend the Member for South West Bedfordshire (Andrew Selous), that we will not be carrying out further work on this specific point at least at this time. It is important to understand the reasons for that. Again, they have been rather caricatured, although not intentionally; I would not say that.
The reasons for not taking the work forward at this stage are as follows. First, the UK has corporate criminal liability and commercial organisations can be and are being prosecuted for wrongdoing. Secondly, as I have mentioned, there have been no prosecutions under the Bribery Act offence, so it is not as though we have a huge amount of concrete practice to learn from—in fairness, that point was also made by the hon. Member for Neath. Thirdly, as a result of that and the information and evidence that we get as we look at whether the case is made for new offences, there is little concrete and specific evidence of the wider corporate economic wrongdoing that we should now target that is currently not unlawful and could reasonably be caught by a proposed new offence. If hon. Members want to tell me about a specific area and tailored offence, I will be all ears.
Catherine McKinnell
It does not sound as though the Minister will go on to explain how he intends the Government to live up to their manifesto pledge. He indicated earlier that it was in relation to tax evasion only, but the Government did in their manifesto state:
“We are also making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to…deter.”
If the Minister explains how the Government will fulfil that manifesto pledge, that will give hon. Members reassurance today.
Mr Raab
I will not give way again at this point, but perhaps I will shortly.
The hon. Lady referred to the manifesto commitment, which specifically cites tax evasion. I will go on to say a little about that. I thought that one of the best points in her original speech was about the intelligence gap. That feeds the point that I have been making that we should not confuse the difficulties or challenges that we have in enforcing, which is what the intelligence gap is all about, with the breadth of the criminal base that we have on the statute books. That is a very important distinction, which she made rather well.
The bottom line is that there is no point in legislating for the sake of it. The hit and hope approach does not do any good; in fact, it feeds public mistrust. Frankly, we saw far too much of that under the Labour Government. I want to know that when we legislate we are putting in place a model, a criminal offence on the statute book, that will deliver prosecutions, convictions and the wider deterrent effect that we all want.
Richard Arkless
The Minister uses the vivid phrase “hit and hope” and has given three reasons why the Government will not pursue the position in their manifesto. I ask this very simple question: were those three reasons not prevalent before the manifesto was written?
Mr Raab
We are taking forward the manifesto commitment. We have an ongoing consultation on tax evasion and, if the hon. Gentleman bears with me, I will come on to it. The other point made in the manifesto commitment is about the need to punish and deter. That is not just about legislation; it is about the enforcement regime. Over the years, hon. Members have been far too willing just to nod legislation through without thinking properly about how it will be enforced in a targeted and effective way.
Having said all that, I can give examples of very good outcomes, including in the high-end serious and complex cases dealt with by the Serious Fraud Office, which emerge from within the existing legislation and even pre-Bribery Act in some instances. There are other outcomes aside from criminal prosecutions. Deferred prosecution agreements are a further and significant tool. Civil recovery orders are an option.
The SFO cases involving prosecution or substantial civil recovery orders for a corporate have included the cases of AMEC, BAE, Innospec and Macmillan. Fines and civil recovery orders for more than £40 million were issued in SFO cases between 2008 and 2012. Nearly £30 million was paid by BAE to the people of Tanzania, following a settlement with the SFO and the US Department of Justice. More recently, last year, the SFO completed the Innospec and Smith & Ouzman prosecutions, both of which resulted in the conviction of the corporate as well as senior officials in relation to foreign bribery. And the SFO had its first prosecutions under the Bribery Act—they were associated with a biofuel fraud—albeit not under section 7.
The director of the SFO has said that there are current cases that may prove suitable for prosecutions under section 7 of the Bribery Act. Hon. Members will appreciate that I cannot go into too much detail on things that are subject to either a pending prosecutorial decision or investigation. The Crown Prosecution Service and Her Majesty’s Revenue and Customs have had important successes, too, and some have also been very high-profile.
