Grand Committee

Wednesday 6th December 2017 Grand Committee

Wednesday 6 December 2017

Arrangement of Business

Wednesday 6th December 2017 Grand Committee

Announcement

15:45

[The Deputy Chairman of Committees (Lord Brougham and Vaux) (Con)]

My Lords, if there is a Division in the Chamber, the Committee will adjourn for 10 minutes.

Small Business Commissioner (Scope and Scheme) Regulations 2017

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Small Business Commissioner (Scope and Scheme) Regulations 2017.

15:45

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the purpose of the statutory instrument before us today is to establish further detail about the Small Business Commissioner’s complaints scheme, as well as which small businesses qualify to use the complaints service.

Late payment remains a significant issue in the United Kingdom. According to data on business population estimates published by my department in October 2016, 99.3% of the 5.5 million private sector businesses were small businesses and 99.9% were small or medium-sized businesses.

Latest BACS Direct Credit figures report that the overall level of late-payment debt owed to small and medium-sized businesses stands at £14.2 billion. This is completely unacceptable for the small and medium business sector in the UK, which we all rely on for jobs, goods and services. There is no place for this sort of unfair payment culture in a well-functioning economy.

Provisions in the Enterprise Act 2016 established the Small Business Commissioner. I take this opportunity to welcome Mr Paul Uppal into the role as the United Kingdom’s first Small Business Commissioner, following the announcement of his appointment by my right honourable friend in another place the Secretary of State, Greg Clark, on 2 October this year.

Mr Uppal’s role will be crucial in supporting small businesses to resolve payment disputes with larger businesses and will help drive a culture change in payment practices and how businesses deal with each other. The commissioner will provide general advice and information to small businesses, delivered through the commissioner’s website, signposting businesses to existing support and dispute resolution services.

The website has been specifically developed so it is fit for purpose. My department has received positive feedback that it meets an information and service need currently not met. I can report that development work on the website was completed yesterday and the website will be launched alongside the rest of the Small Business Commissioner’s service before the end of this calendar year, subject to the proceedings before us today. Since the debate in another place on 21 November, the Small Business Commissioner and his team have also begun their programme of stakeholder engagement and have begun recruiting additional staff who will provide support on complaints casework.

The commissioner will be able to consider complaints from small business suppliers about payment issues with their larger business clients and make relevant recommendations. We are aware that small businesses may refrain from making a payment-issue complaint about a larger business for fear of it being detrimental to their relationship—for example, resulting in a threat to terminate their contract or similar bully-boy tactics. The regulations therefore ensure that the commissioner is not required to name the complainant to the respondent. They also allow the commissioner to disapply the condition that the small business making the complaint must talk to the larger business about the complaint before coming to the commissioner, where the commissioner considers that to do so would have a significant detrimental effect on the commercial interests of the small business making the complaint. The Act makes it clear that, in any report on complaints, the commissioner cannot name the complainant unless the complainant agrees to being named.

The commissioner can accept and consider complaints that relate to matters which occurred in the period between 6 April 2017 and the formal launch of the complaints service, as well as those relating to matters occurring after the launch date. This broadens access to the complaints service and will help the Small Business Commissioner gain impetus as soon as the office is officially open for business. The complaints service will launch as soon as possible following Parliament’s approval of these regulations, as has already happened in another place.

The Enterprise Act 2016 sets out the broad framework for the Small Business Commissioner. These measures apply to the whole United Kingdom. These regulations provide further detail about what a small business is for the purposes of qualifying for the commissioner’s services, including the complaints service. The regulations also provide further detail about the complaints scheme itself.

The regulations set out that a business must have a headcount of fewer than 50 staff on one of the assessment dates or during one of the assessment periods to qualify to use the commissioner’s services. They also set out the requirements that must be met before presenting a complaint; the requirements as to the form and content of the complaint; and the time limit for presenting a complaint, and the power of the commissioner to fix and extend time limits and to dismiss complaints. They also set out the matters that the commissioner must take into consideration when determining whether an act or an omission complained about was fair and reasonable, and the factors to be taken into account when deciding whether to identify a respondent in any report of any complaint.

My department consulted on how the Small Business Commissioner would handle complaints between 13 October 2016 and 7 December 2016, and published draft regulations in February this year. We understand that the key message from respondents to the consultation was that the regulations should be simple so that the Small Business Commissioner’s services are as efficient and effective as possible.

The regulations before us will enable the Small Business Commissioner to accept complaints on payment matters from small business suppliers about their larger clients. This is an important part of the Small Business Commissioner’s role in supporting small business. I commend these regulations to the Committee and I beg to move.

[Lord Jones (Lab)]

My Lords, I thank the Minister for his pithy introduction. The regulations surely have to be welcomed. It must be good news to many thousands of SMEs. I refer to the register of interests: I am president of Flintshire Business Week and Deeside Business Forum, which sits across the England/Wales border and has some 9,000 jobs. It is based at Deeside Industrial Park, which has 260 companies at least, most of which are SMEs. There is considerable interest from companies such as these in the regulations. Do we yet have a commissioner’s name in mind? Who shall choose? Shall it be salaried? What salary might it be?

[Baroness Neville-Rolfe (Con)]

I refer to my entry in the register of interests, including my chairmanship of Red Tractor, which helps British branding, including some small businesses, to have their food assured and to sell it into the market.

There was a flurry in the Printed Paper Office this afternoon as some of us sought papers on the Small Business Commissioner. Eventually, we discovered papers entitled “Enterprise”. Of course, small business and enterprise go hand-in-hand. I share a passion for both, as noble Lords may know. It was fantastic to be involved in the passing of the parent legislation for these regulations. I welcome Mr Paul Uppal to his job—I believe he is the new Small Business Commissioner. Perhaps the Minister could kindly tell us a bit about him and why the Secretary of State has appointed him to this vital job for small business. I commend the role of the Federation of Small Businesses in ensuring that the Small Business Commissioner not only is now on the statute book but will be up and running once these regulations have been passed.

While regretting the length of the regulations—although obviously I support them strongly, brevity and simplicity are the most important features of law-making—I am sure that the Minister will keep the regulations and the rules and operation of this important new office under review so that we can ensure that it delivers better payment terms for small businesses in the way we all hope it will.

[Baroness Golding (Lab)]

My Lords, I welcome these regulations because they go to show that persistence works. So many people have been asking for something like this for a long time, including myself, and now it has arrived. Considering the amounts of money that will be in dispute, are we going to be able to manage all the work on the kind of funding that will be allocated to the Small Business Commissioner?

