Monday 3rd April 2017
(7 years, 7 months ago)
Lords ChamberCriminal Finances Act 2017 View all Criminal Finances Act 2017 Debates Read Hansard Text Amendment Paper: HL Bill 104-II Second marshalled list for Committee - (30 Mar 2017)
Lord Judge (CB)
My Lords, I had intended to speak at a little length but the noble Lord, Lord Beith, has said everything that I wished to say about the dangers of creating criminal offences by secondary legislation.
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, I am very pleased to be able to return today to our debate in Committee, beginning with the very important issue of corporate criminal liability. Through this Bill the Government are building on the efforts of the last Labour Government, when they created the Bribery Act, by creating new corporate offences of failure to prevent the facilitation of tax evasion. These are significant proposals and I look forward to debating them further shortly. The amendments in this group relate to corporate criminal liability for other types of economic crime—that is, other than bribery and the facilitation of tax evasion. This issue has, of course, arisen a number of times in both Houses during the passage of the Bill, and these amendments have allowed us to have an insightful and constructive debate.
As noble Lords have said, the damage caused by economic crime perpetrated on behalf of or in the name of companies—to individuals, businesses, the wider economy and the reputation of the United Kingdom as a place to do business—is a very serious matter. As this House will be aware, the Bribery Act is widely respected as both a sound enforcement tool and a measure that incentivises bribery prevention as part of good corporate governance. As I have said, this Bill makes similar provision in regard to the facilitation of tax evasion. That provision has followed a process of full and lengthy public consultation, as did the implementation of the Bribery Act. As my noble friend Lord Leigh alluded to, these are very complex legal and policy issues with the potential for significant impact on companies operating in the UK.
I hope noble Lords will agree that this level of detailed consideration of both the existing legal framework and any proposals to extend it was crucial. That is why the Government announced, at the time of last year’s London Anti-Corruption Summit, that we would consult on the creation of new forms of criminal liability. The Government’s public call for evidence on corporate criminal liability for economic crime was published on 13 January. It openly requested evidence for and against the case for reform, and sought views on a number of possible options, such as the Bribery Act’s “failure to prevent” model, as an alternative to the current common law rules. The consultation closed only last week, on Friday 31 March. The Ministry of Justice is now assessing the responses received, but, as noble Lords will appreciate, it is too early to confirm the outcome. Should the responses received justify changes to the law, the Government would then consult on a firm proposal, as the noble Lord, Lord Rosser, articulated. I hope that reassures him that we are continuing to explore this issue as his amendment proposes. I trust noble Lords will agree that it would be wrong to rush into legislation, or to commit to doing so in the future, prior to giving the matter the appropriate consideration, as my noble friend Lord Hodgson said.
Amendment 161 provides for the novel approach that we could add additional offences to the legislation by regulations. I commend the noble Baroness on her ingenuity—I was promised she would show it—but, as I have said, these are complex issues with potentially significant implications for companies across the country. The Government do not, therefore, believe that it would be appropriate to extend the failure to prevent offences via secondary legislation, which would not allow for the appropriate level of parliamentary scrutiny of proposals such as this.
The noble Baroness, Lady Kramer, asked about the timing of the failure to prevent measures and why the Government do not act now. She said we cannot afford to delay and made a point about the upcoming Brexit legislation. I remind noble Lords that the Bribery Act offence has been on the statute book for a number of years, allowing us to assess its effectiveness. We are now legislating on tax evasion and already looking closely and openly at the question of extending it to wider economic crimes. The Government are not delaying, we are acting—and we are doing so in a sensible and considered way.
The noble Baroness, Lady Bowles of Berkhamsted, asked about the standard of proof for the failure to prevent economic crime. Her Amendment 163 allows for the defence of reasonable procedures to be satisfied by the civil standard—that is, the balance of probabilities. I can confirm, as she wanted, that it mirrors the approach in the Government’s proposed offence of corporate failure to prevent the facilitation of tax evasion.