On tax avoidance, HMRC is responsible for policing the tax and excise laws. It has a range of tools and powers to secure compliance, including the power to conduct criminal investigations in appropriate cases in line with HMRC’s criminal investigation policy. Since 2010, HMRC has increased the number of criminal investigations leading to prosecution by 500%. That is a very clear example of where we have managed not only to have the legislation in place but to deliver a quantum leap in successful law enforcement. I am sure hon. Members from all parts of the House agree that that is what we should be aiming for.
Marketed tax evasion schemes have been one strand of priority work for HMRC during this period, and the CPS has brought a number of complex prosecutions against individuals. There are a number of high-profile examples, including Vantis and cases relating to the film industry. I have acknowledged the suggestions that have been made about extending the remit of section 7. Although Ministers have decided to halt that work for the time being, the criminal law is always monitored and if any clear and well evidenced difficulties come to light on which we can take targeted action, we will, of course, do so.
A proposed new offence of failing to prevent the facilitation of tax evasion, whether onshore or offshore, was the subject of public consultation by HMRC between July and October this year. The consultation closed on 8 October, and the Government are considering the responses. That clearly falls within the area of the manifesto commitment that Opposition Members have enjoyed citing. That work is ongoing.
Deferred prosecution agreements, which became available on 24 February 2014, are one of the critical law enforcement tools that the Government have brought into being. To date, no DPAs have been concluded, but I am aware that a number of cases in the pipeline may yield DPAs. Under a DPA, a prosecutor charges a company with a criminal offence, but proceedings are automatically suspended. The regime has been designed carefully and we consulted on all its aspects. There are important safeguards in place, which is why we need to be a bit careful about the rather gung-ho suggestion that we should follow the American approach lock, stock and barrel. If we did so, concerns would be raised by Members on both sides of the House about the lack of safeguards in place.
Catherine McKinnell
I agree with the Minister that a gung-ho approach should never be taken to any of those matters, but does he acknowledge that significant concerns have been raised about the DPA tool not being as effective as it could be, while it remains so difficult to bring prosecutions against corporations, because the identification principle has set the bar for prosecution so high?
Mr Raab
The hon. Lady is absolutely right to say that the combination of the law enforcement tool—in this case, the DPA—and the criminal base will be the key to securing convictions. We will constantly look to fine tune and sharpen up that double act of legislation and law enforcement. If she has any suggestions about how that can be done in a sensible way, I will consider them. I am not sure that the extension of section 7 more broadly and exponentially will be the panacea that she is looking for, but if she can come up with specific, tailored and targeted areas in which that might be the case, I will consider them.
Mr Raab
I will give way shortly, but I want to make a little bit of progress, because I am mindful of your advice about timing, Mr Stringer. I want to talk briefly about the code of practice for DPAs that the director of the SFO and the DPP issued on 14 February 2014. That followed the consultation, and I am sure that the hon. Lady made her views known at the time. Prosecutors should have regard to the DPA code when they negotiate a DPA, when they apply to the court for approval of a DPA and when they oversee a DPA after it has been approved by the court. A DPA can be appropriate where the public interest would not be best served by entering into a prosecution. Entering into a DPA will be a transparent event, and the process will be supervised by a judge. That is important, because even if a DPA is in place, we want justice to be seen to be done as well as to be done.
I recognise that some organisations and others have raised concerns about the amount of information that will be available about DPAs as they are being negotiated. Letters of invitation to a company to enter into a DPA negotiation are confidential, for understandable reasons. The code of practice for prosecutors explicitly states that the letter of invitation to a company to enter into negotiations should make an undertaking in respect of confidentiality about the fact that DPA negotiations are taking place. Negotiations are, and need to be, confidential in the early stages to encourage co-operation on the part of the corporate. Any DPA that is agreed will be publicly announced, and that will provide transparency and accountability. As soon as a DPA is approved, the court must make a declaration to that effect, along with reasons, in open hearing. Unless it is prevented from doing so by an enactment or order of the court, the prosecutor will be expected to publish the DPA on its website.