[Lord Cope of Berkeley (Con)]

My Lords, I too welcome these regulations and the start of this operation. I also welcome Paul Uppal to his job and wish him the best of good fortune in carrying it out. As my noble friend Lady Neville-Rolfe said, the application of these regulations goes for quite a few pages, so I hope that the website will be a good deal clearer and shorter so that small businesses can understand them.

Prompt payment or the lack of it has been a stubborn problem over many years and successive Governments. All sorts of things have been done in the past to try to improve the situation, and this is one more. I hope that it works successfully. I hope also that the website will point out that these regulations concern only small businesses not being paid by larger businesses. There is a separate operation known as the Small Business Crown Representative whose job it is to make sure that small businesses are paid by government departments and agencies. I think that the website should cross-reference this point because, as we know from the past, these agencies can sometimes be a problem.

Lastly, I hope that the Explanatory Memorandum is wrong in one respect. It states on page 3:

“There is no impact on business”.


I hope that that is a sort of technical way of explaining that the actual laying down of the details will not have an impact, but that the new role will have a considerable impact on small businesses and indeed on charities and voluntary bodies, which are also covered.

[Lord Mendelsohn (Lab)]

My Lords, I am absolutely crestfallen that the noble Lord, Lord Cope, has found the thing that I was going to start my contribution with, which is the phrase in the notes that the regulations will not affect business. My fear is that this is not a statutory instrument that will do the job in the way we hope it will. I want to preface my remarks by saying how nice it is to see the noble Baroness, Lady Neville-Rolfe, in her place. During the passage of the relevant provisions for the Small Business Commissioner in the Bill, she said at one point that she might even consider the role herself. I am pleased that she is still in this House campaigning on many issues, and I have to say that she has been saved by the appointment of an excellent candidate. I welcome Paul Uppal to his role as the Small Business Commissioner. He will make an excellent commissioner because he has great attributes for the role, given his background and approach. I congratulate the Government on securing such a person.

My only fear is that this statutory instrument is an illustration of why the Government are humbling the role before it has a chance of success. No matter what the quality of the person, I see tremendous difficulties ahead in being able to make any meaningful change. Yet again we have gone for a system where we have decided to invent a wheel that has four sides. My concern is that this does not work in any established model or precedent. It does not have any behavioural testing or pilots to demonstrate that it can achieve any of the outcomes. I will go through some of the policy issues and then through the statutory instrument.

First, I was really impressed with the department for its policy background in the Explanatory Notes because this is a huge exercise. The department is to be given huge credit for finding the lowest possible estimation of late-payment debt available in this country. It is certainly true that the BACS survey has far and away the lowest estimates of it for small businesses, by saying that it is just over £14 billion. In fact the average of all the surveys which I found was the Zurich survey, which had £44 billion for SMEs. Why have the Government therefore chosen the veracity of the BACS report? Would the Minister like to tell me, for example, the survey size of that report? I happen to know the answer but I would be keen to hear it from him. Of all the 14 available surveys that I found of late payments, none had a figure as absurd as that. Where does the survey fit in on a sample size—is it at the top, the middle or the end? Can he also tell me for how many years BACS has conducted a survey and what was the methodological change this year to have come out with such a figure? Seeing this figure alone, my concern is that I do not feel that the Government are taking this problem seriously. This will also affect the estimates to come thereafter of what the Government think will be necessary to do this.

Secondly, yet again, I understand the Government’s desperate desire not to do too much and to believe that cultural change, in and of itself, will make a huge difference. I know they will say that the Prompt Payment Code is causing all sorts of wonderful cultural changes that are making a huge difference. We may have that code but I would like to ask a few questions. Can the Minister give me any evidential base whatever to suggest that the Prompt Payment Code has made any change, apart from a Minister who I have found saying, “I’ve spoken to some people and they say they like it”? Can he give me anything with any independent foundation for doing it? Can he demonstrate any example, among the many identified in government reports or in the press, where a company that is a problem late payer and a member of the Prompt Payment Code has been disciplined, chucked out or taken to task for anything that it has done? It is a pretty hard case to make but I would be interested to hear his reflections on that.

It is a shame that the public sector is not included in this provision. I understand that there is a different commissioner and that the argument has always been that because there are definable terms of 30 days, it is not necessary because there is a different mechanism. But I think the overall success of the Small Business Commissioner will be through its ability to get underneath the issues that lie behind problems of late payments. That includes issues around the public sector and its suppliers, where there is a supply chain. It should be able to make the right sort of assessments of that sector. Taking the sector away humbles the Small Business Commissioner’s capacity to take an overall view of late payments. Those are all significant concerns.

I return to the issue about size because it is relevant. I think it is anticipated that the Small Business Commissioner will have establishment costs of £1.1 million and is meant to have a running cost of £1.4 million. I would be grateful to have a breakdown of the staff who comprise that £1.4 million and therefore how many hours of investigative time we think we will have. I also understand that the Government—on the basis of an utterly ridiculous figure of £14.4 billion, but that is another matter—say that the estimate is that 70,000 companies will be referring just under 400,000 disputes, of which 500 will result in full-blown complaints. While I am tempted to ask the Minister what percentage of the overall disputes will therefore result in a full-blown complaint, I can tell him for the benefit of time that it is 0.125%. Can he explain how the Government match that level of complaint to the staffing and what they are required to carry out through the statutory instrument? I have tried on the back of an envelope—in fact, multiple envelopes because it took so long to do the maths—to see how you can spend the amount of money involved in the establishment of it and end up with that number, and I just cannot do it. I would be very grateful if the Minister, on the basis of the bogus number, will tell us how this is meant to operate, how much time is allocated to each dispute, and how that will work. That would be very helpful indeed.

Unfortunately, I have some other issues with the actual drafting of the statutory instrument. I agree with the noble Baroness, Lady Neville-Rolfe, that brevity and simplicity are wonderful. There is nothing like brevity and simplicity and this statutory instrument is nothing like brevity and simplicity. I am tempted to say that I worry when a Government overregulate. This is an example of overregulation, when better regulation would be much more judicious.

The biggest problem I have with the statutory instrument is that fundamentally it regulates the size, not the activity. I talked this through with a lawyer and said, “If I am a big company, how do I change this? I just move the dispute that I have to a small company and I am no longer on the hook for it”. The ability to drive a coach and horses through this and to avoid any form of dispute or mediation or any cost by changing the structure or who holds the debt or who holds the activity is easy within these terms. Which lawyers reviewed this? Which scenarios did they plan for? Did they understand the opportunity to game it? This is important. As we have seen with the application of the role of the Pubs Code Adjudicator, a coach and horses has been driven through that one and absolutely nothing has happened. I would rather the Government were realistic at the very beginning about what was likely to happen.