The noble Lord, Lord Rosser, asked whether HMG will legislate to create corporate liability for failure to prevent serious harm or human rights abuse. I wrote to the noble Lord about this—it is obviously seared in his brain or, probably, was passed straight to his outbox. All businesses are expected to comply with the legislation that comes under the jurisdiction of the UK, including that which relates to human rights. While the Government have no ability to regulate UK businesses operating in overseas jurisdictions, we encourage them to honour the principles of internationally recognised human rights wherever they operate. More broadly, in 2013, we were the first country in the world to produce a national action plan in response to the United Nations guiding principles on business and human rights.
Large UK-domiciled businesses must also comply with laws that require them to report certain human rights issues, including the Companies Act and our world-leading Modern Slavery Act, which requires them to produce annual statements on what they have done to ensure that such issues do not occur in their business and supply chains.
I hope I have fully answered noble Lords’ questions and that the noble Baroness, Lady Bowles, will feel free to withdraw the amendment.
Lord Rosser
My Lords, I suspect I am on a mission that is not going to succeed, but it is unfortunate that a number of key decisions are likely not to be taken by the Government until this Bill becomes an Act. The Minister said that the closing date of the public call for evidence in relation to corporate criminal liability has just gone, but do the Government expect to give any indication before Report as to whether or not they will be moving to consultation on a firm proposal or, alternatively, are they likely to indicate before Third Reading whether they will be moving to consultation on a further proposal?
Baroness Williams of Trafford
Perhaps I may look into that and let the noble Lord know because I am reluctant to make sweeping promises at the Dispatch Box without knowing exactly what the timescales will be. I will let him know, certainly before Report, what the expected timescales are.
Baroness Hamwee (LD)
Before my noble friend responds, the Minister referred to the Modern Slavery Act. I do not want to be overly pedantic but I do want to be a bit pedantic because this is an important point. She mentioned the requirement on certain companies to report on the steps that they are taking under Section 54 with regard to their supply chains. I think that she will agree that their statement as regards the steps they are taking can be a statement,
“that the organisation has taken no such steps”.
That would be regrettable. However, there seems to be a feeling that every organisation has got to report the detail of the steps when that is not quite the case.
Baroness Williams of Trafford
My Lords, I would say that the statement a company makes reflects the company, and if a statement of no effort is made, it will be for others to judge the efficacy of that company.
Baroness Bowles of Berkhamsted
My Lords, I thank the Minister and other noble Lords for this debate and of course I appreciate that it is a little awkward that the call for evidence and consultation process are lagging behind the progress of the Bill. That is why I had my novel idea that we could put in place a framework here which is only an option. The circumstances are such that it would not be an outcry if the decision was that you had to do it in a different way, so as in my Amendment 163, the provision would just fall away. Of course, that provision would not be introduced by statutory instrument, it is just a delayed commencement. I still feel that there is some mileage in taking a further look at this kind of provision.
As a result of this debate, I think we have the answer to one of the questions in the call for evidence because of what the Government have said that they are thinking of introducing for the four criminal offences I have picked up on and that it may be by statutory instrument for the others. We have heard some good reasons as to why statutory instruments are not such a good idea, and indeed I think the Minister has conceded that. That may be the outcome of the ticks in the call for evidence. I would like to know how many ticks were made in that box; perhaps she could count them and let me know.
I reserve the right to have another go along the lines of Amendment 163, but at this stage I beg leave to withdraw the amendment.
Baroness Kramer
My Lords, perhaps I may add one phrase only to this debate. I want to speak to Amendment 170 and suggest to the Government that this is frankly a no-brainer. We cannot afford to have inappropriate directors continuing to run companies, particularly when their inappropriate or inadequate behaviour has been exposed in the kind of circumstances discussed under Amendment 170. It is really important that the courts have a full range of tools. We no longer live in a world where the old-school tie and friendships determine who the appropriate directors of companies are. They have to be held to professional and appropriate standards. This proposed new clause would enable that to happen and I frankly cannot see why it should present any difficulties to the Government.
Baroness Williams of Trafford
My Lords, I am pleased that the amendments in this group have allowed us to have an extended debate on the tax evasion offences in Part 3 of the Bill. I am pleased to say that the Government are supportive of the intentions of these amendments, although that is not to say that further legislation is necessarily required.
