Tuesday 28th March 2017
(7 years, 2 months ago)
Lords ChamberCriminal Finances Act 2017 View all Criminal Finances Act 2017 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 104-I Marshalled list for Committee (PDF, 179KB) - (24 Mar 2017)
Lord Hodgson of Astley Abbotts (Con)
My Lords, this is a modest amendment that is grouped with around 58 other amendments which deal with unexplained wealth orders, a new form of legislation in this country. Those 58 other amendments have been proposed by a bevy of talent, including several by my noble friend on the Front Bench, so after a few introductory remarks I propose to focus on the narrow issue which is the subject of my particular amendment. Before doing so, I should remind the Committee of my interests as declared in the register. I understand that it is now no longer approved procedure just to make a general reference and that we are supposed to be more specific. I should also remind the Committee that, while I am no longer an authorised person under financial services legislation, I remain the chairman of two companies that provide services to the financial industry.
At Second Reading I said that I strongly support the direction of travel of this Bill. I am well aware of the impact and the deleterious effect of the worm of corruption on society as a whole. However, I pointed out then and I point out now, as we begin Committee, that new regulation is by no means always the answer. Better use of existing regulation may well be equally effective, as encouraging and rewarding better behaviour to create the right climate may be. We need sticks but we also need carrots. The most important carrot is that people believe that what they are being asked to do is proportionate, fair and worth while, and that the information they are being asked to provide will be used and used effectively.
That should not be taken as my being in any way lukewarm about what we are discussing in the Bill and its purpose, but I shall want to be reassured now and as we go through Committee on three things: that the new powers being sought are required and required in the form it is proposed they should take; that those powers will be used, will be used effectively and will not sit on the shelf; and that they are likely to have a proper impact on the reduction of financial criminal activity.
With those introductory remarks, I turn to my amendment. As I said, this first part of the Bill is concerned with the introduction of an entirely new power for the authorities to obtain a court order to investigate what is called in the Bill “unexplained wealth”. I am no lawyer, but that seems a fairly broadly drafted phrase capable of quite a varying range of interpretations. I accept, however, that such broad phrasing may be necessary to cover the many forms that criminal financial activity may take, but equally, when I read that the provision will involve a reversal of the burden of proof—that is, under an unexplained wealth order I will have to explain why I should have this wealth, rather than the authorities explain why I should not—I wonder whether the right balance has been struck in the drafting.
In particular, in the group of amendments that we shall discuss, government Amendment 8 in the name of my noble friend on the Front Bench proposes to reduce the amount above which an unexplained wealth order may be sought from £100,000 to £50,000. If the Committee was minded to accept this amendment, quite small sums and probably quite legally unsophisticated individuals may be swept up in the new regime. It could be argued that such people need and deserve a higher level of judicial protection. With my amendment I seek to redress and improve the balance by imposing an additional duty on the court in the case of unexplained wealth orders. Clause 1 requires the court, under new Section 362A(1) merely to be,
“satisfied that each of the requirements for the making of the order is fulfilled”.
My amendment would raise the evidential bar a little by requiring the court not merely to be “satisfied”, but to be satisfied “beyond reasonable doubt” by inserting those three words in line 13 of page 1.
In summary, I argue that, if the authorities want the burden of proof reversed, the citizen is entitled to a high degree of protection from the court against possibly vexatious activities by regulators. My noble friend on the Front Bench may argue that government Amendment 6 would achieve the same purpose. Again, I am no lawyer, but the Government’s phrase,
“there is reasonable cause to believe”,
seems a good deal weaker than my phrase in Amendment 1, “beyond reasonable doubt”. I will await reaction from other Members of the Committee who have more legal experience than me as to whether my fears are justified or groundless. My noble friend may also argue that I should have tabled a similar amendment to deal with Scottish unexplained wealth orders under Clause 4. She would be absolutely right but my response is that, for today at least, this is a probing amendment to enable a broad discussion on the point to take place.
Other noble Lords will no doubt wish to discuss the practicalities of how the UWOs will work and whether the target category of politically exposed persons will be able to be dealt with effectively because of personal and functional immunity—we have had quite a lot of briefing on these matters. My amendment is about trying to achieve the right balance.
Before I sit down, I want to ask my noble friend one last question. It is about legal privilege and client confidentiality under the new unexplained wealth order legislation. As I understand it—again, I say that I am no lawyer—legal privilege does not exclude a legal adviser from the provisions of the suspicious activity, or SAR, regime. If a legal adviser becomes aware as a result of discussions or communications with his or her client that activities that would be capable of being caught by the SAR regime are occurring, they are obliged to report them and to do so without informing their client—indeed, informing their client would be an offence. Can my noble friend in due course make clear what the position is on a legal adviser whose client becomes the subject of a UWO? Is the construction of legal privilege changed in any way? I do not think that unexplained wealth orders or the suspicious activity regime will necessarily walk hand in hand. I beg to move.
Lord Davies of Stamford (Lab)
My Lords, the noble Lord has said that his amendment is merely probing. Clearly, the purpose of a probing amendment is above all directed at trying to influence the Government, but the other purpose is to see whether anyone else in the Committee rather agrees with the line of it, which may also be useful information for Ministers when they are taking final decisions on what the shape of the Bill should be.
The noble Lord made a very good case. We all know that legislation of this kind is essentially a matter of balance. On the one hand, we are imposing on people constraints and breaches of privacy and liberty. We are also imposing on them costs, because it is likely that to be able to respond to orders such as these they will have to pay accountants to do work. As the noble Lord said, we may be talking about amounts of wealth that are a substantial portion of the portfolio of the individual citizen being investigated. To respond to the investigation, the individual may need to spend significant amounts of money on accountancy or other professional advice. We should be very careful and aware of the costs of doing such things. We should also be aware that there is always a temptation for an authority, if it has a power, to use it and say, “There’s no downside. Let’s just put in a request to the High Court to have one of these investigations”. The noble Lord is therefore right to emphasise the need to protect the citizen to make it absolutely clear that an authority before making such a request, or a court before acceding to it, must be really convinced that there is a case for doing something quite exceptional—the state asking an individual to declare his or her private affairs. I therefore agree with the sense of the noble Lord’s amendment and I hope the Government take it seriously.
Lord Faulks (Con)
My Lords, my name is on a number of amendments. I wonder whether the noble Lord will allow me to expand on them a little.
My noble friend Lord Hodgson suggests in his amendment that the High Court should be satisfied beyond reasonable doubt in relation to the requirements before making an unexplained wealth order. For reasons that I will come to, I do not support the amendment, but I think my noble friend seeks to provoke, understandably, a debate about the scope of UWOs and to understand how the Government intend to use them and what sort of evidence the agencies will obtain before seeking one.
The Government are absolutely right to bring forward these provisions in relation to unexplained wealth. Indeed, it is an exciting and significant new development. There is a precedent, provided principally by Ireland and Australia. I had the opportunity to read an extremely lengthy worldwide overview of the use of these orders, The Comparative Evaluation of UWOs by Booz Allen Hamilton, and a useful selection of essays from the White Collar Crime Centre dated January 2017 and edited by Jonathan Fisher QC of Bright Line Law Services Ltd. The main questions appear to be: who can UWOs be appropriately aimed at; how effective will they be; and, are there adequate safeguards? The other way of putting the last question is: do they have the potential to be unfair?
Baroness Hamwee (LD)
My Lords, I was instinctively drawn to the amendment tabled by the noble Lord, Lord Hodgson of Astley Abbotts. However, for many of the reasons that the noble Lord, Lord Faulks, gave, and because this is a preventive provision, after thinking about it for a little while on Sunday, and rather to my surprise, I put a tick next to the Government’s amendment which states,
“that there is reasonable cause to believe”—
even though, like the noble Lord, I read that as reducing the threshold.
Our amendment to raise the threshold to £500,000 was tabled not in response to the proposal to lower it to £50,000 but because I wanted to explore whether £100,000 or £50,000 was the right amount. In this context, £50,000 is a pretty small amount, so I hope the Minister will share with the Committee the evidence behind the proposal to reduce the figure from £100,000 to £50,000. In evidence to the Public Bill Committee, the gloriously entitled prosperity director of the NCA, when asked about the amount, said that that was a reasonable value. The officer from the counterterrorism unit of the Met said that it was reasonable,
“when we are dealing with a higher end”.—[Official Report, Commons, Criminal Finances Bill Committee 15/11/16; col. 8.]
UWOs are not included in Part 2, where smaller amounts would be more relevant. In the debate concerning the amount, the Minister said that the Government,
“will be going for people worth £20 million, £30 million or £40 million and all the way down”.—[Official Report, Commons, Criminal Finances Bill Committee 17/11/16; col. 87.]
That was in response to an amendment to reduce the amount to £50,000. He said that £100,000 would catch serious criminals. The amendment in question arose from the value of property in Scotland, but the comments are still relevant.
Our concern is quite simply that if the amount is low the agencies might be tempted to go for the low-hanging fruit and fail to pursue those who commit grand corruption. It is a matter of human nature to do that. Although there is no direct read-over, the application of POCA has not been an entirely successful experience. I know that having a lower limit will not restrict going for the higher amounts, but practice and theory may not be the same thing.
We will come later to registers of beneficial ownership, both domestic and for the overseas territories, but I wonder whether UWOs can be administered effectively without a register of beneficial ownership.
We have other amendments in this group, some of which simply repeat the first amendment at different points in the Bill. Amendment 26 is the same as Amendment 54. It would change “must” to “may”—it is usually the other way round in this House, is it not? This is intended to probe why we would be restricted to the same proceedings in the paragraph that I would amend. In this context, does “same proceedings” mean the same case but allow for separate hearings? That would be sensible so that there can be a later application for a freezing order without starting new proceedings.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, in common with the noble Lord, Lord Faulks, I too oppose Amendment 1. These unexplained wealth orders, in my submission, are to be welcomed and we must do nothing to dampen them at their outset. However, to put the criminal burden of proof into the very first provision would, I suggest, do just that. This provision surely should be based on the balance of probabilities.
Government Amendment 6 will introduce into new Section 362B(2) being inserted by the Bill, as the test of satisfaction,
“that there is reasonable cause to believe”.
Your Lordships will notice that new subsection (3) sets out a different test, that of being,
“satisfied that there are reasonable grounds for suspecting that the known sources of the … lawfully obtained income would have been insufficient”,
while new subsection 4(b) says there should be,
“reasonable grounds for suspecting that … the respondent is, or has been, involved in serious crime”,
and so forth. To “suspect” something is merely to suspect that it may be the case; to “believe” something is to believe that it is the case. These tests therefore differ. I do not know, but perhaps the one under new subsection (3) could be tightened. Rather than trying to introduce the criminal burden in the first provision, those who would like to make these orders more difficult might at least want to consider whether “reasonable grounds for suspecting” should be uplifted to the requirement the Government are introducing in amended new subsection (2): that there is “reasonable cause to believe”. For my part, I would introduce as the first provision a balance of probability test and leave the others essentially where they stand.
My only further thought is that if the House—to my mind, unwisely—were to raise the threshold remotely as high as the amendment in the name of the noble Baroness, Lady Hamwee, suggests, you would want the lowest test to be enshrined in the Bill; whereas with a lower sum in question, you might want a correspondingly higher test. Those are thoughts, because this, after all, is at an early stage and these are essentially probing amendments.
Lord Blair of Boughton
I am glad that I did not interrupt the noble Lord, Lord Faulks, because he and the noble and learned Lord, Lord Brown, approach this matter from long knowledge of the law. I would like to consider the amendment of the noble Lord, Lord Hodgson, in relation to the investigative process. UWOs are effectively a search warrant. That is the test, and that is not beyond reasonable doubt. You have a search warrant because you think something might be happening. When you have executed the search warrant, you know whether it has happened or not and at that point, you might charge someone with a criminal offence, for which the test would be “beyond reasonable doubt”. From an investigative point of view, that amendment would put at the front of the operation a test which is almost impossible to pass unless you issue the order and effectively use a search warrant on the individual’s bank balances.
Lord Phillips of Worth Matravers (CB)
My Lords, I speak in harmony with the previous two speakers. I have some experience of this area, having wrestled in a judicial capacity with more than one appeal in relation to the Proceeds of Crime Act, and I have also recently taken the chair of the board which supervises more draconian legislation than the Bill for the confiscation of unexplained wealth in Mauritius. These unexplained wealth orders are designed to deal with the very real difficulty of proving facts which are likely to be in the exclusive knowledge of the holder of wealth. It would be simply contrary to the policy to impose the criminal rather than the civil burden of proof in respect of matters such as the value of property in which a person has an interest or the very question of whether he has an interest in that property at all.
Lord Sharkey (LD)
My Lords, I will speak to Amendments 10, 13, 20 and 22 to 25 in this group, all of which are probing amendments. Amendment 10 modifies subsection (4) of the newly inserted Section 362B of the Proceeds of Crime Act 2002. The subsection sets out one of the three conditions that must be satisfied before an unexplained wealth order may be made:
“The High Court must be satisfied that … the respondent is a politically exposed person, or …there are reasonable grounds for suspecting that … the respondent is, or has been (whether in a part of the United Kingdom or elsewhere), or … a person connected with the respondent is, or has been, so involved”.
As I read it, it means that simply being a politically exposed person satisfies the condition. That is enough for the High Court: it does not need,
“the reasonable grounds for suspecting involvement in serious crime”,
to be satisfied as well. That seems unnecessarily and dangerously broad.
It is probably unnecessary to remind the Committee that we are all PEPs. So are our families and our close associates. As the Government have made clear, and as the FCA is about to say in guidelines, most Back-Benchers, their families and associates should not require additional due diligence. Given that, we or our equivalents abroad should not be exposed to a harsher, more extensive and more intrusive regime. By replacing “or” with “and”, and by qualifying the definition of PEPs by inserting,
“who merits additional due diligence according to Financial Conduct Authority guidelines”,
my amendment removes this harsh, special treatment of non-EEA PEPs. For the condition to be fulfilled, the amendment requires that the PEPs are not ordinary PEPs but merit this additional due diligence and that there should be reasonable grounds for suspecting involvement in serious crime.