As we all know, there is always the law of unintended consequences in these matters. In relation to the size, does the Minister think there will be any unintended consequences of setting a number? Will that exclude certain disputes that should be part of it? Should there be provision for the Small Business Commissioner to be able to apply discretion in certain circumstances, rather than it being as prescriptive as it is?

Then we move to the issue in Regulation 3, which is titled, “Requirements before presenting a complaint to the Commissioner”. It says that in order to pursue a complaint,

“the person making the complaint must … communicate the substance of the complaint to the person against whom the complaint is made; and … give that person a reasonable opportunity to deal with it”.

The definition of “a reasonable opportunity” is quite difficult. In truth, it is a payment that is late. We say that we have a condition for late payment, rather similar to that in the public sector, of days on which you can apply interest, and we then specify a reasonable opportunity to deal with it. If it is late, it is late. Again, we have created a huge opportunity for a sense in which a complaint can now be a reasonable complaint and you can probably delay to the average number of days. Whether you believe the bogus BACS survey which said it was 72 days, I think, or the other average that most others identify, which is 90 days, you can still extend much further on the basis of what is a definably reasonable opportunity to deal with it.

Then we have the wonderful paragraph (2). This is always the issue. The Minister correctly identified the problem of a company which may face adverse commercial consequences from raising the issue. It says here:

“The specified circumstances are where the Commissioner considers for this particular complaint, there is sufficient information to suggest that communicating it to the person against whom it is made would have a significant detrimental effect on the commercial interests of the person making it”.


Will the Minister please define for me in detail what this “sufficient information to suggest” is? I think that is a remarkable thing to put down and, again, it fetters the Small Business Commissioner’s scope.

I could go on but I will cut out a few comments because the point is being made. I could go on about the time limit for presenting a complaint. For example, when you are dealing with a company such as Amazon, which many of our small businesses do, it has a procedure which takes a year in the first place. Are we out of scope from the time you make a complaint to when it is defined? Again, it fetters the Small Business Commissioner in a much more serious way. In particular, Regulation 5(4) says:

“Where the complaint or part of the complaint is not made within the time limit set out in paragraph (1), the Commissioner must not entertain the complaint”.


By the way, in this context I am absolutely shocked to see—having had many a debate with the noble Baroness, Lady Neville-Rolfe, on this matter, with huge arguments over “may” or “must”—the remarkable number of times “must” appears in relation to the Small Business Commissioner. Again, he,

“must not entertain the complaint”.

That is also a huge mistake.

On the power of the commissioner to fix time limits, again, we have here perhaps the best powers given to the Small Business Commissioner, which are discretionary. I would like to see an awful lot more of those. On the power of the commissioner to dismiss a complaint, again a charter is given for people to be able to suggest that the complaint can be reasonably dismissed, and there are now eight headings that qualify the decision of the Small Business Commissioner on whether to dismiss a complaint. I spent time with my lawyer, and as a big company you could pull a case together on pretty much half of these anyway, on almost any circumstance. Therefore the Government have now given an ability to argue the case and to create a legal obstacle for the Small Business Commissioner to take up the issue in the first place.

These are huge mistakes. I could go on about the notifications and how overly problematic they are. My basic point is that we will have to pass these things—that is the natural course of things in this place—because we need the Small Business Commissioner up and running. But they are deeply flawed, as they were from the time we tried to raise these issues during the passage of the Act up to now, when they are being put forward in a statutory instrument. The only assurance we can get, apart from some reasonable answers to not unreasonable questions, is on what the mechanisms will be to review it early—not late, as we faced with the Pubs Code Adjudicator, where problems are now faced because we have a restrictive three years for review—more seriously, quickly and appropriately, to ensure that we can adjust the scope and role of the Small Business Commissioner to adequately deal with these issues. I hope that that may mean that there is a new role for the noble Baroness, Lady Neville-Rolfe.

[Lord Henley]

The noble Lord throws a bit of a dampener on the proceedings, which were going quite well before that stage. I will comment on what other noble Lords had to say before I deal with some of his complaints. I am not sure that I will deal with all of them; I will probably write to him in greater detail afterwards. Since he accepted that these regulations will go through, that the Small Business Commissioner has a role and that we have to get him on the move, the sooner we can do that, the better. I will go back to those noble Lords who at least welcomed the regulations—I think he did, but he then took them to pieces and, as I said, threw something of a dampener on the proceedings.

I will start off with the noble Lord’s friend, the noble Lord, Lord Jones, who, as I said, was much politer and kinder about the regulations. I am grateful for that, and I give him an assurance that we have now appointed Mr Paul Uppal—the announcement was made a few days ago—who is a former Member of another place. The post was advertised in the usual way and will be salaried. I am afraid that if my noble friend Lady Neville-Rolfe was looking to get that job, she will have to wait a little while before it is vacant again. As I said, it was advertised in the usual way. I cannot specify exactly why he was chosen as opposed to any others, as that would be invidious and not right, but he was selected after due process and we are grateful to him.

My noble friend Lady Neville-Rolfe also regrets the length of this regulation; it is always difficult to get these matters right. On many other occasions I have moved that various orders be agreed and people have complained that there is not the detail in them. Unfortunately, the point behind regulations of this sort is that one can get into the details that one cannot get in the parent legislation. My noble friend is aware of the parent legislation; she took it through this House, and the noble Lord, Lord Mendelsohn, dealt with it from the Opposition Benches. They know full well that it is not right and proper to get that sort of detail into the original primary legislation, and the point behind these regulations is to get the detail in. I hope that we normally get it about right, but my noble friend Lord Cope teased me over the fact that the Explanatory Memorandum—which I stress is not, I think, part of the regulations, although I can never quite remember what its status is—states that the regulations will have no effect on business. We would obviously all like to make sure that it has an effect on business—and a beneficial effect.

I turn to the comments of the noble Baroness, Lady Golding. I am grateful for her welcome, but one cannot think of passing the Enterprise Act and creating a commissioner as a magic wand that will solve all problems. This is also the general remark I would make to the noble Lord, Lord Mendelsohn, in relation to his various comments, one or two of which I will deal with in greater detail. I can think of very few occasions when legislation can solve problems overnight. There was one Bill with which I had some involvement, the Scrap Metal Dealers Bill, which did quite a lot of what it was targeted to do in the area of metal theft.