Amendment 164 seeks to require the Secretary of State to publish an annual report on the number of companies that have, under the Public Contracts Regulations 2015, been excluded from tendering for public contracts, or had existing contracts terminated after being charged under the new offences. I fully agree that contracting authorities should be able to exclude bidders that have been convicted under the new offence. The Public Contracts Regulations allow for this in appropriate cases. They grant contracting authorities discretion to refuse to award a public contract to an entity that has been involved in grave professional misconduct. Such misconduct may include committing the new offences of corporate failure to prevent the criminal facilitation of tax evasion. However, government does not collect information centrally on the number of organisations that have been excluded from public contracts under the 2015 regulations. This is because these decisions to exclude are taken by individual contracting authorities on a case-by-case basis, and this may include the new corporate offences.
Introducing a reporting requirement would create a burden on contracting authorities. Each contracting authority would have to make a return to central government, detailing the occasions that exclusion from a bidding process has occurred, and central government would then have to collate all these reports in order to compile national statistics to be published in the report. Such a reporting requirement would go against the Government’s drive to simplify the public procurement process and to cut red tape.
Current efforts are focused on ensuring that contracting authorities have the necessary information to know whether those bidding for contracts have relevant convictions so that contracting authorities can make more informed decisions on whether to exclude them. This includes the introduction of a robust conviction-checking process to prevent bidders with convictions for relevant offences—including the new offences—winning public contracts. This was announced at last year’s anti-corruption summit and is about to be piloted by the Crown Commercial Service.
Amendment 165 seeks to introduce a system of corporate probation orders. This would allow a court to require relevant bodies found guilty of the new corporate offences to amend their prevention procedures. I welcome the noble Lords’ amendment. It is absolutely right that relevant bodies convicted of the new offences, and thus found to have inadequate prevention procedures, should be required to implement changes to those procedures. In response, I draw noble Lords’ attention to Clause 48(2) of the Bill, which adds the corporate offences to the list of offences for which a serious crime prevention order can be imposed under the Serious Crime Act 2007. This enables a court passing sentence on a person, including a legal person such as a corporate body, to impose a serious crime prevention order to prevent, restrict or disrupt their involvement in serious crime by imposing prohibitions, restrictions or requirements on them. The terms of these orders may require the relevant body to allow a law enforcement agency to monitor how it provides services in the future.
Relevant bodies convicted of the new offences are criminals. They do not require special or different sentencing powers. They can be adequately sentenced under the existing criminal law, using a serious crime prevention order to enforce change to prevention procedures. Such an order can do anything that a corporate probation order would. Alternatively, similar provision can be included within the terms of a deferred prosecution agreement. I trust therefore that noble Lords will see that their commendable objective can already be achieved within existing law.
I thank the noble Baroness, Lady Bowles, for Amendment 170. I share concerns about ensuring that those who are unfit to be directors are identified and disqualified from holding such posts. The amendment seeks to amend the Company Directors Disqualification Act 1986 in order to allow a company director to be disqualified by the court when a relevant body is found to have committed one of the new corporate offences, or a similar failure to prevent an offence under the Bribery Act 2010.
At present, under the Company Directors Disqualification Act 1986, a company director can be disqualified on conviction by the sentencing court. Alternatively, the Secretary of State for Business, Energy and Industrial Strategy can apply to the High Court for an order that a company director be disqualified. In either case, the company director would be a party to the proceedings, and thus given the opportunity to present their defence.
Baroness Bowles of Berkhamsted
The point is that a procedure exists when there is a breach of competition law. That does not have to be referred back to the Secretary of State. There is a subsequent hearing as to whether the director was culpable by not having established the right procedures. It does not automatically say that, if the company is guilty, the directors are guilty. If the circumstance is such that the judge says, “I think we should look further at this”, why should it not then be in the prosecutor’s toolbox to say, “We want to continue smoothly on to the next stage”, which the prosecutor has probably already investigated? It is a civil procedure to disqualify a director, I remind the Minister, so the human rights implications are slightly different. If it works for competition, why can it not work for criminality? It seems to be saying that there is a stricter rule, where directors sit up and take notice of the fact that it looks a little bit more automatic even though the same defence is there. Therefore, it has a huge impact on corporate governance in making sure that the procedures are there. It may even be on a piece of paper on the boardroom table. I have personally heard, “Oh, this is something we can get disqualified for if we don’t get it right”. That is exactly how more boards should be thinking. This kind of procedure induces that. Maybe the Minister can write to me and explain why it is good for competition and not for criminality.