Amendment 13 removes the exemption of UK and EEA PEPs from the conditions in subsection (4) of new Section 362B, in order to give the Minister the opportunity to explain why UK and EEA PEPs should not be treated exactly as all other PEPs.
Amendment 20 gives the Minister an opportunity to clear up an apparent anomaly. On page 5, subsection (2)(b) of the newly inserted Section 362E sets out the penalty for failure to respond properly to an unexplained wealth order. For summary conviction in England and Wales—and later, we see, in Scotland too—the penalty is imprisonment for a term not exceeding 12 months, or a fine, or both. However, on the very next page, in subsection (2)(c), the penalty on summary conviction in Northern Ireland for exactly the same offence is set at imprisonment for a term not exceeding six months, or a fine, or both. So in England and Wales and Scotland, you can go to prison for up to 12 months, but in Northern Ireland it is up to six months. Why? I would be grateful if the Minister could explain.
Lord Faulks
Before the noble Lord goes on to the next amendments, could he help the Committee with one point? He points to the position of PEPs and describes the potential vulnerability that quite ordinary people might have to these orders, but does he not think that subsection (3) of new Section 362B is a sufficient protection? It provides that the High Court,
“must be satisfied that there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property”.
That provides a hurdle that has to be surmounted, as well as establishing that someone is a PEP.
Lord Sharkey
If it were absolutely clear that you cannot obtain an unexplained wealth order without satisfying that condition, I would be happy, but I am not entirely sure that it is, and I would welcome the Minister’s confirmation that the noble Lord is correct.
Amendments 22 to 25 will allow the Minister to point out—if other noble Lords do not do so beforehand—where I have entirely missed the point. They refer to page 7 and subsections (2), (3) and (4) of new Section 362H. These subsections allow rules of court to provide for the practice and procedure to be followed relating to unexplained wealth orders before the High Court in Northern Ireland. There are similar but not identical subsections later in the Bill dealing with the same matter in Scotland. However, the Bill seems to be silent on how these matters are to be dealt with in the English and Welsh courts. I am sure I have missed something obvious here and would be grateful for enlightenment from the Minister.
There is another apparent anomaly in the sections dealing with the variation or discharge of an unexplained wealth order. I notice that the provision in Scotland is significantly different from that in Northern Ireland. On page 18, line 43, to line 1 on page 19, the Bill allows applications for variation or discharge to be made by “Scottish Ministers” or by,
“any person affected by the order”.
That is not the case for Northern Ireland, where application can be made only by the enforcement authorities or the respondent. Why is there this difference between Scotland and Northern Ireland? My Amendment 24 makes the process in Northern Ireland the same as in Scotland but, again, what about England and Wales? I look to the Minister to put me right on all this.
Lord Leigh of Hurley (Con)
My Lords, I welcome the legislation on UWOs. I have a number of declarations of interest, and I own residential and commercial property in the UK. I do not think that I have any unexplained wealth, but I have some experience—admittedly, some 30 years ago—of working as a tax adviser. It was quite common in those days for the Inland Revenue, as it was then, to demand explanations of what it thought was unexplained wealth from various taxpayers. That was quite common practice, so the concept of the state seeking an explanation of wealth is not new in practice.
We have a situation where, certainly in central London, a shocking number of multimillion pound properties lie dormant and are owned by overseas parties. To the extent that this goes some way to change that situation, it must be very welcome. It would also be quite welcome if the Government were to take a more holistic approach, perhaps using this Bill to address that problem as well as considering other solutions, outwith this legislation, including penal rates for dormant properties owned by overseas people. None the less, the UWOs are likely to make a significant change in helping our law enforcement agencies to investigate money laundering in the London property market and, in particular, recovering proceeds of crime.
Lord Kennedy of Southwark (Lab)
My Lords, the Bill was welcomed by all sides of the House at Second Reading. Unexplained wealth orders are a device to give law enforcement agencies powers to require a person suspected of involvement in or association with serious criminality to explain the origin or source of assets which appear disproportionate to their income.
Amendment 1, in the name of the noble Lord, Lord Hodgson of Astley Abbotts, seeks to insert the words, “beyond reasonable doubt” after the word “satisfied”, when requiring a person to comply with an order. This raises an important point, but I am not convinced that introducing this higher test is needed here. It would make it more difficult for law enforcement agencies to get permission to seek the source of the wealth which has led them to suspect that the person’s lawfully obtained income would be insufficient for the purposes of obtaining their assets. I agree with the remarks made about this amendment by the noble Lord, Lord Faulks, who said that the higher evidential test would not be welcome in this regard. I also agree with the comments made by the noble and learned Lords, Lord Brown of Eaton-under-Heywood and Lord Phillips. I also agree with the comments by the noble Lord, Lord Blair of Boughton, on the investigatory role—the test and procedure would be difficult there as well.
Amendments 2 and 7, in the name of the noble Lord, Lord Faulks, give a better definition in relation to a person’s connection to a property, and the Government should reflect carefully on this during the passage of the Bill and possibly bring an amendment forward on Report.
Amendment 5, also in the name of the noble Lord, Lord Faulks, would provide an additional power to require a person to answer questions under oath. Again, that seems a reasonable additional power to take, which could be used at the discretion of the court. I very much take the point that the noble Lord made about the William Hill defence in terms of how one acquires assets and wealth. We need to look at that important point.
On Amendments 8 and 9, I thought that the £100,000 value in respect of a property was about right, that the £50,000 figure proposed by the noble Baroness, Lady Williams of Trafford, was too low, and that the figure proposed by the noble Baroness, Lady Hamwee, was far too high. However, having sought advice from law enforcement agencies, I understand the motivation behind the amendment of the noble Baroness, Lady Williams of Trafford, and I am content that the figure she proposes may well be right.
There is a whole series of government amendments in this group which I am content with, as they seek to prevent a person subject to one of these orders seeking to circumvent it through complicated financial means and transactions.
This has been a very useful debate, with some well-informed contributions that posed a number of questions for the noble Baroness. I am sure that she will reflect on those as we may want to come back to some of those points on Report.
The noble Lord, Lord Leigh of Hurley, made important points about property and the problems associated with it. I think that we shall debate an amendment in the name of the noble Lord, Lord Faulks, in the next group which concerns property.
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, I thank all noble Lords who have taken part in this excellent debate. We have had some very good contributions from noble Lords from around the Committee on the significant new powers of the unexplained wealth order. I will do my best to respond to all the points that were made. I apologise in advance if I take some time to do so.
As noble Lords will know, the measures in this Bill are largely focused on serious and organised crime, but it also provides important new powers to tackle terrorist financing. Last week’s horrific attack reminds us all of the very real nature of this threat. I would like to take a moment to pause and think about the families of those who have been killed and those who still lie injured in hospital. I again pay tribute to the men and women of the police and other law enforcement and intelligence agencies who are so committed to keeping us safe—to PC Keith Palmer, but also to his many colleagues who work in Parliament and across the country. We must ensure that they have the powers they need to investigate and disrupt terrorists and terrorist groups. The powers in Part 2 of the Bill, which we will come to later, will do just that.
I return to the amendments in this group on unexplained wealth orders—or UWOs. The UK is a world leader in the fight against global corruption and the UWO is a substantial new power that will assist UK law enforcement agencies to do so. I welcome the continued cross-party support for these measures. I remind noble Lords that a UWO is a court order that requires a person to provide information which shows that they obtained identified property legitimately. If the person provides information in response to a UWO, the enforcement authority can then decide whether to investigate further, take recovery action under POCA or, if they are satisfied, take no further action. If the person does not comply with a UWO, either by not responding or not responding fully to the terms of the order, the property identified in the order is presumed to be recoverable under any subsequent civil recovery proceedings.
There are a number of government amendments in this group and I turn to them first. These are, by and large, technical changes to the provisions to help them function most effectively, but I will highlight a few for the benefit of noble Lords. As regards trusts, we have tabled government Amendments 3, 4, 6, 12, 14, 15, 17, 19, 21, 30 to 32, 36, 38 to 40, 52, 53, 174 and 175. Perhaps the biggest addition to the provisions made by the government amendments are the measures to ensure that a UWO can be served in situations where property of interest is held in trust or involves corporate structures. This, I believe, picks up some of the concerns raised by my noble friend Lord Faulks. The amendments will also allow subsequent UWOs to be obtained on additional individuals such as trustees in complex cases where this is necessary. The amendments are not a silver bullet in cases where trusts and corporate entities are involved. However, they are a significant improvement and will close a potential gap.
UWO thresholds are addressed by government Amendments 8 and 33, which would reduce the threshold for a UWO to be obtained from £100,000 to £50,000. Noble Lords rightly questioned how we settled on the balance. It followed representations from authorities in Scotland—including from the SNP during Commons consideration of the Bill—and Northern Ireland. It reflects the fact that the higher threshold could disadvantage law enforcement agencies in certain parts of the country where financial returns may not be as high or may be spread more evenly across criminal groups, and where property, in particular, has a lower value.
The threshold, however, is still an important safeguard, together with the other qualifying criteria that must be met before a UWO can be made by the court. It remains our view that the orders should be used in the most complex cases, where obtaining evidence has proved difficult, and this will be reflected in the supporting guidance.
The noble Baroness, Lady Hamwee, tabled a related amendment to push the threshold up rather than down. She helped us to reflect on the balance that must be struck in circumscribing the new power. However, based on our consultation with law enforcement agencies, I suggest that her proposed threshold of £500,000 would be prohibitive. It would stop the agencies using this power in significant cases involving serious and organised crime, and noble Lords have been clear that they want to see the most effective use of UWOs. I hope that the noble Baroness will be satisfied that our approach strikes the appropriate balance.
Baroness Hamwee
I could repeat my question about the temptation to get at the low-hanging fruit and not use the orders to deal with grand corruption, as I understand it.
Baroness Williams of Trafford
The noble Baroness is right that both ends of the scale should be tackled, so I hope that law enforcement agencies will use the orders in a proportionate way to tackle criminal activity at both ends of the scale. I hope that that will satisfy the noble Baroness. She looks satisfied.
Lord Faulks
When questions were raised at Second Reading about the scope of the orders and how many might be issued, I referred to an assessment that was provided—with some difficulty—by the Government that only about 20 might be sought during the year. The Minister understandably said that that was only an estimate, based on general experience of civil recovery. However, does it not indicate that, rather than grasping low-hanging fruit, if anything this will be considerably resource-heavy and will probably be directed only at cases where the amount of wealth is significant enough to make the expenditure of time and money worth while?
Baroness Williams of Trafford
My noble friend and the noble Baroness have made the case for both ends of the threshold. My noble friend talked about resources generally. One thing that came from the law enforcement agencies was that the issue was not resources but the tools to be able to tackle criminals. Also, law enforcement agencies do benefit from a proportion of the money recovered, so they are incentivised at both ends of the scale—and it will be up to legislators in this House and the other place to decide on the right balance to strike. But that was our rationale for the lower amount—and I know that the Government originally suggested £100,000.
The point about compensation is covered in government Amendments 28 and 56, and Amendments 29 and 57, in the name of the noble Baroness, Lady Hamwee. Amendments 28 and 56 introduce a compensation scheme in relation to the interim freezing orders that can support a UWO. Other powers to freeze property in POCA have connected compensation provisions. It is absolutely right that a person who has genuinely suffered a loss should have the ability to seek compensation where there has been serious default on the part of the enforcement agency. The “serious default” test is already used in POCA and is applicable here too. I hope that on that basis, the noble Baroness will agree that her amendments probably are superfluous in this instance.
Lord Thomas of Gresford (LD)
In support of my noble friend, the experience of POCA has been that the amount recovered has been very little more than the cost, so that the question of resources is very germane. In practice, both sides are anxious to come to an agreement early on to avoid the expense of a lengthy hearing, never mind the lengthy investigation. Therefore, setting the level at a high point is a very sensible thing to do and will ensure that resources are properly used.
Baroness Williams of Trafford
Is the noble Lord talking about the high point with regard to the UWO triggering point? The Government have considered all options; they have suggested £100,000. The point was made that £50,000 was more appropriate, particularly in some of the devolved Administration areas, where property prices are generally lower, and the noble Baroness, Lady Hamwee, has made an argument for setting the bar higher. However, my noble friend also made the point that by setting the bar lower we might end up having more success, reaching not only the low-hanging fruit but the high-hanging fruit as well. I therefore hope that the noble Lord accepts that explanation. It is an objective consideration, but there are obviously many views about where the threshold should be set.
On Amendments 2, 5, 7, 16 and 18, tabled by my noble friend Lord Faulks, Amendments 2 and 7 seek to replace the term “holds” with “has a financial interest in” as the test for the High Court to consider. It is only fair that in serving a UWO the respondent must have some direct connection with the property that is of interest. “Holds” is a well-established concept in civil law, including in the Proceeds of Crime Act 2002, and we believe that requiring a person to “hold” property is a proportionate approach. It is also our view that “holding” property includes holding an interest in that property. I hope that noble Lords are reassured by that assessment.
Lord Faulks
I am sorry to interrupt the Minister. I thought that the answer to this point was provided by the Government’s Amendment 21, therefore there is no need to refer to the provisions of POCA, because there is an internal reference to what “holding” means.
Baroness Williams of Trafford
That is correct, but I thought I might go through it. I am just being thorough.
Amendment 5 seeks to add the ability to interview a person “under oath” as a possible requirement of a UWO. It would already be a criminal offence for the respondent to knowingly or recklessly provide false or misleading information. We must also remember that this is only an investigative power; if the case leads to criminal proceedings, it would be subject to the usual rules of giving evidence and allow for interviews “under caution”.