In the main, legislation can only do so much. We hope that the Enterprise Act and these regulations will make a big difference. As with so many of these things, however, it is a matter of changing people’s behaviour and the culture of the bigger businesses so that they realise what damage they are doing to others. Legislation can do a certain amount and we have provided the appropriate resources for the commissioner; at least, I think they are appropriate. The figures I have—I think these are the figures that the noble Lord, Lord Mendelsohn, asked to be confirmed—are that the set-up costs are in the order of £1 million and the annual running costs will be roughly £1.4 million, most of that going on staff costs. These must be guesses but it is estimated that there may be 390,000 enquiries and 500 complaints. We think that is adequate for the commissioner at the moment but there is scope for the Secretary of State to increase the resources available to the commissioner if appropriate. He will obviously take advice from the commissioner about what he does and try to make sure he gets it right.

I make one more remark on the commissioner and the work he has already done. My noble friend Lord Cope commented on the website, suggesting that it was not clear enough and should do more, including cross-referencing with other bodies. I am sure that the commissioner will be grateful for my noble friend’s suggestion and that it will be looked at in due course. It is always difficult to get your website exactly right; some are better than others. One can take advice, and I am sure that the advice of my noble friends will be listened to by the commissioner in due course.

[Baroness Neville-Rolfe]

Before my noble friend sits down, I reiterate that I very much support the regulations. I also asked, I think, what arrangements there were for review, because this is a new commissioner. I expect that the department has some standard review provision for looking at how it works, and I am interested in that.

[Lord Henley]

I can give my noble friend an assurance that I was not about to sit down—unless others are desperate to get on to the other instruments—because I still had a certain amount to deal with from the noble Lord, Lord Mendelsohn, who would probably be upset if I left him at this early stage. I can, however, assure my noble friend that we will keep this under review. As I made clear, we are thinking of about £1.4 million as the budget being given to the commissioner for the annual running costs. My right honourable friend can keep that, and the size of it, under review. It is not just about money but about how they are getting on. The department will continue to keep these matters under review.

The noble Lord, Lord Mendelsohn, started off his throwing-a-dampener-on-it speech by questioning why we would use the BACS survey and saying that we should have used another survey that gave a higher figure. I will not go into details about which survey will be the best and which had the largest number of people involved in it to get the right figure. I do not know whether there is necessarily a right figure. All we can agree on is that £14.2 billion is a very high figure. The figures that the noble Lord quoted from other surveys are equally high and worrying. The important point is that something ought to be done to assist small businesses to ensure they do this properly. It is clear that the Government are taking this issue seriously from the fact that we sought parliamentary approval for the Enterprise Act and that, under that Act, we are now doing various things, of which the Small Business Commissioner and his staff are one small part. I do not think the noble Lord can accuse the Government of not taking this seriously. The important point is: we have put some resources in; we have appointed a good person to be that commissioner; and he will continue to pursue the appropriate measures available to him.

The noble Lord made the usual complaints people do about the drafting. He said it was too detailed and then that there was not enough—I was rather lost on that. The drafting went through the usual process. We consulted on it as we should. Generally, other than from the noble Lord, we have had a fairly favourable response to the drafting. I am sorry if he finds it overly legalistic. That is just the way things are drafted.

The noble Lord then asked me a rather extraordinary question: what are the unintended consequences of these regulations? If I knew what any unintended consequences were and that they would be detrimental to one or other person, or to the small business sector as a whole, I would not be moving them. I am afraid the noble Lord will have to accept that I do not have the wisdom of prophecy that he seems to think Ministers should have. I will try to improve. If I knew what the unintended consequences were, I would do something about them. We feel that the regulations will have a good effect and be one small step in helping small businesses. They will try to improve their lot and cut down the very large figure of £14.2 billion, or whatever larger figure the noble Lord would like to have.

Turning to another matter that I suppose is faintly relevant to what we are dealing with, the noble Lord asked about the evidence of the impact of the Prompt Payment Code. I can tell him that we actively monitor and enforce it. It has been successful in assisting business to recover debt, but also in highlighting best practice. That again is important as part of the necessity for the change of culture.

I appreciate that the noble Lord had other questions and that he would like further details on why we wanted BACS—

[Lord Mendelsohn]

I will now try to give the Minister some sense of why I invested in him the powers of prophecy, as well as suggesting that rather than my being a complete dampener on this, he should look to scale the heights to deal with this issue. My question about unintended consequences comes down to this simple point. If there are 500 cases, you are talking about dealing with £35 million-worth of disputes, tops. Does he believe that the figure is £14.2 billion? The sample size was 304, which is below the statistical level on which we are meant to judge any survey with any certainty; in any serious form, no one would ever consider anything under 500. This is good enough for a press release, but why the Government suddenly believe that it is worth putting in a policy framework is another matter. From surveys that are robust, £44 billion is the SME number. Does he think that trying to tackle disputes relating to £35 million is sufficient to create cultural change? The unintended consequence of this statutory instrument is that late payments will get higher if you do not have the resource to challenge the right level and number of disputes. When I said “unintended consequence” it was all about that.

With his hand on his heart, is the Minister able to say that he feels that this statutory instrument has sufficient scale to make a meaningful difference in culture or any other practice? That is the key.

[Lord Henley]

Genuinely, hand on my heart, in every possible way I honestly think this will make a difference. Changing that culture is the most important part of what we need to do. A commissioner himself can by his actions do a certain amount, by dealing with those 500 complaints a year, or however many there are; as I said, that is just an estimate, and we can increase resources if we need more. However, it is the existence of a commissioner—of the website and everything else —that can make the biggest change. That is why I gave assurances to my noble friend Lord Cope about getting the website and the advice right, which is so important.

Hand on heart, I believe that we can make a difference. I hope that that will be the case and that, in a year’s time—perhaps privately outside somewhere, or in debate on some other matter—the noble Lord, Lord Mendelsohn, will be kind enough to join his noble friends and say how well we are doing on this. We occasionally get praise from him, and I look forward to that. An unintended consequence of this debate would be his coming back to me with a degree of thanks.

Motion agreed.

Unified Patent Court (Immunities and Privileges) Order 2017

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

16:27

Moved by

[Lord Henley]

That the Grand Committee do consider the Unified Patent Court (Immunities and Privileges) Order 2017.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley)]

My Lords, the draft order was laid before the House on 26 June. It confers legal status on the Unified Patent Court, as well as providing a limited set of privileges and immunities to the court, its judges and its staff. They are necessary to ensure the effective and proper functioning of the court, and were agreed in the international agreement establishing the Unified Patent Court and its Protocol on Privileges and Immunities.

In its current form, the patent system across Europe is fragmented and expensive. Businesses must maintain a bundle of patent rights, each covering a single country. They must also enforce each patent separately in the national courts of each country. That is costly and burdensome. The Unified Patent Court will offer a way for innovative businesses to enforce or challenge patents in up to 26 European countries with a single court action. That ability to obtain a single judgment is potentially significant and valuable for patent-intensive industries. For example, independent research shows that around a quarter of all patent cases heard in United Kingdom courts were also litigated in other European jurisdictions between the same parties. That is why a single Unified Patent Court is so welcome.