Baroness Williams of Trafford
The noble Baroness foxed me when she asked that question the first time and she is still foxing me. I shall write to her before Report because I really do not know the answer.
Lord Kennedy of Southwark
My Lords, I thank all noble Lords who have spoken in this short debate, and I am pleased that the Minister understands the spirit and intention behind our amendment. The comments of the noble and learned Baroness, Lady Butler-Sloss, and the noble and learned Lord, Lord Judge, are points well made. They have vast legal experience and if I bring the issue back at all on Report, I shall take on board their comments and wise legal advice and draft my amendment accordingly. I certainly thank all noble Lords for their contribution today, and beg leave to withdraw the amendment.
Baroness Williams of Trafford
My Lords, I thank all noble Lords who have taken part in an excellent debate. I pay particular tribute to the noble Baroness, Lady Stern, along with others who have spoken with passion and given considered contributions on a crucial issue.
I have addressed much of what has been raised in correspondence with noble Lords, but I hope that the House will allow me to put certain points on the record. As David Cameron said last year, international corruption,
“is the cancer at the heart of so many of the world’s problems”.
The Panama papers revealed the extent to which anonymous shell companies are used to hide large sums of wealth and circumvent sanctions. The UK is a global leader in the fight against corruption, and we are proud to be at the forefront of international efforts to increase corporate transparency. This includes working with all UK overseas territories with financial centres, and with the Crown dependencies, to tackle money laundering, terrorist financing, corruption and fraud. The territories and dependencies are, in turn, committed to fully meeting international standards, and in some respects are going beyond them, and to working with us to ensure that they do not act as a hiding place for illicit financial flows.
Last year, the UK signed an exchange of notes with all overseas territories with significant financial centres and with the Crown dependencies, setting out new arrangements on law enforcement access to beneficial ownership data. The exchange of notes provides that, when they have not already done so, overseas territories and Crown dependencies must all set up central registers or similarly effective systems of beneficial ownership information. It also provides that UK law enforcement authorities should have the automatic right to access this information, which means that beneficial ownership information will be available within 24 hours, or within one hour in urgent cases. Ensuring that law enforcement authorities are able to establish who is the ultimate owner of companies registered in the overseas territories and Crown dependencies is a crucial part of tackling the complex criminal networks that can exploit the system.
These arrangements are due to be implemented no later than June this year and will put them well ahead of most jurisdictions in terms of transparency, including many of our G20 partners and other major corporate and financial centres, including some states in the United States. Once in place, these arrangements will bring significant law enforcement benefits. They will prevent criminals hiding behind anonymous shell companies and mark a significant increase in UK law enforcement authorities’ ability to investigate bribery and corruption, money laundering and tax evasion.
The noble Baroness and other noble Lords started off by asking for a global standard definition, and I thought that I might address that up front. There is no single definition of a global standard for reach and coverage, but organisations such as the OECD and the Financial Action Task Force are key to the development of international standards in this area. As the noble Lord, Lord Eatwell, said, the UK believes that a public register is a powerful tool, and we will continue to make that point in international fora. However, the OECD has focused on accurate, independently verifiable data as an important standard, which all the overseas territories are looking to implement.
The EU has also played an important role in advocating transparency, but the fourth anti-money laundering directive does not require EU states to make their registers public. In this context, I reiterate that the overseas territories and Crown dependencies are actually ahead of the current standard in implementing the exchange of notes. I will come back to this when I address the point made by the noble and learned Baroness, Lady Butler-Sloss. We are not saying that the global standard means that every country must have a public register, but we would certainly expect it to reflect the recommendations of groups like the OECD and FATF. The UK is leading the way in this area and we are, of course, working on transparency issues with international partners through these groups. I make it clear that the UK firmly believes that public registers are the gold standard. Our position has not changed, but putting a timeline on this work simply does not reflect the scale and complexity of these issues. The OTs and Crown dependencies will be significantly ahead of the global standard as it stands. They have their existing commitments and this, in itself, is moving the standard in the right direction.