Amendments 16 and 18 address the issue of “purported compliance”. If a person does not comply with a UWO, their property is presumed to be recoverable under civil recovery proceedings. Given the severe consequences of not complying, it is right that this rebuttable presumption should not apply to a person who purports to provide a response. This avoids any legal ambiguity as to when the presumption will apply. However, where that individual provides responses that do not satisfy the enforcement agency, he or she then runs the risk that the poor quality of the responses will encourage the agency to take further action, and in those circumstances the burden of proof switches back to law enforcement, as is normal.
Purported compliance applies to a scenario where all the requirements of a UWO have been met but where the response is less than satisfactory. The agency is able to tailor the request for information very specifically, so will have some control over this. We do not want to get into arguments before the courts as to whether the presumption should apply and whether the individual has complied.
Finally, the UWO provisions will allow the enforcement authority to make very specific requests for information, reducing the risk of a low-value response being provided. I hope that my noble friend will feel that this addresses the point he has so expertly raised. He also raised a point about gambling. With regard to the Ladbrokes test or the William Hill defence, we would expect a high level of evidence to prove that, and we would expect it to meet the requirements of the UWO. The UWO will have achieved its purpose by flushing out information.
My noble friend also asked whether we would publish the code of practice before Report. The answer is yes. I undertook to discuss publication of the update to the relevant code of practice with my officials and ministerial colleagues, and it is my intention that the draft code will be available to noble Lords prior to Report.
I now turn to Amendment 1, moved by my noble friend Lord Hodgson of Astley Abbotts. This would require the High Court to be satisfied “beyond reasonable doubt” with regard to each of the requirements before issuing a UWO. This is an investigative power, as the noble Lord, Lord Blair, said, so the test of “reasonable suspicion” is quite normal and consistent with existing law, including Part 8 of POCA. The balance of probabilities applies here, as the noble Lord, Lord Blair, and my noble friend Lord Faulks said, and I hope that my noble friend will agree that it would not be appropriate to impose a criminal law standard in such cases.
My noble friend Lord Hodgson asked about the reversal of the burden of proof. We accept that there is a reversal of the burden of proof but it is in very specific and narrow circumstances. There has to be a link to a PEP or a serious criminal. This is a proportionate use of operational need. As an investigation power, there is the opportunity to address this issue in any subsequent proceedings. As my noble friend said, Transparency International has approved this approach.
My noble friend also asked about the use of legal advisers if a client is subject to a UWO, but we do not consider that an amendment is required to the laws on legal privilege. The lawyer role is unchanged, and the lawyer has the same responsibility to file a SAR if he has a relevant suspicion. It will be a question of the facts in each case.
I now turn to Amendments 10, 13, 20, 22, 23, 24, 25, 35 and 37, tabled by the noble Lord, Lord Sharkey. I think that these broadly separate out into two topics: first, the application of UWOs to PEPs, and, secondly, the court process in Northern Ireland. UWOs can be made either where there is suspicion of involvement in serious crime or in relation to non-EEA politically exposed persons. In that sense, I want to make it clear that politicians and senior officials in the UK and the EEA are covered by the first element of this power where they are suspected of being involved in serious criminality.
The reason for the second limb is to plug a gap experienced by law enforcement agencies when they investigate politically exposed persons. The issue arises in cases where critical evidence is available only in the PEP’s home country, which lacks the capabilities necessary to gather it itself. Conversely, in relation to UK PEPs and those across the European Economic Area, if the evidence exists it will be obtainable, so the same issues do not arise. There is no gap in these cases. That means it should be possible to evidence suspicion of involvement in serious crime.
On the noble Lord’s point about the FCA guidelines, these relate to the regulatory obligations of banks and other institutions. UWOs are not to do with the regulatory burden and responsibilities of the financial industry, so reference to the FCA is not strictly relevant here.
On increasing the sentence on summary conviction in Northern Ireland to 12 months, the current provisions reflect the approach taken to sentencing for other “either way” offences in the Bill, and which also correspond to offences in POCA already. The 12-month point for England and Wales arises from an amendment to the approach to sentencing in the magistrates’ courts which derives from Sections 281 and 282 of the Criminal Justice Act 2003. Those amendments did not extend to Northern Ireland. In relation to the ability to make rules of court and other procedures in the High Court, including the variation or discharge of a UWO, specific provisions are not required in the Bill for England and Wales. However, express provision is required for the High Court in Northern Ireland to put them on the same footing.
The noble Lord also asked about Scotland. There is a constitutional division of powers between Scottish Ministers and the Lord Advocate, which is obviously specific to Scotland. We need to be certain that there is an ability of the Scottish Minister to disclose information onwards. The provisions presume that if a response is made to a UWO, this information could be disclosed onwards for consideration of a criminal investigation and/or prosecution. Therefore, in the Scottish context, Scottish Ministers apply for UWOs so that they will receive any information in response to such. If they consider that this information suggests that a criminal investigation and proceeding may be appropriate, they would need to refer the material to the Lord Advocate. The amendments provide that Scottish Ministers can disclose the information to the Lord Advocate for this very purpose. They also make certain that there is no suggestion that Scottish Ministers are tasking the Lord Advocate, merely that the material can be referred for independent consideration by the Lord Advocate. That is important due to the constitutional structure in Scotland.
Amendment 24 provides for any person affected by a UWO to apply for its variation or discharge, and not just the applicant and respondent. As a specifically focused investigation order, only the applicant and respondent are directly affected by the UWO. This is because the UWO requires the respondent to provide information, but does not itself affect any other interests in the property.
Finally, we reach the other amendments from the noble Baroness, Lady Hamwee. Amendments 26 and 54 would provide that the application to freeze property need not be made at the same time as the application for a UWO. It is right that all matters relating to the person and property should be dealt with in one hearing. This also gives certainty to the respondent. Should the enforcement agency wish to freeze the property at any other time, it will be able to do so under the main freezing order provisions in POCA, provided that the relevant test can be met.
With reference to UWOs, the noble Baroness asked about the need for the ownership register. Open source material that already exists can be of assistance; for example, the Land Registry, public accounts and records at Companies House. Other countries may already have public registers of ownership and income. In these circumstances, our law enforcement agencies would have access to them. We should also note that the UK has public registers of beneficial ownership.
I turn finally to the point raised by the noble and learned Lord, Lord Brown of Eaton-under-Heywood. He talked about altering the threshold but still having the safeguards. On the threshold, it must be remembered that the High Court has to be satisfied that there is still a link to serious crime or that someone is a PEP. That is a significant test. It focuses the use of the power in relation to the amount, and that is dropped by our amendments. The court has to show not only the value of the property but that the respondent does not have any obvious legitimate income.
Baroness Hamwee
My Lords, on that last point, I was not clear whether the Minister was saying that defendants’ living expenses were covered or not. I would be happy to discuss that with her after today. I raised it because I was aware that they are specifically referred to in other legislation.
Baroness Williams of Trafford
The noble Baroness is right: they are provided for because they are in line with existing powers in POCA.
Baroness Hamwee
The Minister said that it would be right to have everything dealt with in the same hearing. I questioned whether “proceedings” meant “hearing” because to me they are not the same thing. Did the Minister say “hearing”? That might require a tweak.
Lord Hodgson of Astley Abbotts
My Lords, we began with my modest amendment an hour and 40 minutes ago, and we have obviously ranged pretty widely. That is not surprising with nearly 60 amendments in this group. I asked in my opening remarks for reassurance that the government amendment,
“that there is reasonable cause to believe”,
provided adequate protection and we did not need “beyond reasonable doubt”. I asked for more experienced legal expertise than I have to provide me with that reassurance. I got not one but two noble and learned Lords to provide that in the shape of the noble and learned Lords, Lord Brown of Eaton-under-Heywood and Lord Phillips of Worth Matravers, for which I am very grateful.
I was slightly surprised that the noble Lord, Lord Blair, was dismissive of what I put in my amendment but will, I imagine, accept government Amendment 6, which provides a slightly lower level of inhibition to police activity, but that is as it may be. I was grateful to my noble friend on the Front Bench for her reassurance that there was no change to the issue of legal privilege. I beg leave to withdraw the amendment.
“(c) where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and(d) setting out such other information in connection with the property as may be so specified.”
Lord Faulks
“(c) the respondent has a financial interest in land or property in England and Wales which is registered in the name of an overseas company.”
Lord Faulks
My Lords, a walk around the centre of London after dark reveals that large parts of the city are wholly unilluminated. Why are the lights off? Is it that most Londoners are getting an early night? I think not. The fact is that many high-end properties are unoccupied and are used as investment vehicles by those who regard London as a safe haven for their money, often unlawfully acquired. In September 2016 the Mayor of London, Sadiq Khan, launched an inquiry into the impact of foreign investment flooding into London’s housing market. Lest my submission be considered too London-centric—I declare an interest as a resident of central London—such investment has also been going on in Manchester, Liverpool and Birmingham, among other cities. Mayor Khan said on launching the inquiry that we all need to be reassured that dirty money is not flooding into the property market.
Property that is the subject of a UWO does not have to be real property, but real property has the advantage of being less easy to dispose of informally and quickly. Your Lordships have already heard me and others discuss the importance of tightening up the provisions in relation to compliance with UWOs to deal with the potential for evading the orders. In this context, I am particularly concerned about property owned by overseas companies. On 17 March 2016, the Land Registry published the fact that it had registered 100,000 freehold and leasehold properties in the name of overseas companies. I should make it clear that the list excludes private individuals, UK companies, UK companies with an overseas address and charities. Noble Lords may be aware that unlike in most countries, there are absolutely no restrictions on foreign ownership of residential property in the United Kingdom.
Do we really think that all this property is being acquired with clean money? Are solicitors and agents complying with anti-money laundering provisions? I know that tightening up those provisions is the subject of later amendments. I read last week in the Times that only five people have been convicted of money laundering in the 10 years since the legislation was apparently tightened. The Law Society is on record as saying:
“Compliance with money laundering obligations is one of the greatest challenges for solicitors in the UK today”.
What about the obligations of estate agents? Of these properties owned by overseas companies, how many are polluted by dirty money? I mentioned at Second Reading the envelope tax. This was a reference to the super-rich being prepared to pay something like £218,000 a year in tax rather than identify who owns property. I asked the Minister whether the Government were happy with this state of affairs. Her answer was that UWOs will,
“make it easier for our law enforcement agencies to investigate money laundering in the London property market and recover the proceeds of crime”.—[Official Report, 9/3/17; col. 1519.]
She also mentioned the importance of ensuring that lawyers, estate agents and other professionals comply with their money laundering obligations. Apparently the Treasury will in due course publish its findings in relation to the supervisory regime.
The noble Lord, Lord Rooker, referred to his kleptocracy tour in his speech at Second Reading, while the noble Baroness, Lady Kramer, cited the report of the All-Party Parliamentary Group on Anti-Corruption, which takes the view that more than £4 billion-worth of properties have been bought with suspicious wealth. My noble friend Lord Patten endorsed all the comments that were made at Second Reading about the devastating effect of dirty money on the occupancy of London properties. The Minister said that,
“the Government intend to publish a call for evidence, seeking views on a new register of overseas companies that own property in the UK”.
She said that the Government,
“hope to do so shortly and will then introduce the relevant legislation when parliamentary time allows”.—[Official Report, 9/3/17; col. 1519.]
As I have explained in relation to other amendments, I do not think that parliamentary time is likely to be available in the foreseeable future, so we must seize the legislative opportunity as it now presents itself.
London is in danger of becoming a safe haven for dirty money. This is partly because of our reputation for maintaining the rule of law and because we are generally regarded as a good home for foreign investment. I certainly would not want to deter investment, particularly in the uncertain economic times that lie ahead, but I deprecate this assault on the London property market, the effect it is having on Londoners and how it is adding to the pressure that exists in the London property market, which falls particularly harshly on those seeking to acquire their first properties. We should do everything we can to make these provisions effective.
The legislation currently provides that the court must be satisfied that a respondent is a PEP, has been involved in serious crime, or that there is at least a reasonable suspicion of involvement. The amendment in my name and that of the noble Lord, Lord Anderson of Swansea, who unfortunately is unwell, would add to that,
“the respondent has a financial interest in land or property in England and Wales … registered in the name of an overseas company”.
This would make it easier for the agencies to obtain a UWO in circumstances where they do not have much evidence of involvement in serious crime or the respondent is not a PEP, but they have suspicions about the source of money used in the acquisition of property. My noble friend Lord Leigh referred to his familiarity with questions being posed by the Revenue. The High Court would still have to be satisfied that there are reasonable grounds for suspecting that the respondent’s lawfully obtained income would have been insufficient, but this should not be too high a bar to surmount.
Would this create any unfairness? I do not see why. If the property has been acquired with honest money, an explanation could be provided that would comply with the order. I ask the Minister: how, if at all, will UWOs be used to get at the problem that has been identified by me and a number of other noble Lords? Will she explain why she objects, if she does, to this amendment, or at the very least explain what improvements will be made to deal with this very real problem? Her answer may be partially to rely on the very recently proposed government Amendment 21. I am not sure that that does the trick. This a very important point and a real opportunity. I beg to move.
Lord Rooker (Lab)
My Lords, I had not intended to speak on this amendment, but it gives me the opportunity to raise the point that I wanted to raise today anyway following Second Reading. I agree with everything that the noble Lord just said. From memory, I think the figure is that 9.3% of the properties in Westminster are owned by overseas companies from jurisdictions that maintain secrecy. That is a huge percentage of the properties in one local authority area.
The issue I want to raise is that the money comes into this country from somewhere. Basically, it must come through the banks. At Second Reading I made the point:
“As far as I know, no bank has ever been prosecuted in the UK for laundering corrupt wealth from another country”.—[Official Report, 9/3/17; col. 1487.]
The Minister responded by saying:
“The noble Lord, Lord Rooker, talked about fines on banks in the UK. He raised the issue of banks in the UK not being penalised for laundering funds from overseas. I have a huge list of fines, which I will not read out today, because it would take up valuable time in responding … I will send it to him … and place a copy in the Library”.—[Official Report, 9/3/17; cols. 1520-21.]