Even better, an important division of the court dealing with disputes in the field of pharmaceuticals and the life sciences will be based here in the United Kingdom. This cements the United Kingdom’s global reputation as a place to resolve commercial legal disputes and reflects this country’s strong role in this important field. It will also generate considerable work for, and help to enhance the global competitiveness of, the United Kingdom legal services sector.

British businesses will still be able to choose national patents and litigation in national courts should they wish, but they will now have the option to use this new court structure, with all the benefits I have described. Being part of this international court will allow us to ensure that it meets the needs of our own innovative businesses, which will be able to use it in the other contracting states. That is why the Government are carrying out their commitment to proceed with preparations to ratify the international agreement that sets up the Unified Patent Court. That commitment should not be seen as pre-empting the negotiations on leaving the EU. Although the UPC is not an EU institution, our future relationship with the UPC will be the subject of negotiations as we leave the EU. Our efforts will be focused on getting the best deal possible.

The Unified Patent Court was established by an international agreement which the United Kingdom signed on 19 February 2013. The Protocol on Privileges and Immunities was adopted in June 2016 and the UK signed it on 15 December 2016. A preparatory committee of the signatory countries to the UPC agreement was established in 2013 and is nearing completion of the work needed to bring the court into operation. The main steps towards UK ratification have already been completed. The changes to our patent law to implement the UPC agreement were made by an affirmative order which was approved by both Houses in 2016.

The draft order is part of the UK’s ratification process. It confers legal capacity on the Unified Patent Court and gives effect to the Protocol on Privileges and Immunities. The draft order provides for immunity from legal process for the court—with some exceptions—and its judges, registrar and deputy registrar. This immunity is also provided for the representatives and staff of the court, but is restricted to the exercise of their official functions. This immunity can be waived by the UPC. The judges and staff of the court will be exempt from national taxation on their salaries and from national insurance once the court applies its own equivalent tax and puts in place its own social security and health system. However, neither exemption will apply to court staff who are British nationals or permanent UK residents. Finally, the draft order provides that the court is exempt from direct taxation in relation to its official activities, as is the case for other international organisations based here, such as the International Maritime Organization.

The draft order applies to the whole of the United Kingdom but some provisions do not extend to or apply in Scotland. Articles 1(3) and 1(4) clarify which provisions do not apply there. A separate order was passed in the Scottish Parliament in October this year which dealt with provisions within its legislative competence.

The draft order confers only those privileges and immunities on the new court, its judges and staff that are necessary for the organisation to conduct effectively its official activities. They are in line with those offered to officers in other international organisations of which the United Kingdom is already a member. Innovative businesses have waited for more than 40 years for a patent system that helps them protect their inventions across Europe in a streamlined and cost-effective way. Moreover, the Government’s industrial strategy emphasises our commitment to fostering innovative businesses. The Unified Patent Court will be integral in achieving that goal. The draft order will enable the Government to be in a position to ratify the UPC agreement and make the court a reality. I commend the draft order to the Committee.

[Baroness Wilcox (Con)]

I stand here as a part of history. When I was Minister for Intellectual Property, we went to the European Community to try to get it to understand that the Chinese and Americans could have patents overnight but we were still, after 40 years, having to translate over and again the members of the European Community at that time. We worked very hard during that time. I thought we had eventually got there but it sort of floundered for a while. I am delighted to see it written down that we are going to ratify the Unified Patent Court.

Intellectual property is very important for us. It is an area in which we are recognised worldwide as doing the right thing. We have allowed the French, the Germans and the rest of them to choose which bits they would like to have a go at. At the end of the day we have come up with something that works very well. Given that we are working so hard on Brexit—I work on the European Union Select Committee, which is looking at all the Brexit paperwork—it is important that we are actually seeing something coming through. It is nice and clear, we can all hear it; we are all going to do it. This is one thing that is not going to cause us any difficulty over the next few months.

[Baroness Neville-Rolfe (Con)]

I congratulate my noble friend Lady Wilcox on her contribution to intellectual property. I was honoured to succeed her in an area where Britain is very strong. Obviously, that was a delight. I was intimately involved in the Unified Patent Court discussions in both Brussels and Luxembourg last year—after, as has been said, many, many years of discussion on its establishment and its location here in London, and the other centres. I want simply to welcome it and to congratulate the Minister and the Intellectual Property Office, which is headquartered in Newport. I wish them well in finding a sensible deal for patents in the Brexit negotiations. I have one point of clarification, which I think the Minister touched on: when does the patent court in London actually open its doors?

[Lord Stevenson of Balmacara (Lab)]

My Lords, the Minister will be grateful to know that the shadow cast upon the previous debate does not extend this far. I will be a ray of sunlight in his life and he will emerge, if not hopping and skipping, possibly with a little spring in his step at the pleasure we express and the way in which this piece of legislation is coming forward.

In passing, it was unfortunate that the Minister caught what appeared to be a full blast from both barrels from my noble friend. He should have seen him in the earlier stages of that Bill, when the hapless victim was the noble Baroness, Lady Neville-Rolfe. The full wrath that my noble friend Lord Mendelsohn could express at the whole approach that the Government were daring to take to this important area was expressed in many amendments that we had to discuss. The Minister got off lightly; he may not feel that. We certainly look forward to his letter when it comes.

I am going to say absolutely nothing about the substance of the statutory instrument because we agree with it and are happy for it to go through. It shines a light on the way some people manage to live their lives—in tax-free environments, free of all exemptions and penalties; some people have all the luck—but nevertheless that is the way it is done. I am glad that it is coming forward.

Like the noble Baroness, Lady Neville-Rolfe, whose work on this I salute—as well as that of the noble Baroness, Lady Wilcox, who preceded her—I am interested to learn a little more about what is actually happening on the ground. There are rumours of premises having been secured and buildings having nameplates attached to them, and so on. It would be nice to know what exactly is going to happen and what the timing is, if it is possible for the Minister to tell us.

The other thing that might be interesting to find out is whether there is yet any feel for whether there will be a sufficient caseload to warrant other centres being opened. During the passage of the original Bill we talked about the possibility that the Court of Session’s responsibility for patent determinations in Scotland might be echoed by having a similar court based there, if there was sufficient casework, because there is expertise and knowledge in Edinburgh in this area, and it would be sad if those were not able to be expressed. But these are matters that the Minister may not yet have the detail on and I am happy to have that at a later stage.