Many noble Lords have asked about progress to date and I am pleased to be able to talk about that. We have been working closely with both the overseas territories and the Crown dependencies on implementation by the deadline. I can confirm that significant progress has been made and I will briefly share some highlights with noble Lords. The British Virgin Islands, one of the overseas territories, has already completed the technical construction and testing of its new cloud-based platform. It is now taking forward engagement with corporate service providers to ensure that data formatting is fully standardised in order to enable beneficial ownership data to be uploaded on to the system in advance of the deadline.
In December, the Cayman Islands Government passed an amendment to the Police Law, which is necessary for law enforcement co-operation, and have recently successfully amended three key pieces of legislation to underpin the functioning of their new system: the Companies Management Law, the Companies Law and the Limited Liability Companies Law. Bermuda has a long-standing central registry of beneficial ownership data. It is currently moving legislation through its legislature to enhance the register, including a requirement on legal entities in Bermuda to maintain registers of up-to-date information on their beneficial owners, and to file updated beneficial ownership information with the Bermuda Monetary Authority. Gibraltar is already committed to implementing the EU fourth anti-money laundering directive and has prepared legislation to take forward these commitments and the exchange of notes. The technical construction of its system is well advanced and it is now considering steps to populate the registry with data.
All these jurisdictions have also committed to the automatic exchange of beneficial ownership information, along with 50 other countries. This is important progress, but there is more to be done and we are not resting on our laurels. We are committed to following up on these arrangements to ensure that they deliver in practice. The exchanges of notes with all overseas territories and Crown dependencies make explicit provision for the Secretary of State and the Premier or Chief Minister to undertake a review of the arrangements six months after they come into force—that is, on 31 December 2017—and for further reviews to take place annually thereafter. The arrangements also provide for continuous monitoring by both parties. I hope this provides clear assurance that the effectiveness of the arrangements will be kept under careful scrutiny to ensure that they are meeting our law enforcement objectives.
The NCA has confirmed that it is already seeing enhanced co-operation from some overseas territories, and much shorter turnaround times for processing requests for information. We expect to see this further improved to meet the agreed standards by June this year. This progress demonstrates what can be achieved by working consensually with the overseas territories and Crown dependencies. It is reaping benefits and I believe it will continue to do so.
I turn to the amendments. Amendment 167 is similar to one tabled on Report in the Commons, in that it envisages a timetable for the adoption of public registers of beneficial ownership by the overseas territories. If they have not done so by the end of 2019, it would require the Government to force them to do so. The key difference with this amendment is that it does not cover Gibraltar.
Amendment 169 also requires the Government to support the Crown dependencies to establish public registers of beneficial ownership by the end of 2019, and to report to Parliament on the progress made. However, it does not require the Government to impose public registers on them.
A key feature of the Government’s approach is that it creates a level playing field between all of the overseas territories with financial centres and the Crown dependencies. By taking a different approach to the Crown dependencies and territories, these amendments risk disrupting this level playing field, creating weaknesses in certain jurisdictions that could be exploited and damaging the spirit of co-operation we have been able to create between them.
The noble and learned Baroness, Lady Butler-Sloss, made the point that Gibraltar need not be covered by Amendment 167 as it is committed to implementing the EU’s fourth anti-money laundering directive. However, it is important to note, as I said earlier, that the fourth anti-money laundering directive does not require member states to establish publicly accessible registers of beneficial ownership information, so to impose such a requirement on the overseas territories and Crown dependencies would go beyond what has been agreed with our neighbours in Europe. The provisions in the exchange of notes also go beyond the fourth anti-money laundering directive in providing UK law enforcement with access to information within 24 hours, and within one hour in certain cases.
Rather than imposing new requirements on the overseas territories, the Government feel strongly that we should continue to work with them and focus our efforts on the implementation of the existing arrangements, including the passage of new primary legislation in the territories and complex technological improvements. I recognise that it is the wish of some noble Lords that a timetable be set for public registers. However, the UK Government respect the constitutional relationship with the overseas territories and the Crown dependencies. My noble friend Lord Faulks queried whether there might be a legal issue. I suspect that he is right but I shall look into that before Report.