When the noble Baroness wrote to Members who had participated at Second Reading, she neglected to mention anything about that exchange, so I contacted her office just to remind them. I was sent a letter, which I presume others would have had, dated 21 March. Attached to it were details of some of the most significant fines imposed in recent years on financial institutions with a presence in the UK. They related to tax fraud, money laundering and financial crimes. The vast pile of papers that the Minister said she had at Second Reading amounts to four sheets, but only three banks in the UK are mentioned: Barclays, Deutsche Bank and Sonali. Not one of them has been prosecuted for money laundering. They have had fines levied on them by the Financial Conduct Authority, but not one has been found guilty of money laundering.
Lord Deben (Con)
My Lords, I support the amendment because I have been for many years concerned about housing. This issue is a matter not just of corrupt investment but of investment in housing for purposes which are other than housing. This is a very serious social issue in London and other cities. If the Government do not take it seriously, they will reap the whirlwind.
The number of such houses and flats—real estate—in London in particular, causes considerable resentment among those unable to buy their own home. It is no good any party any longer ignoring it. All parties have to admit that they have not solved this problem. This is not a party-political comment, but it is an increasingly serious matter because it is creating divisions in our society which are greater than they have ever been. I ask Members of your Lordships’ House to remember when it was possible for them as young people to buy a house or a flat in London, now to think about their children or grandchildren unable to do so and to recognise the divisive effect of that. It is against that background that this amendment should be considered.
The second issue is simply that most of us are fed up with the intrusive questions asked by people with whom we have banked for most of our lives, including being asked to send one’s utility bills to a bank with which one has had an account that has been in reasonable order for 60 years because it has to meet the perfectly understandable anti-money laundering arrangements. The second resentment is that normal, ordinary British people have to go through this amazing series of hoops to bank money or get money out if they wish to do anything which is slightly out of the ordinary, yet they know perfectly well that the banks must have been involved in the transmission of money in situations which are, at the very best, dodgy.
I, too, sought some figures about who has been prosecuted for this. It actually beggars any kind of belief that no bank of any kind has ever helped anybody to buy, with improperly gained foreign money, property in London. I am sorry but that does not stand up. So the second disillusion that comes is that decent people in this country go through this kind of unbelievable series of hoops knowing both that they must accept them because of the security that we properly wish to impose and that others avoid this to the tune of millions and millions of pounds.
The third reason this amendment is so important is that there is a real concern in this country, with the atmosphere of Brexit, about attitudes to foreigners. I am an absolute and continuous remainer and will not be pushed off that by anybody’s arguments, so I am biased. However, I do not like the society we are building in circumstances of antagonism to foreigners of all kinds. That makes it even more important that where dishonourable activities take place and money earned dishonourably elsewhere is invested in this country that is dealt with clearly and transparently, so that the kind of accusations that are and have been made against people who invested here honourably are totally distinct from that which has been unacceptable.
My fourth reason—and last, as the House will be pleased to note—is that we recently, honourably, passed the Modern Slavery Act. We are beginning to be serious about the way in which people are exploited and the benefits of that exploitation coming to people in this country. People are serious about this, the Government have been serious about it and it has all-party support. If we are serious about the Modern Slavery Act, we must also be serious about the proceeds of crime and often of exploitation being brought into this country and used in the real-estate world. That is why I beg my noble friend to take this amendment very seriously. It addresses some deep disillusion in our society and also some deep injustice in the society of the world. This is not just a passing amendment to tease out the Government’s position here and there but a fundamental amendment that challenges the whole of our society to behave in a way that we can be proud of, rather than one that facilitates activities we should condemn.
Lord Brown of Eaton-under-Heywood
My Lords, I start with a very pedantic point. If this amendment is to go ahead, it needs to begin with an “or”. As the noble and very clever though not technically learned Lord points out, this is a further alternative to the two already listed in new Section 362B(4). The next point is that of course the property here envisaged, registered in the name of an overseas company in which the respondent has an interest, is not—I repeat, not—the same property as referred to in subsection (1), in respect of which one seeks to have an unexplained wealth order made. It is a different property altogether.
I have great sympathy with the amendment and the policy underlying it. Like the noble Lord, Lord Deben, I deplore the extent to which London properties are in foreign ownership nowadays. But I respectfully wonder how far the amendment would go—if any distance—in actually dealing with that problem and with money laundering. Surely with regard to most of the people who buy and own these London properties—if they are not already PEPs, or politically exposed persons, and we know that a lot of them probably are—nobody questions how much money they have. But would it not then be rather difficult to satisfy the earlier requirement —which, again, has to be satisfied to make one of these orders—in new subsection (3)? Each of the various requirements set out in proposed new subsections (2), (3) and (4) has to be satisfied. First you have to show that they hold property of the relevant value; then, in new subsection (3) you have to be satisfied that,
“there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property”.
The property there being referred to is not property in London registered in the name of an overseas company, it is the property in respect of which you are seeking a UWO.
Those points need to be borne in mind before one goes down this particular road. It is not going to be the panacea that some who have contributed to the debate thus far seem to think it is likely to be.
Baroness Kramer (LD)
My Lords, I do not pretend for a moment to have the drafting skills of the noble and learned Lord, Lord Brown of Eaton-under-Heywood, but I associate myself with all the other comments that have been made on the amendment. Rather than repeat the issues that have been so well described, I want to pick up the point that the noble Lord, Lord Faulks, made—that this Bill is a real and rare opportunity to tackle this problem, which, as he will have heard, exercises Members on all sides of the Committee and is essentially a non-partisan series of concerns.
When I had the privilege of sitting where the Minister is sitting, I brought a Bill through this House which was fondly and informally known as the “Dump it in here” Bill. It is perfectly possible, even at this stage, for the Government to come forward with some well-drafted language that would achieve the goals that have been described by various noble Lords today and by others who have been concerned about this issue. The Government have been looking at it for a long time. Given the fact that it will be difficult to get new legislation through in the next couple of years, I urge the Government to look at drafting that language—they have the capacity to do it and would be in a position to do it—that would bring into the Bill the kinds of remedies that would require the public register of beneficial interest for property ownership that presently we do not have in the UK. I met representatives of the British Virgin Islands the other day. The British Virgin Islands actually has such a register and would be delighted to provide mechanisms and recommendations to the British Government if they felt they needed advice in this area.
Lord Leigh of Hurley
My Lords, I have touched on this subject already. As president of Westminster North Conservative Association, I have spent many long evenings tramping along the streets of Westminster North, knocking on doors of properties that are clearly unoccupied and turn out to have no registered voters so are probably owned by offshore companies. While I am not convinced that the amendment, placed where it is, achieves the effect that the noble Lord, Lord Faulks, wants, I echo the remarks of the noble Baroness, Lady Kramer, that this might be an opportunity to seek to make progress.
The point made by the noble Lord, Lord Deben, about not wanting to be xenophobic is well taken, not least because of the concerns that some people have that the actual beneficial owner of these overseas companies is in fact a person in the UK who might well allegedly be the tenant. The fact that it is an overseas company does not mean that it has an overseas owner. Noble Lords ask whether their children will be able to afford to live in the house that they live in. Invariably, the answer is no.
Lord Hodgson of Astley Abbotts
My Lords, I support this amendment and the sentiments that have been expressed. Like other noble Lords, I am not sure whether it will do anything other than send a signal that this is something we are very serious about. An important aspect of not allowing it to become too London-centric—the darkened squares that my noble friend referred to in his opening remarks—is the ripple effect. What happens in central London ripples out through the country. I think the Lloyds Bank review says that Oxford is now the most unaffordable town in the country in terms of local wages to local house prices. If we can stop the ripple, or at least inhibit the ripple, that will have an effect much wider than merely the darkened squares to which my noble friend referred. As my noble friend Lord Deben said, if we take this further out, there are implications for social cohesion, as some of our less well-off and less well-resourced fellow citizens are finding themselves squeezed out by gentrification in an increasingly wide range of towns and cities across the country.
Lord Kennedy of Southwark
My Lords, Amendment 11 is tabled in the names of the noble Lord, Lord Faulks, and my noble friend Lord Anderson of Swansea. My noble friend was taken ill yesterday, and I am sure we all wish him a speedy recovery. This amendment would add a new paragraph to subsection (4) which clearly specifies that where,
“the respondent has a financial interest in land or property ... which is registered in the name of an overseas company”,
which could be being used as part of a complicated financial arrangement to hide from the authorities their unexplained wealth, the court can make an unexplained wealth order. I support the aims of this amendment. It highlights another way that a person can seek to avoid having to explain their wealth. This amendment seeks to address that in a very clear way. My noble friend Lord Rooker raised some important points, and I am sure the Minister will respond to them in her remarks.
Like the noble Lord, Lord Deben, I have had a bank account for 38 years. I have only ever had one—I opened it when I was 16. I went into the bank at Camberwell Green and have kept it in pretty reasonable order for those 38 years. All the things you have to do—saying who you are and having to give your mother’s maiden name—are very irritating, but there are clearly issues with funds travelling backwards and forwards that must have gone through a bank somewhere. If they are ever to be brought to account for things, that is something we must address in these debates.
A lot has been said about the London housing market. Any suggestion that it could be a safe haven for corrupt money should be of concern to us all. What a terrible thing that we even have to contemplate that. It contributes to the housing crisis in London. I referred to the Transparency International report in my contribution at Second Reading. It did some work in 14 developments and found that 1,616 companies and individuals bought properties and that only 450 were registered to people who were living in the UK. Forty per cent of purchases in London, totalling £1.6 billion, were bought by investors from countries with a high risk of corruption. We do not want any suggestion of our capital city being seen as a safe haven for corrupt money, as that must concern us all. The noble Lord, Lord Faulks, made the point that whole parts of central London are in darkness. Ten per cent of Westminster is owned by faceless companies. Properties with an abnormally low use of electricity suggests that they are not lived in on a regular basis. Transparency International also found that 140 properties with a value of £4.2 billion have been bought by investors who represent a high money-laundering risk. My friend the Mayor of London, Sadiq Khan, has launched an inquiry into the impact of foreign investment flooding into London’s housing market. The noble Lord, Lord Faulks, referred to this.
The other problem is the trickle-down effect. It causes property prices to be abnormally raised and is putting whole sections of the capital out of the reach of ordinary law-abiding citizens. That must worry us all, and very regrettable it is. About a year ago, I was standing at this Dispatch Box discussing with the Minister the Housing and Planning Bill—the cost of rents, how we get people living in safe, warm, dry properties, how people can afford to buy property and whether starter homes are the right answer. The way money has come in has made it more difficult for families, which must be of regret to us all. That is something we need to address in this Bill. The noble Lord, Lord Faulks, made the point that there may well be very little legislative time in the next Session, so we should take the opportunity that this Bill gives us.
The noble Lord, Lord Deben, talked about housing. I am happy to accept that all parties have failed in the past. There is no question about that—we all need to do very much more about it. I live in Lewisham. The noble Lord was the Member of Parliament for Lewisham at one time; I am a councillor in his old constituency. It is a great area to live in, not the most expensive part of London, but I could not now afford to buy the house that I live in. I have lived there for 13 years and the rent the people in the house next to me pay is more than my mortgage. It is ridiculous. If corrupt money has led to that, it is a bad situation.
This amendment raises important issues, and the Minister should reflect on them very carefully. If we can find some way forward before the Bill becomes law, we should do that.
Baroness Williams of Trafford
I thank all noble Lords who have taken part in this short debate. I am grateful for their contributions. As we have already covered, the court may issue a UWO in cases where either there is a link to serious criminality or the respondent is a politically exposed person from outside the European Economic Area. Amendment 11 seeks to add a third limb to those covered by UWOs. This amendment would mean that a UWO could also be served on a person who has a financial interest in land or property which is registered in the name of an overseas company. This would be quite a significant step, and I encourage noble Lords to consider it carefully. The UWO has been specifically designed as a reaction to the real operational difficulties that law enforcement agencies have had in individual cases.
First, there are those who are known to have a link to serious criminality, such as there being known links to organised criminal groups. The senior criminal, if I can call them that, is often able to keep themselves distant from any actual individual instance of criminality. The UWO will force them to explain their wealth. Secondly, there are non-EEA PEPs. PEPs are targeted in this way because they are widely acknowledged to be a high corruption risk. The ability to get evidence from certain countries—
Lord Lea of Crondall (Lab)
I hesitate to intervene, but this is a point of general relevance to the Bill. The Minister referred to us being a member of the European Economic Area. I take it that nothing will happen to this Bill when it goes on to the statute book, but this question is germane and substantive. The Bill refers to the European Economic Area, of which we are a member. Would we require legislation to stop being a member? Does that bear on the substantive issues in the Bill?
Baroness Williams of Trafford
I do not entirely understand what the noble Lord said.
Lord Lea of Crondall
Will the Minister make sure that this question is looked at? Otherwise, we will have on the statute book something that depends upon us being a member of the European Economic Area.
Baroness Williams of Trafford
I am much clearer about this. Obviously negotiations will be conducted as the Brexit negotiations go on. I did a debate the other week about the co-operation around law enforcement; we are absolutely committed to continue that co-operation—if that gives comfort to the noble Lord—in fighting crime, corruption, fraud, slavery, people trafficking and all that sort of thing. We are a world leader at this point in time.
I did not initially get where the noble Lord was coming from, so I apologise. I was talking about the non-EEA PEPs—those outside the European Economic Area at the moment—who are targeted in this way because they are widely acknowledged to be a high corruption risk. The inability to get evidence from certain countries has rendered action against those persons almost impossible in some cases, even though they have obvious unexplained wealth and there are other suspicions relating to them. In both cases, there are clear reasons to justify the use of this novel investigative power. Based on clear evidence, we judge it to be proportionate in these cases to reverse the burden of proof, which is a major departure from the normal operation of our law, and to put their property at risk of recovery purely on the basis that they do not respond to a UWO.