As I said, I am a ray of sunlight. We support this statutory instrument.

[Lord Henley]

I am not sure that I will necessarily be able to help the noble Lord; I might have to write to him. I am grateful for that ray of sunlight on this issue, even though he took a slightly “It’s all right for some” attitude to the idea that some of those lawyers and others involved with the courts would not pay UK taxes. However, it is always open to him to requalify at this stage in his life and seek to become one of the judges working in that court. I understand that they think that there might be up to six part-time judges there; that is all I can say. I say to my noble friend Lady Neville-Rolfe that I do not know where the court will be and when the doors will open. But again, if there is further information, I will let them know in due course.

There is one further process after the order leaves here, which is that this matter has to go to the Privy Council. I think it has missed the next meeting, so it might not be until the new year. At that point, we will have a better idea as to when, as I said, the doors will open and where it will be. If I have any further knowledge about what the caseload is likely to be, I will write both to my noble friend and to the noble Lord.

I am grateful also to have the support of both my distinguished former colleagues in this role, both of whom dealt with intellectual property when they were in that department. I am obviously not considered bright enough to do that, and they have taken that bit away from me. For all I know, it might be a gender issue—one of those things that mere men cannot do. I simply do not know. However, both my noble friends brought great distinction to that office, I am grateful for what they did, and I thank them—in particular for their warm welcome for this order.

Motion agreed.

Designs (International Registration of Industrial Designs) Order 2017

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

16:42

Moved by

[Lord Henley]

That the Grand Committee do consider the Designs (International Registration of Industrial Designs) Order 2017.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, this order modifies the Registered Designs Act 1949 and the Registered Designs Rules 2006, and is an essential step in the United Kingdom’s ratification of the Geneva Act of the Hague Agreement for registration of industrial designs.

The Hague system for international registration of industrial designs provides a means of obtaining protection for designs in multiple countries, or with intergovernmental organisations, through a single application filed at the World Intellectual Property Organization—the WIPO. Membership of the treaty is becoming more popular, and recent signatories include Japan, the United States of America and South Korea. There are currently 66 members, including 18 EU member states, and the EU is also a member in its own right.

The Government want the UK to be the best place in the world to do business. The promotion of strong and effective international IP regimes can reduce the risks of trading internationally for UK businesses and create further export opportunities. UK designers and design-led business are part of a global industry and, as such, it is essential that they have the option to protect their IP cost effectively when trading abroad. Equally, UK membership of the Hague system will allow non-UK owners of designs to register their rights in the UK, thereby encouraging the manufacture, distribution or licensing of their designs in the United Kingdom.

Ratification of the Hague system forms part of a raft of measures to modernise the design framework, including the criminal offence for the intentional copying of registered designs and the reduction of design fees. I know from speaking to designers about the importance of design to the economy. A Design Council study found that the design economy generated £71.7 billion in gross value added. By joining the Hague system, UK businesses, especially SMEs, which wish to have designs registered across multiple countries will have a simpler, more cost-effective method for obtaining and managing their rights. Businesses will be able to save money on design registrations and protect their intellectual property with greater administrative ease.

UK businesses have been able to access the Hague system since January 2008 by virtue of EU membership. The UK has been planning to join the Hague system since 2011 to provide users of the international system with the option to designate the UK directly, rather than under the broader umbrella of an EU designation. By joining the Hague system, UK businesses will continue to have access after the United Kingdom leaves the EU, regardless of what is agreed during exit negotiations. This order will come into force when UK ratification of the Hague agreement with the World Intellectual Property Organization is complete.

In conclusion, this order is essential to make the required modifications to the Registered Designs Act 1949 and Registered Designs Rules 2006 to give effect to the Hague agreement in United Kingdom law. Ratification of the Hague system forms part of a broader designs modernisation portfolio, intended to refine and streamline the designs legal framework so that the UK can provide a first-class, fit-for-purpose system for our design-led companies. We are committed to ensuring that United Kingdom businesses continue to have access to the international system once the UK has left the EU. Joining the agreement is essential to ensure that we achieve just that. I beg to move.

[Lord Clement-Jones (LD)]

My Lords, I cannot guarantee to be a ray of sunshine this afternoon but I will give it a good try. I was quite surprised that despite the invitation on the consultation being from the noble Baroness, Lady Neville-Rolfe, only 10 responses were actually received. That is a bit sad because it shows that there is not a great deal of understanding about the benefits of this kind of Hague registration, so my first question to the Minister is: what visibility will this have after its adoption, given our ability to have business register designs under the Hague arrangements?

Secondly, this appears to be a bit of an IPO-lite solution. Filing, as I understand it, will not be directly with the IPO but with WIPO itself. I am also a little confused by the response to the consultation in terms of how publication will take place and the search mechanisms that will be in place for those kinds of registered designs. Those will be quite important if the system is to be accessible and if we are to get all the benefits that the Minister waxed so lyrical about during his introduction. I share many of his sentiments because I believe that proper design protection is extremely important. We have had many happy hours debating this over the last two years and I am of course a great believer in unregistered design, as well as registered design.

Moving on, it is clear that whether or not one is a great fan of the Hague registration system, it is not as comprehensive as the registered Community designs right. The fashion industry has been making increasing use of registered Community design because it covers surface decoration and a number of other aspects of design.

The last government word on this—this is a Brexit-related aspect—was that:

“The government is exploring various options”—


that is, how one addresses the fact that we will not be a member of the EU in relation to registered Community design rights—

“and are discussing these with users of the system to establish the best way forward”.

The Minister may not be able to tell me very much at this point, but I wonder whether he has anything to say on the matter by way of a follow-up letter. It is all part of the kind of protection package that designers, and businesses that make use of design and want to protect designs, find extremely important. There is quite a lot of anxiety about it. I will not quote all the commentary on the matter, but one comment I read recently said:

“Without an agreement to the contrary, community rights, such as registered and unregistered community designs and EU trade marks (previously community trade marks), will no longer have effect in the UK. Ultimately the scope of any rights applied for will not include the UK, and there remain questions about what will happen to the “UK portion” of such rights obtained before Brexit”.


There are some quite complicated issues here. My question is whether, as well as doing wonderful things like signing up to the Hague system, the work is apace and those options are really being unpacked in relation to the Community design right.

[Lord Stevenson of Balmacara (Lab)]

My Lords, what I will say follows closely on what the noble Lord, Lord Clement-Jones, has said. He and I—if I dare also bring in the noble Baroness, Lady Neville-Rolfe—are part of a declining band who followed the paths of the intellectual property legislation that this House has looked at over the past six or seven years. His intervention brought back fond memories of the time when we were happily discussing some of the issues that are clearly still in mind and will be in play as Brexit negotiations go on.