I hope that hon. Members will agree that there is much to be positive about. Good results are being achieved in cases across the prosecuting authorities. We are giving active consideration to further changes where there is evidence that they are warranted, particularly in relation to tax evasion, but we remain open-minded if a case can be made broadly from a specific evidence base.
Outcomes other than prosecution should be acknowledged and welcomed. It may not always be in the public interest for a company to be prosecuted, and that is one of the considerations that led to the DPA regime. The director of the SFO, David Green CB QC, has said that he expects the first DPAs to conclude this year. I know that hon. Members will join me in looking forward to seeing the first successful outcomes. We are seeing a step change in the law enforcement model and the vigour with which it has been applied since 2010. The tax gap was reduced to record levels in 2014. The SFO’s asset recovery against serious criminals has been expanded; in 2014-15, 26.5 million financial orders were made. Since 2010, HMRC has increased the number of tax evasion criminal investigations leading to prosecution by 500%, as I have said, and we also have the DPAs. A huge amount of action is being taken. I am grateful for the contributions of hon. Members from across the House today.
Stephen Pound
Inevitably, this has been an interesting debate; it could not have been otherwise. I hope that the Minister will not consider me ungracious if I say that he has offered hon. Members thin gruel rather than a great Damascene conversion. To get the silly stuff out of the way first, I must just say that it was Peter Richardson playing Al Pacino playing Arthur Scargill, just as it was Dawn French playing Meryl Streep playing Mrs Scargill.
I think I know where the Government are coming from. On one hand, they are trying to create a thriving, vibrant business and economic sector, which continues to be as successful as it already is and becomes even more so. On the other hand, they do not want to over-legislate in any way that would restrict that sector. That goes back to what Adam Smith wrote about the actions of business people when they gather together. The 18th century has been characterised as oligarchy tempered by riot, which is the inevitable logic of a completely unregulated financial sector.
I say to the Minister that there is a real problem of perception. Everybody thought that the days written about in books such as Michael Lewis’s “Liar’s Poker”, which was written in the late ’80s about Salomon Brothers, “The Bonfire of the Vanities” and “Barbarians at the Gate” had gone. We thought that the macho, only-wimps-eat-lunch days of the City had gone. Particularly given the wise and thoughtful words of the Archbishop of Canterbury, Justin Welby, about his time as a City trader, many of us hoped that a different ethical standard was emerging from the City. Sadly, though, the evidence tends to suggest otherwise.
I entirely understand why any pro-business Government —to be honest, a Government that is not pro-business is not worthy of being called a Government—would want to provide succour and support to an incredibly successful sector, which is one of the most important in our economy. However, I gently say to the Minister that the public are not with him. They simply do not see it that way. They see an unregulated financial sector in which individuals go unpunished for wrongdoing. Individuals in the sector make vast, obscene, eye-watering amounts of money. Yes, the odd knighthood may be stripped away, but that is as nothing compared with the sort of punishment meted out to some poor woman who forgets to pay her TV licence and gets hauled up and banged in chokey. The problem of perception is that individuals in the financial sector seem to be getting away with it.
If only we could have an entirely ethical City, we would all be happy. We have not got one, however, so there has to be regulation. Should that be light touch and suggestive legislation in absentia of the sort that the Minister has referred to, or should it be the slightly more rigid and structured legislation that the country is ready for? When the Department for Business, Innovation and Skills tried to consult this summer on whether the Bribery Act should be watered down, it sent out a desperately wrong signal.
I do not count an enormous number of people in the City as my personal friends, but I know quite a few and I do not think that they want to exist in this wild west, free-booting, cowboy economy in which there are no rules and regulations, and anything goes. I think that they want the support of some sort of regulation, because it is good for image, good for business and good for the country. Ultimately, we have to have an ethical economic sector in this country. There is no alternative. I deeply regret that the Minister has not given us that pathway and that signpost.
Motion lapsed (Standing Order No. 10(6)).