I fully recognise that those in the third grouping proposed by noble Lords—those with a financial interest in property owned by an overseas company—have given rise to concerns relating to corruption. However, very importantly, it must be remembered that the vast majority of people with a financial interest in an overseas company are law-abiding. Many of them are British citizens, for whom there will, if relevant, be other avenues to progress an investigation. I am not satisfied that the situation relating to this third suggested group of persons is so stark, or that a real operational need has been identified. As I said earlier, there is nothing inherently suspicious about having a financial interest in an overseas company.
Despite that, I take on board the points that noble Lords have made and am very grateful for the amendment, which highlights a very important area. My officials will, of course, liaise with law enforcement colleagues to ensure that they have the tools that they need to investigate cases of this type, but I assure noble Lords that they have not indicated a gap in their existing powers that would justify extending UWOs in the way that is proposed.
I will go through some other points that noble Lords have made. My noble friend Lord Faulks—I thought he was noble and learned, and it has quite shattered my illusions to learn that he is not—talked about the “envelope tax”, which he also brought up at Second Reading. I undertake to discuss it with colleagues at the Treasury and come back with a response, either on Report or by letter to him. He also talked about UWOs and the London property market, and what they will do to help with empty properties—which I see every night on my way back to my small flat in north London. In terms of how a UWO will be used against property held by foreign companies, it must be noted that the UWO provisions can be used against legal persons—companies—wherever they are located, subject to international law on service. In addition, it will be possible to focus on the individual if he holds an interest. Our new amendments will mean that foreign-owned property is not excluded from the UWO provisions.
My noble friend also talked about the supervisory regime and the obligations of regulated bodies with respect to the London property market. The Government consulted on reforms to the anti-money laundering supervisory regime in the autumn and have considered the responses. The Treasury published the outcome of that review on 22 March and is currently conducting further consultation on the creation of a new office for professional body anti-money laundering supervision, which will be overseen by the FCA and is expected to be fully operational by the start of 2018.
The noble Lord, Lord Rooker, asked about the latest available data on prosecutions, convictions and sentencing, broken down by offence from 2015. In 2015, 2,307 defendants were proceeded against for money laundering offences in the magistrates’ court; 1,336 defendants were found guilty at all courts for money laundering offences; and 1,300 were sentenced. Where a bank’s anti-money laundering regime is found to have failed, significant fines can be, and have been, applied. I think that is the chart that he was referring to. Banks are also required to fix their regimes, and banks operating in the UK have been fined for failures in their anti-money laundering regimes.
Lord Rooker
The Minister is missing the point, although I am sure she is not doing so deliberately. No bank has been prosecuted. That is the background to the question I asked. I did not ask about cosy deals with the Financial Conduct Authority—like those reported today with Tesco and the one with Rolls-Royce, which I referred to at Second Reading—to have deferred prosecutions, so that they pay but do not get prosecuted. I asked about banks being prosecuted. The one way to stop or curtail this, as the noble Lord, Lord Deben, said, is to get them where it hurts, not with cosy deals. These fines are not the result of prosecutions. If she is implying that, she is wrong, and is close to misleading the Committee. I am not asking about deals; I am asking about prosecutions which take place in court, not through cosy deals and a fine from the Financial Conduct Authority.
Baroness Williams of Trafford
I hope the noble Lord does not think that I have ever tried to mislead the House. I talked about fines, but where a bank was found to have committed a criminal offence, a prosecution could be undertaken. Investigations and prosecutions are a matter for law enforcement agencies and prosecutors. I take the point that he is making, but this is open to law enforcement. Last month, a £163 million fine was issued to Deutsche Bank, and I would suggest that hitting them where it hurts probably involves hitting them in their pockets. It is open to law enforcement to prosecute banks, but I take the noble Lord’s point in that, today, I know of no prosecutions of banks. But the fines regime is in place.
I am very grateful for the amendment but hope that my noble friend has been assured that there is not a gap in existing powers that would justify extending UWOs in the way proposed. I hope he will feel content to withdraw his amendment.
Lord Faulks
My Lords, I am grateful to all noble Lords who took part in the debate and for the general support for what lay behind this amendment, which is a widespread concern about the London property market in particular and the degree to which it is clear that corrupt money has entered it. The noble and learned Lord, Lord Brown, made a number of important points—particularly that I am not learned. He was also correct to say that the word “or” was missing from the amendment, and made some other drafting suggestions. He was also right to suggest that this is not a panacea, but it was not designed to be. The amendment was intended to provoke the sort of debate we have had and to ask the Government whether they are truly satisfied that the evil we have identified is being answered, and in particular whether anything in the Bill can be used to deal with the problem.
My noble friend the Minister has said that the provision covers those who are PEPs within the definition of the Bill or those suspected of serious criminality. But what, I ask, about those who may not easily be defined as being “suspected of serious criminality” but are in fact gangsters? What of those who have high office but do not come within the definition of PEPs? With many of the properties, it will be difficult to determine precisely who owns them. All that we ask for is an unexplained wealth order—it is not a criminal offence; it is a civil procedure which results, if there is no adequate explanation, in civil recovery. That, I suggest, will help deter the incursion of corrupt money. The provisions contain safeguards on self-incrimination and compensation. Let us not be too pusillanimous about this. My noble friend said that she had received my request for information about the envelope tax at Second Reading and she has again, but she has not yet replied. On the face of it, that is in stark contradiction to the policy that underlies the UWOs.
We will miss a legislative opportunity if we do not do something through the Bill to sort out the problem we have identified. I hope that my noble friend will speak to her officials and be satisfied that there is no gap, no lacuna, in this approach.
Lord Rooker
Perhaps through the noble Lord, as the Minister talks to her officials, I can invite her to watch two films: “From Russia with Cash” and “From Ukraine with Cash”. They are on the same CD. If she does not have access to them, I will provide her with a copy. They spell out that there is a serious problem.
Lord Faulks
I am very grateful for that intervention, which supports the point that these effective owners may not be PEPs within the definition and it may be difficult to pinpoint serious criminality. We must do something about this. I look to the Minister to provide a better solution than exists at the moment. If not, we will be letting the country down and letting Londoners down, particularly young, aspirant Londoners. However, at this stage, I beg leave to withdraw the amendment.
“(e) where the property is an interest in other property comprised in a settlement, the reference to the respondent obtaining the property is to be taken as if it were a reference to the respondent obtaining direct ownership of such share in the settled property as relates to, or is fairly represented by, that interest.”
“(d) otherwise connected with a person within that paragraph.”
“(5A) Subsections (5B) and (5C) apply in determining the respondent’s interest for the purposes of subsection (3) in a case where the respondent to the unexplained wealth order—(a) is connected with another person who is, or has been, involved in serious crime (see subsection (4)(b)(ii) of section 362B), or(b) is a politically exposed person of a kind mentioned in paragraph (b), (c) or (d) of subsection (7) of that section (family member, known close associates etc of individual entrusted with prominent public functions).(5B) In a case within subsection (5A)(a), the respondent’s interest is to be taken to include any interest in the property of the person involved in serious crime with whom the respondent is connected.(5C) In a case within subsection (5A)(b), the respondent’s interest is to be taken to include any interest in the property of the person mentioned in subsection (7)(a) of section 362B.”
“362GA Holding of property: trusts arrangements etc(1) This section applies for the purposes of sections 362A and 362B.(2) The cases in which a person (P) is to be taken to “hold” property include those where—(a) P has effective control over the property;(b) P is the trustee of a settlement in which the property is comprised;(c) P is a beneficiary (whether actual or potential) in relation to such a settlement.(3) A person is to be taken to have “effective control” over property if, from all the circumstances, it is reasonable to conclude that the person— (a) exercises,(b) is able to exercise, or(c) is entitled to acquire,direct or indirect control over the property.(4) Where a person holds property by virtue of subsection (2) references to the person obtaining the property are to be read accordingly.(5) For further provision about how to construe references to the holding of property, see section 414.”
“362PA Compensation(1) Where an interim freezing order in respect of any property is discharged, the person to whom the property belongs may make an application to the High Court for the payment of compensation.(2) The application must be made within the period of three months beginning with the discharge of the interim freezing order.(3) The court may order compensation to be paid to the applicant only if satisfied that—(a) the applicant has suffered loss as a result of the making of the interim freezing order,(b) there has been a serious default on the part of the enforcement authority that applied for the order, and(c) the order would not have been made had the default not occurred.(4) Where the court orders the payment of compensation—(a) the compensation is payable by the enforcement authority that applied for the interim freezing order, and(b) the amount of compensation to be paid is the amount that the court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.”
“(c) where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and (d) setting out such other information in connection with the property as may be so specified.”
“( ) where the property is an interest in other property comprised in a settlement, the reference to the respondent obtaining the property is to be taken as if it were a reference to the respondent obtaining direct ownership of such share in the settled property as relates to, or is fairly represented by, that interest.”
“(d) otherwise connected with a person within that paragraph.”
“(5A) Subsections (5B) and (5C) apply in determining the respondent’s interest for the purposes of subsection (3) in a case where the respondent to the unexplained wealth order—(a) is connected with another person who is, or has been, involved in serious crime (see subsection (4)(b)(ii) of section 396B), or(b) is a politically exposed person of a kind mentioned in paragraph (b), (c) or (d) of subsection (7) of that section (family member, known close associates etc of individual entrusted with prominent public functions).(5B) In a case within subsection (5A)(a), the respondent’s interest is to be taken to include any interest in the property of the person involved in serious crime with whom the respondent is connected.(5C) In a case within subsection (5A)(b), the respondent’s interest is to be taken to include any interest in the property of the person mentioned in subsection (7)(a) of section 396B.”
(a) consider whether the Lord Advocate should be given an opportunity to determine what enforcement or investigatory proceedings, if any, the Lord Advocate considers ought to be taken by the Lord Advocate in relation to the property, and (b) determine whether they consider that any proceedings under Part 5 (civil recovery of the proceeds of unlawful conduct) or this Chapter ought to be taken by them”
“(2A) If the Scottish Ministers consider that the Lord Advocate should be given an opportunity to make a determination as mentioned in subsection (2)(a), the Lord Advocate must determine what enforcement or investigatory proceedings, if any, the Lord Advocate considers ought to be taken by the Lord Advocate in relation to the property.”
(b) the Lord Advocate may (at any time) determine what, if any, enforcement or investigatory proceedings the Lord Advocate considers ought to be taken by the Lord Advocate in relation to the property.”
“396GA Holding of property: trusts arrangements etc(1) This section applies for the purposes of sections 396A and 396B.(2) The cases in which a person (P) is to be taken to “hold” property include those where—(a) P has effective control over the property;(b) P is the trustee of a settlement in which the property is comprised;(c) P is a beneficiary (whether actual or potential) in relation to such a settlement.(3) A person is to be taken to have “effective control” over property if, from all the circumstances, it is reasonable to conclude that the person—(a) exercises,(b) is able to exercise, or(c) is entitled to acquire,direct or indirect control over the property.(4) Where a person holds property by virtue of subsection (2) references to the person obtaining the property are to be read accordingly.(5) For further provision about how to construe references to the holding of property, see section 414.”
“396QA Compensation(1) Where an interim freezing order in respect of any property is recalled, the person to whom the property belongs may make an application to the Court of Session for the payment of compensation.(2) The application must be made within the period of three months beginning with the recall of the interim freezing order.(3) The court may order compensation to be paid to the applicant only if satisfied that—(a) the applicant has suffered loss as a result of the making of the interim freezing order,(b) there has been a serious default on the part of the Scottish Ministers in applying for the order, and(c) the order would not have been made had the default not occurred.(4) Where the court orders the payment of compensation—(a) the compensation is payable by the Scottish Ministers, and(b) the amount of compensation to be paid is the amount that the court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.”
Baroness Hamwee
Baroness Hamwee
My Lords, Amendments 58 and 59 deal with the same provision in the Bill. We have now come to the chapter on money laundering.
Under new Section 336B(6), the Bill provides that the court must direct the exclusion from the hearing of an application of,
“the interested person to whom that application relates”,
and “anyone representing that person”. The second of my amendments would make that discretionary for the court, but the principal amendment would remove the provision, because it would be appropriate for the Committee to hear the Minister’s justification for excluding from the hearing without alternative arrangements on their behalf the suspected person and his representatives. I acknowledge that I missed a similar provision earlier in the Bill, but the point remains.
I appreciate that there is concern not to tell that person what evidence the police have when they seek to extend the moratorium period, but it is serious to restrict arguments and representation when the person is likely to be subject to an extension of the moratorium. It is part of the whole landscape of innocence until guilt is proved. As far as I understand it, that person will have no opportunity to object to the extension—or perhaps will have an opportunity but no real target to aim at because neither he nor his representatives will have heard the arguments.
The Deputy Chairman of Committees (Viscount Ullswater) (Con)
I must advise the Committee that if this amendment is agreed to, I shall not be able to call Amendment 59.
Lord Rosser
My Lords, I have Amendment 72 in this group. The Bill provides for extensions to the suspicious activity reports regime under which private sector companies report suspected money laundering—or, at least, they are meant to. The extensions or enhancements enable the moratorium period during which the relevant law enforcement agencies can gather evidence to be extended and provide a power enabling the UK Financial Intelligence Unit in the National Crime Agency to obtain further information from suspicious activity reporters. The enhancements also create a legal basis for sharing information between companies in order that they can build up a clearer picture of suspected money laundering.
Amendment 72 would provide for a procedure, through the National Crime Agency, for prioritising the most serious suspicious activity reports to target effectively the use of scarce law enforcement resources. Private sector companies and professionals, such as accountants, are required by law to make a suspicious activity report every time they become aware that a person might be in possession of the proceeds of crime, and that applies equally even if the amounts involved are small or if the information is far from conclusive or far from being considered fully reliable. The same duty to report applies whether the suspicion relates to a theft of a few pounds from petty cash or to what could be serious organised crime.
At present there appears to be no means by which information may be quickly screened or sifted to determine which are likely to prove the most significant or important reports requiring full investigation. There were just over 380,000 individual suspicious activity reports in 2015, and considerable time must be spent processing essentially very minor crime reports, which can only be at the expense, resource-wise, of the investigation and detection of crimes at the serious end of the scale. This amendment seeks to address that situation by providing for priority levels based on the intelligence value of each report, or a similar kind of categorisation, which would give an appropriate risk-based approach to determining which economic crimes should be tackled as a matter of urgency.