As I noted earlier, legislating for the overseas territories is something we have done only very rarely. It is done on issues such as the abolition of the death penalty, which raised issues of compliance with human rights obligations for which the UK retains responsibility. While tackling this kind of complex criminality and its consequences is extremely serious, there is a clear constitutional difference in the fact that financial services is an area that is devolved to territory Governments and, in the case of the Crown dependencies, the UK has never legislated for them without their consent. That may be the point to which my noble friend Lord Faulks referred.
Baroness Williams of Trafford
I am so glad that I read it right. The UK is directly responsible for the OTs’ and the CDs’ compliance with international obligations, including the European Convention on Human Rights. It is our responsibility in international law, as the overseas territories have no legal personality under international law. That was a key factor in the UK taking the rare step to legislate for the OTs on the issue of, for example, the decriminalisation of homosexuality. While I acknowledge the moral dimension of tackling criminal finances, the same responsibility does not exist for financial services policy, which is OT government responsibility.
Lord Rosser
Perhaps I may ask the Minister to clarify a couple of points. First, in the light of what she has said and what has been said in this debate about competitive disadvantage, are the Government arguing that accepting Amendment 167 would place the overseas territories at a competitive disadvantage and that that is a key reason for the Government opposing the amendment? Secondly, in view of what the Government have said about wanting to work with the overseas territories in particular, is the reality that if either the overseas territories or the Crown dependencies do not agree to public registers of beneficial ownership, then that will not happen in relation to the overseas territories and Crown dependencies?
Lord Rosser
Certainly. My question relates to what the Government have said about working with the overseas territories. Does that mean that if either the overseas territories or the Crown dependencies decline to agree to public registers of beneficial ownership, then that will not happen in relation to the overseas territories and Crown dependencies? Is that the Government’s position?
Baroness Williams of Trafford
My Lords, they are all committed to working towards the same end. It would be perverse if, having signed up to this arrangement, they then decided that they were not going to work with the Government. If they suddenly stalled on working with the Government, the Government would encourage them to do so in strong terms.
Lord Rosser
I did not realise they had signed up to public registers. Since the Government say they want to work with the overseas territories in particular, I am simply asking what would happen if either the overseas territories or Crown dependencies declined to agree to have public registers of beneficial ownership. Is the Government’s position that it would therefore not happen as far as the overseas territories and Crown dependencies are concerned?
Baroness Williams of Trafford
My Lords, the Government are fully committed to working with the Crown dependencies and overseas territories to achieve the ultimate end of public registers. I have now forgotten what the noble Lord asked me on Amendment 167.
Lord Rosser
I was simply saying that, in the light of what has been said in this debate by a number of noble Lords about the overseas territories being placed at a competitive disadvantage if the amendment was accepted, are the Government arguing that to accept Amendment 167 would place the overseas territories at a competitive disadvantage and that that is a key reason for them opposing the amendment? Or is the reason for the Government’s opposition to the amendment a dislike of what they would describe as imposing something on the overseas territories rather than working with them?
Baroness Williams of Trafford
The noble Lord’s latter suggestion is correct: we do not want to impose on the overseas territories but want to work consensually with them to achieve the aims that we seek. The overseas territories may face competitive disadvantage in the short term, but in the long term, the transparent and open way in which the territories intend to work, and we with them, will be to their advantage.
Baroness Stern
I thank all noble Lords who have spoken in this debate, which has been a cornucopia of oratory, wisdom and detailed, reliable knowledge. I am very grateful to my co-signatories for their strong support. I appreciate the words of the right reverend Prelate the Bishop of Peterborough that this is a moral issue, and the contribution of the noble Lord, Lord Thomas of Gresford, about the United States and the abolition of slavery. I am most grateful for the detailed information from the Minister on progress; it was a bit much to digest in one go, but I will read it with interest. There is much that has been said in this debate to reflect on and consider before Report.
I would also like to say that today is the birthday of the noble Lord, Lord Leigh, and I wish him many happy returns. On that note, I beg leave to withdraw the amendment.
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