I make a slightly different point—also one that the Minister may wish to take back—which is that a lot of the effort that went into the earlier Bills was around the question of registered and unregistered designs. We are still in the situation alluded to by the noble Lord, Lord Clement-Jones: a huge proportion of the designs generated in this country—for which we should be very proud—are unregistered. That is partly to do with the nature of the industries involved: where short-term designs, such as fashion designs, are being created, there is probably no incentive to register them, because they are copied and lose economic value so quickly. That design element would not necessarily qualify as a design. However—I made this point before to the noble Baroness; I am sure that she will recognise it and I do not need a response— the Government missed a trick on this. Government ought to be thinking very hard about what package of measures could be brought together to encourage people with design skills and knowledge, of whom we have so many talented examples, to register their designs, because the protections that they can get, as exemplified by this order, are significant, though they are not recognised as such. The point was well illustrated by the fact that so few responded to the consultation document; I was a bit shocked to hear how small a number it was.

Nevertheless, we are where we are. I am sure I will make myself slightly unpopular with the noble Lord, who will find a way of coming back to me—

[Baroness Neville-Rolfe (Con)]

Will the noble Lord give way on the subject of designs? Like him, I am very keen that design rights should be properly protected. It is such a growing part of the creative industries. The Intellectual Property Office has done some very good work. I know this because my daughter-in-law was looking to register a design and I discovered, first, that it was relatively inexpensive and, secondly, that the IPO had set up a very good IT option. The Minister may well be able to tell us more about what they were doing, but I thought that this was interesting consumer research.

[Lord Stevenson of Balmacara]

That is very good news indeed. If it is moving in that direction that picks up the point I am making. There is an unexplored case for more work here, which will bring benefits to UK plc in time.

As I was saying, I was going to grandstand a little on the instrument to ask a couple of questions that I am very confident the Minister will not be able to respond to directly. I am happy to have a letter on them. The first is specifically on the consultation exercise. The Minister touched on this in his opening speech. The comment is made that the UK does not need to keep its own register of registered design rights because after we accede to the Hague agreement, which is what we are doing today, it automatically confers protection on the UK because the UK signed up to the Designview database, operated by OHIM. However, what is the mechanism under which we will continue to have access to it after Brexit? If it is in any way tied to membership it will raise, as the noble Lord, Lord Clement-Jones, said, considerable difficulties in negotiating a fair price and the conditional arrangements. If there are to be cost barriers that will further diminish the pressure on people who wish to register designs. It is important and clearly a useful tool for protecting design rights, but if it is inaccessible it will obviously not be of any value. WIPO and the role it plays are very valuable. The IPO does not have much of a role in this. It again seems a slightly missed opportunity to beat the drum for registration, but if the connection is directly to WIPO and we are to be affected by Brexit, clearly that is a problem.

Secondly, the Minister may be aware of a Supreme Court decision in the Trunki case, PMS v Magmatic. It raised the interesting question of whether one could register or even protect shapes of articles. In this case, the well-known Trunki is a small ride-on suitcase that children use rather irritatingly, at speed, in airport lounges, which my ankles have felt over the years—not my children, I confess; there were third parties involved. The case raised the interesting issue that our systems do not allow anyone who has a visual representation or design representation to register it. As I understand it, the Hague agreement has some flexibility about what can or cannot be registered. It would be interesting to get a sense from the officials in due course about whether they think it would be possible to use the flexibilities in the Hague agreement to allow those talented members of our design profession who design representation to register those designs. I look forward to hearing from the Minister in due course.

[Lord Henley]

My Lords, I am grateful to the noble Lords, Lord Stevenson and Lord Clement-Jones, for their responses. As they said, it will be important that I write with a little more detail on this. I certainly promise to do so. The noble Lord, Lord Clement-Jones, was alarmed about the visibility of the Intellectual Property Office and of these matters more generally.

[Lord Clement-Jones]

I am a huge fan of the IPO. I merely say that it has reduced the fees for registered designs. That made me even more of a fan, but I am concerned about the visibility of the Hague system.

[Lord Henley]

I am grateful that the noble Lord said that because I was going to refer to the exchange between my noble friend Lady Neville-Rolfe and the noble Lord, Lord Stevenson, on the Intellectual Property Office, which showed that it is doing a good job. One should give it credit for that, but I take the noble Lord’s point that this is really more about the visibility of the Hague system. I am not sure there is much we can do other than to continue our engagement with business representatives about these matters to promote the importance of Hague and designs in general. We will continue to do that.

As the noble Lord, Lord Stevenson, asked, we will also continue to promote the benefits of registration. We know that registrations with the UK IPO are rising. Since we reduced the fees in October 2016, as referred to in the most recent intervention by the noble Lord, Lord Clement-Jones, we have seen an increase of more than 100%. There is always more to do to raise awareness, and we will do what we can through programmes of business outreach. We want to get over the message that it is important for businesses to register when it would be of benefit to them, and we will continue to do that.

As I have said, I would prefer to go into greater detail on these matters in a letter to both noble Lords, but I am grateful for their general support and recognition that we want to approve the order today and see how we get on thereafter.

Motion agreed.

Pharmacy (Preparation and Dispensing Errors—Registered Pharmacies) Order 2018

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

17:01

Moved by

[Baroness Chisholm of Owlpen]

That the Grand Committee do consider the Pharmacy (Preparation and Dispensing Errors—Registered Pharmacies) Order 2018.

Relevant document: 11th Report from the Secondary Legislation Scrutiny Committee

[Baroness Chisholm of Owlpen (Con)]

My Lords, I thank the rebalancing programme board for its advice, which has formed the basis for this order. The purpose of the order is to create, for registered pharmacy professionals working in a registered pharmacy, new defences to the criminal offences set out in Sections 63 and 64 of the Medicines Act 1968. The order makes these defences available in defined circumstances to pharmacy professionals making genuine dispensing errors. This marks an important step forward in addressing barriers to providing a safer, higher-quality service.

The Mid Staffs inquiry highlighted the importance of putting patient safety at the heart of everything we do and taught us about the importance of achieving a careful balance between assuring accountability to the patient and developing a culture of openness and transparency so that we learn from errors, improving practice and safety. Indeed, Professor Berwick stated:

“The most important single change in the NHS in response to this report would be for it to become, more than ever before, a system devoted to continual learning and improvement of patient care”.


The order follows that philosophy. Pharmacy professionals are highly regulated—in relation to dispensing errors, more so than any other healthcare professionals. Indeed they are subject to “triple jeopardy” in the event that they commit a dispensing error. They face prosecution for strict liability offences under Sections 63 and 64 of the Medicines Act 1968, prosecution for offences under general criminal law and sanctions under professional regulation requirements.