At Second Reading, the Government said that the issue raised in this amendment on suspicious activity report reform was lacking in the Bill, even though reform of the SARs regime was a crucial part of the Government’s own action plan for anti-money laundering and counterterrorist finance. The Government went on to say that they had established a programme to reform the SARs regime, and were seeking improvements in the short, medium and long term. They then went on to say that, during the review of the SARs regime that the Home Office ran in 2015, a number of regulated-sector companies suggested that suspicious activity reports should be prioritised, which is what this amendment is about. Despite this, they went on to say at Second Reading:
“We will consider this as part of the SARs reform programme”.—[Official Report, 9/3/17; col. 1518.]
However, the review was two years ago, in 2015, and a number of companies affected raised the issue addressed in this amendment in response to the review. Why, two years after the review, cannot the Government make a decision to do something to address this matter of prioritising reports rather than continue to put off making a decision? Surely, in all the discussions that would have taken place on this Bill before it was brought to Parliament and during the debates on the Bill so far in Parliament, prioritising SARs reports, which had after all been raised in the 2015 review, could and should have been considered, since it is directly relevant to the content of the Bill?
I hope that the Government will recognise this reality, and give a positive response to this amendment and, if that is not possible—and I would like to know why, if that is the case—accept that Report is now likely to be another four weeks away, with Third Reading being five weeks away, and agree to bring back a government amendment on Report or at Third Reading to address the issue raised in the amendment.
Lord Brown of Eaton-under-Heywood
I want to address only Amendments 58 and 59, both of which I oppose, to new Section 336B on page 28 of the Bill. That section deals with an application under the previous section to extend the moratorium period, which has to be dealt with as soon as is practicable. New subsection (3) says that the court,
“may exclude from any part of the hearing … an interested person”,
or “anyone representing that person”. We see that formulation again in new subsections (4) and (6). They are the people whose presence or otherwise at the hearing is in question.
New subsection (4) allows for a particular application, that certain specified information may be withheld from the interested person or representative, but that order can be made only under new subsection (5), if the court is,
“satisfied that there are reasonable grounds to believe that if the specified information were disclosed”,
something bad would happen—that either,
“evidence of an offence would be interfered with or … the gathering of information …would be interfered with”,
or somebody would be injured, or,
“the recovery of property … would be hindered, or … national security would be put at risk”.
In that situation, new subsection (6) comes into play. Unlike new subsection (3), which we looked at earlier, where the court “may exclude”, in this instance—because it relates to an application under new subsection (4)—the court inevitably “must” direct that the interested person or his representative be excluded. With the best will in the world, I cannot see how we could sensibly leave out new subsection (6), which puts a requirement on the court which is not to be found in new subsection (3), which deals with the general position. Nor would it make any sense whatever to substitute “may” for “must”. You have already got “may” in new subsection (3), but for this situation, “must” is the appropriate direction to the court for the order to be made. I respectfully oppose those amendments.
Lord Hodgson of Astley Abbotts
My Lords, I support Amendment 72, in the name of the noble Lord, Lord Rosser. It has been common ground in our discussions this evening that the volume of SARs is rising all the time. There are now over 1,500 a working day and it slightly defies belief that those are all getting anything like the attention that they should. Those of us who have had experience of this find that the National Crime Agency is extremely reluctant to allow any inhibition on its ability to call for SARs at every level. It should be possible to have discussions about automatically asking for a time limit—not that the information could not be asked for subsequently—of 25 or 50 years. One of my most recent PEP inquiries involved events 53 years ago. I simply cannot believe that collecting that sort of information is a good use of my time or the bank’s. There would be a great deal of virtue in my noble friend trying to persuade the NCA that some focus was a good idea. Getting the focus that is badly needed, and things like time and a de minimis figure, would make the whole system much more effective. The amendment tabled by the noble Lord, Lord Rosser, is a first step towards that and is worthy of serious consideration.
Baroness Williams of Trafford
My Lords, these amendments cover measures in Chapter 2 of Part 1 of the Bill. I thank noble Lords who have taken part in the debate. As the Action Plan for Anti-money Laundering and Counter-terrorist Finance set out, the Government see public/private partnership as central to tackling money laundering and terrorist financing. A major part of this approach is to provide support for the effective exchange of information, both within the private sector, and between the public and private sectors, to increase our collective knowledge of threats and vulnerabilities; to help the regulated sector to protect itself, and to improve the quality of the UK’s financial intelligence. The provisions in Chapter 2 assist this approach, and our amendments will enhance their ability to do so.
I hope noble Lords will agree that the government amendments in this group are technical and uncontroversial. Clause 11 permits the UK Financial Intelligence Unit—or UKFIU—hosted in the National Crime Agency, to request further information in relation to a suspicious activity report, or following a request from a foreign authority, from any member of the regulated sector. Clause 35 allows the police to do the same in relation to terrorist finance. At present, the clause will allow the NCA and police to direct that further information is provided through issuing a further information notice. If the information is not provided in accordance with the direction, the NCA will be able to apply to a court for a further information order to require the person to provide the information requested. However, following further consultations with operational partners, we have concluded that a further information notice is not required, as the NCA can already request information to be provided voluntarily under existing powers. Government Amendments 64 to 69, 130 to 137 and 173 will therefore remove further information notices. If the regulated sector entity declines to provide information on a voluntary basis, the NCA or police can still apply to a magistrates’ court for a further information order.
Lord Rosser
Is the noble Baroness satisfied that this matter has been dealt with as expeditiously as possible bearing in mind that the review was in 2015 and we now have a Bill in front of us to which the SARs regime is directly relevant? However, when we put forward proposals to try to make the regime more effective by prioritising matters, we were told that the Government were still considering the situation. The difficulties in finding space for legislation over the next couple of years have already been raised, so could the noble Baroness address that point and reflect further that we are four weeks away from Report? If the Government really put their mind to it, surely they could come forward with an amendment of their own on this issue.
Baroness Williams of Trafford
My Lords, I recognise that the issue was considered in 2015. It is now 2017. I totally take on board what the noble Lord says. This issue is complex but I will go back to the department to see what is in the art of the possible before Report. I cannot promise anything at this stage other than that I will try to expedite it if possible.
Prioritisation and the allocation of resources are operational matters. The NCA already has processes in place to take tasking decisions and allocate its resources. It is very unlikely that a SAR would be the only factor taken into account when deciding whether to open an investigation. Putting this matter into legislation could, if anything, impose additional restrictions on law enforcement agencies, which already have the type of flexibility to prioritise cases that the noble Lord’s amendment seeks to achieve.
I hope that he is at least partly satisfied with my explanation. I invite the noble Baroness, Lady Hamwee, to withdraw her amendment.
Baroness Hamwee
My Lords, as regards the bad things in subsection (5), I would feel more comfortable if these were a matter of discretion for the court. However, if a court has to be satisfied about something, the provision goes against my instincts—of course, I do not have the experience of other noble Lords in this area—as it would not be in a position to hear arguments on the other side. I specifically mentioned there being no alternative provisions because, in another part of the landscape, we are accustomed to there being special advocates, although that may not be a perfect system and I am not sure that I want to go down that route.
I will have to read the Minister’s response on legal professional privilege. It did not immediately answer my questions. Clearly, we are not going to make further progress on that today but it may well be something that I would like to come back to on Report, which, as I understand it from the provisional arrangements, will be very inconveniently held on the day after the day that we return from the Easter Recess. Therefore, I may disturb somebody’s holiday. I am sorry about that. I beg leave to withdraw the amendment.
“(3A) Subsection (1) applies whether or not the conditions in section 339ZB were met in respect of the disclosure if the person making the disclosure did so in the reasonable belief that the conditions were met.”
“Further information orders339ZH Further information orders(1) A magistrates’ court or (in Scotland) the sheriff may, on an application made by a relevant person, make a further information order if satisfied that either condition 1 or condition 2 is met.(2) The application must—(a) specify or describe the information sought under the order, and(b) specify the person from whom the information is sought (“the respondent”).(3) A further information order is an order requiring the respondent to provide—(a) the information specified or described in the application for the order, or(b) such other information as the court or sheriff making the order thinks appropriate,so far as the information is in the possession, or under the control, of the respondent.(4) Condition 1 for the making of a further information order is met if—(a) the information required to be given under the order would relate to a matter arising from a disclosure made under this Part,(b) the respondent is the person who made the disclosure or is otherwise carrying on a business in the regulated sector,(c) the information would assist in investigating whether a person is engaged in money laundering or in determining whether an investigation of that kind should be started, and(d) it is reasonable in all the circumstances for the information to be provided.(5) Condition 2 for the making of a further information order is met if—(a) the information required to be given under the order would relate to a matter arising from a disclosure made under a corresponding disclosure requirement,(b) an external request has been made to the National Crime Agency for the provision of information in connection with that disclosure,(c) the respondent is carrying on a business in the regulated sector,(d) the information is likely to be of substantial value to the authority that made the external request in determining any matter in connection with the disclosure, and(e) it is reasonable in all the circumstances for the information to be provided.(6) For the purposes of subsection (5), “external request” means a request made by an authority of a foreign country which has responsibility in that country for carrying out investigations into whether a corresponding money laundering offence has been committed.(7) A further information order must specify—(a) how the information required under the order is to be provided, and(b) the date by which it is to be provided.”
“( ) Schedule 9 has effect for the purposes of this section in determining what is a business in the regulated sector.”
““corresponding disclosure requirement” means a requirement to make a disclosure under the law of the foreign country concerned that corresponds to a requirement imposed by virtue of this Part;“corresponding money laundering offence” means an offence under the law of the foreign country concerned that would, if done in the United Kingdom, constitute an offence specified in paragraph (a), (b) or (c) of section 340(11);“foreign country” means a country or territory outside the United Kingdom;”
Baroness Hamwee
“Anti-money laundering supervision
The Secretary of State must by regulations made by statutory instrument amend the Money Laundering Regulations 2007 to require the supervisory authorities to—(a) publish annually their enforcement statistics;(b) publish annually details of individual cases of enforcement; and(c) report to HM Treasury such information as it requests, including information regarding failures of compliance and a lack of understanding of compliance requirements.”
Baroness Hamwee
My Lords, this amendment would provide a new clause on anti-money laundering supervision, requiring supervisory authorities to publish certain information. When the Bill started its passage through this House, briefings to noble Lords from a number of organisations made similar points about supervision, including that there are too many supervisors, there is inconsistency, and there are conflicts of interest since enforcement does not lie very comfortably with promotional activity. The term “a dysfunctional system” also was used. There was also quite a lot of comment about lack of transparency and accountability in the supervisory system, a matter which formed part of Transparency International UK’s analysis of the weakness in the rules. Its report was entitled Don’t Look, Won’t Find.
I am aware of the Treasury’s work and the current call for information but it seemed to me that it was worth pausing particularly on transparency and accountability. As Transparency International explains, these are,
“fundamental components to an effective supervisory regime”.
TI also quotes the Macrory report:
“Transparency is something that the regulator must provide to external stakeholders, including both industry and the public, so they have an opportunity to be informed of their rights and responsibilities and of enforcement activity. However, it is also important for the regulator itself, to help ensure they use their sanctioning powers in a proportionate and risk based way”.
My Amendment 70 is based directly on Transparency International’s report in the light of the recent government announcements.
The supervisors do not necessarily seem comfortable with the system. The Solicitors Regulation Authority comments that the draft regulations—the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017—fall short of requiring the supervisors of anti-money laundering to be fully independent of any representative body. The authority is keen to see where the weaknesses in the system can be addressed ahead of the Financial Action Task Force review next year. It asks us to raise in the context of the Bill the issue that the underlying legal position is in need of clarification to ensure explicit recognition that supervisory bodies should be fully independent from representative ones. I dare say that the Minister, or at any rate her officials, will have seen that briefing. Having focused on transparency and accountability, I beg to move.
Lord Rosser
We have Amendment 73 in this group, which is on not dissimilar lines to the amendment moved by the noble Baroness, Lady Hamwee. Amendment 73 would require the Secretary of State to,
“lay before each House of Parliament an annual statement on the money laundering supervision regime and any plans the Government has to amend it”.
At Second Reading, we raised questions about the effectiveness or otherwise of our anti-money laundering system in the light of the billions of pounds in corrupt money that comes into this country each year. Reference has already been made to that point in our earlier debate on the London property market. According to the National Crime Agency, the figure could be as high as £90 billion. The Government’s impact assessment says that this country is unusually exposed to the risks of international money laundering, which is made even more serious by the reality that money laundering is also a key enabler of serious and organised crime, including terrorist financing. The social and economic costs of this are estimated in the Government’s impact assessment at some £24 billion per year. However, despite this far from satisfactory state of affairs, there are, as I understand it, some 27 supervisory bodies in the relevant sectors, which must surely lead to a fragmented approach in the identification and mitigation of risks, and in the approach to enforcement.
Lord Sharkey
My Lords, Amendment 108 seeks to help the FCA to ensure meaningful compliance and right behaviour in the banking sector, which has not been entirely a stranger to money laundering. Work done by the New City Agenda think tank, of which I am a director, has shown some progress in changing the culture within banks—but has also shown that there is still a need for much more change.
Last week's report by the Banking Standards Board also had interesting things to say about banks acting in an honest and ethical way. For example, its very comprehensive survey found that 12% of employees had seen instances where unethical behaviour had been rewarded; 13% saw it as difficult to get ahead in their careers without flexing ethical standards; and 18% had seen people in their organisation turning a blind eye to inappropriate behaviour.
Since the FCA under its previous chief executive abandoned its promised inquiry into the culture within banks, it has relied heavily on financial penalties to punish misbehaviour and as a control mechanism. Since 2013, the FCA has levied an absolutely staggering £3 billion in penalties on firms. The latest, which the Minister mentioned, was a settlement in January with Deutsche Bank. The proposed penalty was £230 million, which was discounted to £163 million. This was a settlement. In fact, almost all the penalties imposed have been settlements. Typically, the FCA proposes a financial penalty and then agrees a discount if the firm settles—as almost all do. The discount is normally 30%. Since 2013, that amounts to a total of £1.2 billion awarded in discounts.
My amendment proposes to put this gigantic discount mechanism to better use. It would enable the FCA to have direct sight of the improvements in process and behaviour agreed in any settlement. It would enable it to see that appropriate disciplinary action had been taken against those responsible for the transgressions. It would give the settling firms a powerful incentive to fulfil any settlement conditions. It would do this by making part of any discount withholdable until the settling firm had satisfied the FCA that all appropriate disciplinary actions had been taken. Only then would the full discount be realised.
This is a simple proposal. It would give the FCA more power, more say and more insight into how transgressors had modified their behaviour and addressed individual and structural culpability. It would give the firms involved a powerful incentive to take proper remedial action—which, unfortunately, still seems to be needed.
Lord Hodgson of Astley Abbotts
My Lords, I have Amendments 126 and 127 in this group. They impose duties on the National Crime Agency regarding the performance of its duties and the way it supervises the bodies that report to it. I tabled the amendments to address my concern that the country’s anti-money laundering regulations, which were and remain a critical part of the fight against financial crime, are not as effective as they should or could be.
There are three related issues. The first is that the regulations lack focus. Far too much unnecessary information is collected, which serves to distract rather than to illuminate the task of the regulator. We have heard tonight from my noble friends Lord Deben and Lord Leigh, and every Member of your Lordships’ House could produce evidence of the collection of superfluous information. They also lack effectiveness and follow-through. I was astonished to read in the debate on Second Reading in the House of Commons that Sir Edward Garnier, experienced lawyer that he is, said that many certification orders, having been granted, are never enforced. I therefore put down a Parliamentary Question—which is due for answer the day after tomorrow, sadly, but I am sure that my noble friend can chase up her officials—in which I asked,
“in each of the last three years for which figures are available, how many confiscation orders were … authorised by the courts … put into effect; and how much money was recovered”.
I hope that my noble friend will be able to give us those figures when she winds up.
However, it is not just about confiscation orders. My noble friend Lord Faulks talked about the report in the Times last week, according to which between 2007—when we introduced the last set of money-laundering regulations—and 2012, there were no convictions at all:
“There have been four convictions since and five more proceedings, according to a freedom of information request by the London law firm Howard Kennedy”.
Of course, as I said at Second Reading, the asset recovery by the NCA can only be described as trivial: £26.9 million for an agency that costs some half a billion pounds to run, and which tells us that billions of pounds of illegal money passes through London every year.
Lastly, and most importantly, the regulations do not enjoy general public confidence. Too many members of the public regard them as a paper-pushing exercise. As a result, they do not feel committed to their success or to ensuring that they work well. In my experience, having from time to time chaired risk and compliance committees, attempts to get the regulators to explain how valuable their work is are not greeted with great approval; they tend to say, “This is our business—you mind yours”. That is very different from the approach of the security services, which have publicly praised the public for their help.
At that point, some people may be tempted to say, “He works in the City, so he is a tainted witness”. However, I was interested to read the briefing from Transparency International—an NGO about which I know very little. It said:
“At the heart of the problem is the fact that”,
there are,
“27 Supervisory Bodies in relevant sectors … This leads to a fragmented approach:
...Failure to identify where the risks are and mitigate against those risks…The approach to enforcement is inconsistent and not transparent or effective…Many of the supervisors have serious conflicts of interest”—
we have already discussed that this evening—
“which we believe prohibits the bodies from doing a good job”.
I could hardly have put it better myself.
Compliance remains the great growth industry. Noel Coward may have said to Mrs Worthington,
“Don’t put your daughter on the stage”,
but you could do a great deal worse than putting her into compliance. Regulators seek more powers, so more returns are needed, compliance officers see a chance to build their empires, professional firms seek commercial opportunities in checking and rechecking the records, and Ministers can attend conferences and refer to all the efforts being made and the money being spent.
While the money being spent is considerable, both directly in maintaining the supervisory bodies, and by the firms who have to comply with their requirements, there is another cost which is much less frequently referred to: reputational cost, which arises from a process known as “de-risking”. When you de-risk, you remove from a group of people or a set of companies their financial ability to transact. Noble Lords will be aware of my interest in the charity and voluntary sector. Charities which operate in “difficult”—sensitive—areas find it almost impossible to get the financial services of British banks; it is not worth their time or trouble. It is not about borrowing money but just checking facilities—day-to-day operations—and the smaller the charity, the more difficult they find it. It affects not just organisations but individuals as well. Thirty years ago I worked in the City with a Pakistani who has a British passport and who is as Anglophile as you would like him to be. He worked in Hong Kong, and now lives in Lahore. He has just been told that all his bank accounts have been closed. Is there anything wrong with the accounts? There is nothing wrong with them—it has just been done. It is clear that the pressure on the banks to close down these accounts is coming from the regulators.
Baroness Williams of Trafford
My Lords, the amendments in this group have raised some important points around regulation and supervision of the regulated sector. I am also pleased to able to update noble Lords on some of the recent developments in this area.
Amendment 108, in the name of the noble Lord, Lord Sharkey, would require the FCA to withhold a proportion of any discount to a penalty applied to a financial firm until that firm has completed any internal disciplinary actions agreed in the settlement. We agree with the principle that such firms should be held accountable for their actions, or lack of them. The Government already have in place, through the FCA, powers to increase a penalty that it would otherwise impose on a firm in light of a range of potentially aggravating factors, including,
“disciplinary action against staff involved”.
A firm that had, by the time the FCA imposed its relevant penalty, failed to take such appropriate action, could therefore already have that penalty increased as a result.
The Financial Services and Markets Act 2000 allows the FCA to impose requirements on such firms. If the FCA considers that a firm needs to take disciplinary action—if appropriate and following all due employment process—after a penalty is imposed, the FCA can require that the firm properly and fully considers doing so. If the firm then fails to do so, that would become misconduct in respect of which the FCA could, subject to all other relevant factors, impose an additional penalty. Therefore, we believe that we already have in place powers to take action in the way the proposed amendment suggests.
Lord Sharkey
Does the Minister accept that there is a big difference between having the powers to do something in addition and having an automatic system of withholding, which makes it directly in the interests of the firms to take the action that they are supposed to take, rather than have the FCA make an assessment later and come back to discuss whether it ought to impose an additional penalty? One is automatic, giving an immediate incentive for the firms to do something, while the other requires additional supervision.
Baroness Williams of Trafford
I take the noble Lord’s point that one is perhaps much simpler, but of course each case is different. One firm might be a lot more compliant and it might not take much effort; another might take a lot more effort. However, I take his point.
I move on to Amendments 126 and 127 in the name of my noble friend Lord Hodgson of Astley Abbotts. These relate to the role of the NCA. The NCA leads, co-ordinates and supports the national law enforcement response to money laundering. The prosperity command of the NCA houses the UK Financial Intelligence Unit, or UKFIU, and receives suspicious activity reports, or SARs, from the regulated sector. The intelligence gathered from these is used to support investigations into both money laundering and the predicate offences.
The amendments seek to require the NCA to act in a regulatory manner by ensuring that the provisions of the Money Laundering Regulations, such as customer due diligence and monitoring of transactions, are implemented effectively, and to ensure that the NCA acts with regard to the principles of regulatory best practice. The NCA can and will act where there is criminal activity relating to money laundering. However, it does not have a regulatory remit, and to require it to have one would deflect it from its purpose of tackling serious and organised crime.
My noble friend also asked me for some figures on the moneys recovered. I can tell him that in 2015-16 £255 million was recovered under the Proceeds of Crime Act, of which £208 million was in confiscation. However, I will write to him with further details on that.
Finally, I turn to Amendment 70, moved by the noble Baroness, Lady Hamwee, and Amendment 73, tabled by the noble Lord, Lord Rosser.
Lord Hodgson of Astley Abbotts
I thought I heard the Minister say that the NCA is not a regulator, but I do not understand why it cannot abide by regulatory principles in executing its duty as an enforcer on money laundering regulations. I do not understand why the two are mutually exclusive. If I heard my noble friend aright, she appeared to say that it could not abide by regulatory principles because it is an enforcer.
Baroness Williams of Trafford
That is correct.
I now turn to Amendment 70, moved by the noble Baroness, Lady Hamwee, and Amendment 73 in the name of the noble Lord, Lord Rosser. I can update the Committee on the significant action that the Government are taking to improve the effectiveness of anti-money laundering regulation by strengthening the obligations on all supervisors through the new Money Laundering Regulations 2017. The Treasury published a consultation on these regulations shortly after Second Reading and it is open until 12 April.
The Government set out in a Treasury publication earlier this month their proposals for the new office for professional body anti-money laundering supervision. However, it would not be right for the Government simply to legislate without proper public consultation on the detail of this proposal, and I hope the noble Lord will recognise that that is the appropriate way forward.
We have also recognised the need for more co-ordination between regulators and supervisors of the regulated sector in relation to tackling money laundering. The new office for professional body anti-money laundering supervision will therefore work with professional bodies to help, and ensure, compliance with the regulations. The office will be hosted by the FCA and will liaise with other bodies across the regime to discuss and share best practice to help ensure consistent high standards across supervisors—especially where statutory and professional body anti-money laundering supervisors monitor the same sectors—and to strengthen collaboration between professional body anti-money laundering supervisors, statutory supervisors and law enforcement agencies.
The Government will consult on the draft regulations that will underpin the office over the summer, and they will be finalised and laid before Parliament in the autumn. The Government expect the office to be fully operational by the start of 2018.
The new arrangements will also support the enforcement capability of the supervisors. The supervisors can take a range of actions in relation to failings identified in the areas they supervise. Professional bodies have sanctions specific to their supervisory population—for example, the ability to expel firms from membership. The removal of professional accreditation in this way can incentivise compliance.
HMRC and the FCA have powers under the regulations to require information, enter and inspect premises, and administer monetary civil penalties to their supervised population. The UK is leading the way in improving transparency and accountability in anti-money laundering supervision by publishing an annual report on money laundering supervision on GOV.UK.
The Treasury’s annual report, which is now in its fifth year, sets out how the UK’s supervisors are contributing to the fight against money laundering and terrorist financing. The most recent report shows that supervisors are increasingly focusing on educating businesses on how to meet their anti-money laundering obligations, and ensuring that systems and controls are effective and proportionate to the risks. The actions that supervisors are reporting help to ensure that the UK’s financial system is a hostile environment for illicit finance.
The report shows the positive collaboration between the Treasury and the supervisory authorities, which include the FCA, HMRC, the Gambling Commission and the professional bodies. As set out in the Government’s response to the review of the supervisory regime, the annual report will be strengthened with a new requirement for supervisors to provide relevant information to inform the annual report. This will be expanded to include two new questions on enforcement activity.
I hope that noble Lords will recognise and commend the considerable government activity in relation to the anti-money laundering regime. On that basis, I hope that the noble Baroness will withdraw her amendment.
Lord Rosser
For clarification, the Minister referred to the Government’s intention to create a new office for professional body AML supervision, hosted by the FCA. If my memory serves me right, she said that it would be in existence in early 2018. That of course is still out for consultation, is it not? That is the document where responses were called for by 26 April. It may be that all the responses about the proposed body were negative, in which case presumably the Government may wish to think again. Does that mean that setting up this new office will not require any legislation and that there will not be a need for legislation, for example, to define its powers and responsibilities?
Baroness Williams of Trafford
It may be helpful to the noble Lord if I reiterate the point that I made. The Treasury published the outcome of the review on 22 March and is now conducting further consultation on the creation of the new body, which will be overseen by the FCA and will be up and running by the start of 2018.
On his question of whether legislation—secondary or otherwise—will be required, perhaps I may write to him. I think that it will be secondary legislation but I cannot be certain.
Lord Rosser
Is the Minister saying that setting up a new body that will have powers over other bodies can be done through secondary legislation—by a statutory instrument?
Baroness Williams of Trafford
I do not know, which is why I will write to the noble Lord, if he is happy with that.
Baroness Hamwee
That will be helpful. As I understood it, the proposal was for regulations, and the further consultation has a limited number of questions to flesh out the earlier work. The Minister obviously has some more information.
Baroness Williams of Trafford
I have just had an answer from the Box. It will in fact be secondary legislation that is laid before Parliament.
Baroness Hamwee
My Lords, perhaps I should accept that it will be up to us to ensure that transparency and accountability are included in those regulations. I will set myself some more homework. I am grateful for the Minister’s responses. The story is obviously not ending here but I beg leave to withdraw the amendment.
Baroness Kramer
“Whistleblowing
(1) The Secretary of State must by regulations made by statutory instrument establish an Office of the Whistleblower.(2) The functions of the Office shall be the administration of arrangements to facilitate whistleblowing in respect of corrupt or suspected corrupt practices in systematically important financial institutions including in particular with regard to fraud, tax evasion, money laundering or miss-selling. (3) The Office shall have powers—(a) to give directions as to the records kept by each institution and to check compliance with its directions including by audit;(b) to award financial compensation to any person voluntarily providing information to—(i) the Financial Conduct Authority;(ii) the Prudential Regulation Committee of the Bank of England;(iii) the Serious Fraud Office; or(iv) any other organisation designated by the Secretary of State;leading to enforcement action against the institution sanctioned by way of penalty of not less than £500,000; and(c) to set the level of compensation awarded in each case between 10% and 30% of the total collected.(4) The Secretary of State must by regulations made by statutory instrument make provision with regard to retaliatory action against whistleblowers.(5) For the purposes of this section a “systematically important financial institution is an institution” designated by the Bank of England in consultation with the Financial Stability Board and the Basel Committee on Banking Supervision.”
Baroness Kramer
My Lords, this amendment is designed to strengthen the protection for whistleblowers but also to provide for mandatory compensation for them following the example of the United States in this area, most recently under Dodd-Frank. It also proposes an office of the whistleblower, both to enshrine the importance of whistleblowing and to provide the necessary oversight of the broader regime. It is a probing amendment and I hope that the Minister will not waste her time in discussing drafting issues, when the core issue of whistleblowing and how we support it is so critical to making the financial system clean and fair and to rebuilding public trust.
Being realistic, so much money swirls though the financial system that the potential for ill-gotten gains from misbehaviour is huge. My amendment mentions fraud, tax evasion, money laundering and mis-selling, but ingenuity in this area is boundless, as evidenced by the fixing of the LIBOR benchmark rate, which involved many banks over several years distorting billions of dollars of transactions, for which very few have paid the price, and those who have are primarily junior staff. With money on this scale, no regulator or enforcement agency can begin to tackle these issues without inside information. That means a positive culture of whistleblowing, which in itself then becomes a deterrent.
We do this notoriously badly. The recent RBS GRG scandal is an example. I have spoken to only two of the whistleblowers but they have both been treated atrociously by RBS and the regulators and face an end to their careers and personal disaster. This is despite endless warm words from the banking industry, individual banks, the regulators and the Government on how important the whistleblower is and promises of protection. It is why I am calling on the Government in subsection (4) of the proposed new clause to act much more directly to stop retaliatory action.
I was a member of the Parliamentary Commission on Banking Standards. Among our work, we looked at the whistleblowing regime and recommended some enhancements. To be fair, those have, for the most part, been adopted, but they were modest changes: for deposit takers, PRA-designated firms and insurers a non-executive director or senior manager is required to be named as responsible for whistleblowing under the senior managers regime; a system to protect employees is required to be in place in each institution; the rules are to be disseminated; and employment tribunals are meant to provide protection. The banking industry is very satisfied with this approach. Indeed, it has always been satisfied with its approach and, in the evidence and testament we took, it was very satisfied with the prior approach, even though rarely was whistleblowing taking place even under the most egregious circumstances, and whistleblowers were receiving little, if any, protection. It is clear the industry was shocked that, with all of its whistleblowing measures in place, no one came forward to tell the authorities about money laundering, LIBOR or mis-selling.
The revised system appears to be fraught with problems. In an email from the charity WhistleblowersUK, I heard that a few days ago a staff member called to speak to the whistleblowing champion at a major bank only to be told that they did not exist. When the caller persisted by providing the name from a letter, the bank told them that that person did not exist. Whistleblowers themselves complain that the regulators provide them with advice and then renege, and that they have no comeback against the regulators, whom no one can compel to respond to FOIs or subject data access requests.
In March this year the Financial Conduct Authority confirmed that the number of whistleblowing reports has fallen for the second year in a row, down to 866, of which just over 100 were of “significant value”. That is not a successful system. In the United States, by contrast, whistleblowers are far more appreciated. They are a core tool for exposing wrongdoing, whereas in the UK they are merely incidental. The key difference is reflected in compensation, which underscores the complete cultural difference in the attitude towards whistleblowers. In my amendment I have essentially lifted the simple principles of compensation available under Dodd-Frank and drafted them into UK law. Compensation is mandatory for those providing original information leading to a sanction, and the compensation is a hefty 10% to 30% of the sanction paid. This is a recognition that for most people whistleblowing puts a career, lifestyle and family at risk.
Let me quote the evidence of Erika Kelton, a US lawyer dealing with whistleblowing cases, describing the impact of US whistleblowing incentives schemes to the Parliamentary Commission on Banking Standards. She said:
“Tens of billions of dollars otherwise lost to illegal practices that cheat the public fisc have been recovered as a direct result of whistleblower information. But the impact and importance of whistleblower matters goes far beyond the large dollar amounts recovered for US taxpayers. Whistleblowers have exposed grave wrongdoing, leading to changes that promote integrity and transparency in financial markets. Whistleblowers have helped stop massive mortgage frauds, gross mischarging practices, commodity price manipulation, and sophisticated money laundering schemes, among other misdeeds”.
She argued that,
“meaningful, non-discretionary financial incentives are critical to establishing robust and successful whistleblower programs”.
In the UK, the objection of the regulator to such incentives is one of “moral hazard”—that whistleblowing is simply somebody doing his or her job and deserves no special reward. I simply look at the lack of whistleblowing and the situation for whistleblowers in the UK and disagree. The Parliamentary Commission on Banking Standards directly called on the FCA to research the impact of financial incentives in the US in encouraging whistleblowing. I have yet to hear any substantive report on that issue; perhaps somehow I have missed it and the Minister has seen it.
I fully accept that issues around whistleblowing extend beyond financial services and impact many other business sectors and areas of our lives. But we could start here with financial services. We need action that is game-changing, not tinkering around the edges. It is vital that we use every reasonable tool to increase our chances of keeping the financial sector clean, protect the public and restore trust in an industry that is key to the functioning of our economy. I beg to move.
Lord Phillips of Worth Matravers
My Lords, I support this amendment. I suggest that whistleblowers need to be both protected and rewarded in order to encourage them. The Mauritian legislation of which I spoke earlier makes provision for rewards to be paid to whistleblowers whose information leads to the confiscation of unexplained wealth. Indeed, the board that I chair has the function of making such awards. In my view this is a salutary provision as one of the weapons in the fight against crime and corruption. Therefore, I support in principle this amendment, but as a starting point because I suggest that it is a principle that should be applied much more widely in the case of action taken that leads to the recovery of the proceeds of crime.
Lord Faulks
My Lords, I am sure the whole House shares the concern that the noble Baroness has expressed about whistleblowing and its importance generally. However, I respectfully submit that this amendment is a pretty substantial response to that. It seeks to set up a whole department—the office of the whistleblower. I accept that this is something of a probing amendment and therefore bears the standard for what the noble Baroness may hope to come, but it is little short of a job-creation scheme. The proposed functions of the office of the whistleblower are extensive and it would have powers. Of course, if an office is created, those who are given that office will appoint others to work for them and powers will be exercised. If they are not exercised it would be suggested that they were not doing their job. Before we know where we are, we will have a substantial bureaucracy that runs the risk of having the same problems that exist in other areas of bureaucratic supervision of financial institutions.
The question of incentives is interesting. I accept that that they have had some success in the United States and, as we heard from the noble and learned Lord, in Mauritius too. But as to the question of “retaliatory action against whistleblowers”, a whistleblower has remedies in civil law in any event. When she comes to respond to the Minister, will the noble Baroness give us some idea what is meant by the provision with regard to “retaliatory action against whistleblowers”? The criminal law exists and civil remedies exist for employees and I wonder whether that is not inviting something rather too much. Of course, she rightly acknowledges that whistleblowers are not entirely based in the financial institutions; they exist in the NHS and have recently been considered by Sir Robert Francis and in all other government departments.
The real question is whether the establishment of this no doubt expensive bureaucracy will deter and whether it will result in the detection of what would otherwise not have been detected. While I applaud the general thrust of the amendment, I wonder whether it is something of an overreaction.
Lord Kennedy of Southwark
My Lords, the noble Baroness, Lady Kramer, raised the issue of whistleblowing in her contribution at Second Reading and now proposes this new clause today with the noble Baroness, Lady Hamwee. As we have heard, it would establish an office of the whistleblower. The purpose would be to offer much-needed protection to whistleblowers who expose criminality, corruption, fraud and other illegal activity. The price that whistleblowers often pay for alerting the authorities to illegal and criminal activity is to lose their jobs and have their careers ruined and destroyed.
The noble Baroness is right to highlight that we need to do more to offer protection and compensation to people who come forward and alert the authorities to the illegal activity. The noble and learned Lord, Lord Phillips, supported action and I agree. However, I agree with the noble Lord, Lord Faulks, that setting up an office may not be the right way to go about that. What is definitely needed is further protection in statute and regulation. It may not need an office to be established. I will be interested to hear the response from the noble Baroness, Lady Williams of Trafford, to this amendment. I entirely accept that it is a probing amendment and I think that we should take the opportunity that this Bill affords us to do something to address the issue of whistleblowers and the precarious position that they can find themselves in, which the noble Baroness, Lady Kramer, has highlighted to the House today. I accept that whistleblowing goes across a variety of sectors, but we are dealing with the financial services sector and this would be a good place to start.
Baroness Williams of Trafford
My Lords, I am grateful to the noble Baroness for allowing us to debate this important issue. Whistleblowers play a valuable role in society by bringing wrongdoing to light that could otherwise go unchallenged. Individuals should be able to report malpractice in the workplace without fear of reprisal; and employers should be prepared to work with staff to resolve concerns, particularly by means of effective internal procedures.
The Employment Rights Act 1996, as amended by the Public Interest Disclosure Act 1998 and subsequently, provides employment protection for workers in all sectors who have blown the whistle. It enables them to seek redress if they are dismissed or suffer detriment at the hands of the employer because they have made a “protected disclosure” about wrongdoing that they have witnessed at work. To qualify for the protections, a worker must generally make their disclosure either to their employer or the relevant “prescribed person”. “Prescribed persons”’ are typically regulatory bodies for the sector in which the whistleblower works or the type of wrongdoing involved.
I assure noble Lords that, over recent years, the Government have taken steps to support a cultural change in relation to whistleblowing in all sectors, including financial services. A number of statutory and non-statutory improvements have been made. This includes guidance for whistleblowers on how in practice to make disclosures while preserving their employment protections; and guidance for employers including a non-statutory code of practice which we will review this year. We have fulfilled the commitment to keep the prescribed persons list up to date with annual reviews, and we now have guidance in place for prescribed persons. The next update will require prescribed persons to report annually on the number of whistleblowing disclosures they have received and broadly the action that resulted.
Lord Kennedy of Southwark
I agree with the Minister that the office is not the right way forward, but is she saying that everything is fine?
Baroness Williams of Trafford
I am saying that the Government looked at this in 2014, certainly in terms of the financial incentives, and there are various mechanisms in the different sectors for whistleblowers to come forward. The ultimate sanction for employers is unlimited compensation, depending on the type of wrongs that that employer engages in.
Lord Kennedy of Southwark
I am sorry to come back on this, but I take it that the Government do not think that anything further needs to be done on this at the moment.
Baroness Williams of Trafford
The Government are never complacent in any area of law they introduce; I would never say that everything is perfect.
Baroness Kramer
My Lords, obviously I am going to withdraw the amendment, but I want first to make a couple of points. I am not going to give up on this issue. Let me point out that a moment ago the Minister talked about an office for money laundering to be set up within the FCA. As far as I am concerned, that is an ideal pattern to follow. The notion that this proposal would create an extraordinary and hefty bureaucracy is not credible because, frankly, the entire bureaucracy would probably be paid for by one whistleblower revealing one scandal on the scale that we have seen in recent years. I reject the idea that this is onerous. There are plenty of templates to follow that would allow us to do this sensibly.
On the financial incentive, I do not believe for a moment that whistleblowers do it for the money. The money is a recognition that they have destroyed their future. There may be some protection within the company they work for which ensures that they are not dismissed, but neither I nor anyone else can be persuaded that people do not look at whistleblowers and decide that they are not quite right for this promotion, that project or opportunity. If they try to change companies they go with what is almost a black spot on their hand, marking them out as someone it is perhaps better not to take a risk on. That is a reality which the Government have never faced up to.
When dealing with detriment, I would recommend the Minister and others who are interested to connect with the charity Whistleblower.co.uk, which would be delighted to provide them with a great deal of detail. I hesitate to mention individuals without their specific permission, but all the protections have turned out to be completely useless for them. People’s lives have been wrecked. Frankly, even the regulator would agree that despite all the systems that are in place, people’s lives have been wrecked, and there has only been some tinkering at the edges. Nothing has happened to bring about fundamental change. All this comes together in the poor statistics that I set out when moving the amendment. Very few people are coming forward and blowing the whistle on substantive issues that can affect our absolutely massive financial services sector. This allows the industry to be rather complacent, and that is exceedingly dangerous.
I hope that the Minister will recognise that while I will withdraw the amendment, we are nowhere near coming to the end of this issue.
Baroness Vere of Norbiton
“(h) betting receipts,”.”
Baroness Vere of Norbiton (Con)
My Lords, we now come to two proposed changes that the Government are seeking to make to the seizure and forfeiture powers set out in Chapter 3 of Part 1 of the Bill. In the House of Commons we introduced amendments to allow law enforcement agencies to seize casino chips and gaming vouchers where they had the suspicion that they were either the proceeds of crime or would be used to commit further offences. The Government were also asked to consider whether similar provisions could be introduced to allow the seizure of betting slips. Government Amendments 80, 82, 83 and 138 to 140 make such provision. If law enforcement agencies suspect that the funds used to place a bet are the proceeds of crime, they will be able to seize the betting slip. These provisions will be subject to the same safeguards as for cash seizure and we will be working with bookmakers and their trade associations to ensure that they are used effectively.
At present, Clause 14 allows for the seizure and forfeiture of moveable stores of value but makes no allowance for deductions for legal expenses on the part of the person the item was seized from. Government Amendments 88, 90 to 101 and 142 to 155 will therefore allow for a deduction to meet legal expenses from recovered sums following the forfeiture of the item. Where appropriate, the court will determine whether legal expenses should be paid and will provide for that as part of the forfeiture order. These amendments make similar provisions in Schedule 3 in relation to items seized where there is a suspicion of terrorist financing. I beg to move.
Lord Kennedy of Southwark
I am happy to support these amendments, which are both sensible and proportionate. Ensuring that betting slips can be seized is a sensible move, as indeed is the whole series of amendments.
Lord Stevens of Kirkwhelpington (CB)
My Lords, I also support this group of amendments. I declare an interest as my son is the head of the financial recovery unit of the Metropolitan Police. This is one area of the Bill that had an immense weakness. To ensure that the provisions work properly as far as officers working on the front line are concerned, these amendments must be inserted into the legislation.