This can lead to defensive practices. It has been demonstrated in other industries where safety is critical that working under such a threat of sanction is a hindrance to the reporting of errors and accidents and therefore wider learning. Evidence suggests that patient safety and service quality can be improved through increasing the rate of reporting and learning from dispensing errors. This will have benefits to patients locally and throughout the NHS system.

By removing the fear factor of a strict liability offence for inadvertent dispensing errors, we aim to create a much more open and transparent culture, which in turn should help to improve learning and prevent mistakes from happening. We will work closely with pharmacies’ professional and regulatory bodies across the UK to make this a reality. That said, registered pharmacies already have a range of systems and procedures in place to prevent dispensing errors occurring. More than 1 billion prescription items are dispensed every year and it is testament to the professionalism of pharmacy staff that errors occur only in a small proportion of cases.

However, dispensing errors can occur within a registered pharmacy for a variety of reasons. For example, there are many thousands of medicines and some have similar names and brandings; medications may also have complicated dosing schedules. But this order is not about accepting the inevitability of error. Instead, it seeks to ensure that we collect information on errors that do occur and think hard about how they can be prevented in future, including through spotting trends at a national level. This may involve improving systems and procedures, designing out error as far as practicable. Obviously, without knowledge of what has gone wrong, this will not be possible.

However, we are not removing all safeguards for patients. There will remain offences under general criminal law—for example, in cases of gross negligence and manslaughter—and sanctions under professional regulation. In such circumstances, the professional regulators—the General Pharmaceutical Council and the Pharmaceutical Society of Northern Ireland—can still subject individuals to regulatory fitness-to-practise procedures. Sanctions would depend on the circumstances of the error but could ultimately include the individual being removed from the professional register and no longer being permitted to practise.

The order is well supported. During the public consultation, it was overwhelmingly endorsed, including by patients and the public, and groups such as Action against Medical Accidents. They will now want to see pharmacy professionals play their part and demonstrate increased learning and reporting of errors. The Government are committed to ensuring that this happens and we have already taken some action in this regard. In each of the four home nations, a number of initiatives to support reporting and learning have been introduced; for example, medication safety officers or champions, and national reporting systems. Regulatory and professional bodies in pharmacy have also put in place standards and guidance to support the desired culture change, with community pharmacy trade bodies encouraging their members to follow the standards and encouraging pharmacy teams to report, learn, act, share and review.

Action is also being taken in each of the home nations on medication error more generally throughout the healthcare system. It is sobering that 5% to 8% of all hospital admissions are medication-related. This September, the Secretary of State for Health and the Chief Pharmaceutical Officer for England launched an initiative that focuses on reducing prescribing and medication errors throughout the National Health Service in England. The programme will look at a number of areas, including improving how we use technology, understanding how best to engage patients with their medicines, and advancing the transfer of information between care settings.

Finally, I make it clear that while the order provides a defence for pharmacy professionals working in registered pharmacies, it is important to recognise that pharmacy occurs outside these settings and therefore not all pharmacy professionals will be able to avail themselves of the defences set out in the order. So work is progressing to develop similar measures for pharmacy professionals working in hospitals and other care settings, and we intend to consult on this early next year. This will ensure that, regardless of their position within the healthcare system, pharmacy professionals will be encouraged to report and learn from dispensing errors.

In summary, the order supports improved patient safety by encouraging a culture of candid and fulsome contributions from those involved when things go wrong. Within this culture, pharmacy professionals can increase their learning from dispensing errors and identify mitigating action to make recurrence less likely in the future. I commend the draft order to the Committee.

[Baroness Thornton (Lab)]

I thank the Minister for introducing this order with such clarity, and in the process answering several of the questions I had intended to ask her, which may shorten the proceedings. As she said, the order makes a change to the legislation governing the way in which pharmacists who make a mistake are prosecuted, by making certain new defences available to them. As the Minister also said, at the moment they face triple jeopardy from their professional regulator, health legislation and, potentially, criminal law for manslaughter. I recognise that this order is based on the premise that reducing the risk of prosecution will increase the number of errors reported. Over time, we hope that learning from a greater number of errors should lead to improvements in practices and therefore enhance patient safety.

The order will offer protection to pharmacists and dispensing technicians, but its main purpose, quite rightly, is to improve patient safety. Proposed new Section 67B(5) will require the accused to prove in their defence that on discovery of the error, every step was taken to report it at the earliest opportunity to the person in receipt of the medication. That provision will give pharmacy professionals the chance to minimise the effect of errors and will positively incentivise them to admit them, as the act of so doing will aid their defence. This is therefore a new duty of candour, which has the potential to lead to major cultural change. As the Minister also said, this does not mitigate pharmacy professionals who show deliberate disregard for patient safety and who will not benefit from this defence. The order will protect only those practising in registered premises who are already subject to professional regulation. For the sake of the protection of patients, it will not provide a defence for other groups or individuals external to the registered premises and involved in the medical supply chain.

It has to be said that this has been a long time coming. I recall the issue being raised in 2009, and I was there when, during the passage of the Health and Social Care Act in 2011, the noble Earl, Lord Howe, said that the legislation needed to be reviewed so that criminal liability did not arise as a result of genuine dispensing errors. While we welcome this order as a step in the right direction, we therefore feel that it does not go far enough and we hope that it does not take as long as it already has to complete this project.

Even after it is implemented, pharmacists will still not be on a level playing field with other healthcare professionals; they may benefit from access to improved defences, but, as the Pharmacists’ Defence Association maintains, they will still face the prospect of a police investigation and a lengthy trial. They will have to hold on to the hope that they can successfully use the defences but may still face prosecution under other provisions of the 1968 Act. I hope that the Minister will consider further legislation to ensure that inadvertent errors are totally decriminalised. Why are we still asking that those errors should be decriminalised? I hope that the Government will move on this.

Is there some kind of omission in the order? We know that learning from reported errors is anticipated, but there is no formal requirement in the order to deliver on that. It is reliant on good will. I am sure that many pharmacists and pharmacy dispensary technicians will want to take it upon themselves to improve their existing protocols so that errors cannot reoccur, but there is no formal requirement in the order for them to so do.

I am pleased to learn that hospital pharmacies, which are not included in this but should be, because there are many such pharmacies, will be included in due course. We support that very much.

As acknowledged in the Department of Health consultation report, the risk of prosecution under Section 269 of the Human Medicines Regulations 2012 for inadvertent labelling errors still remains for pharmacy businesses. In fact, since a pharmacy business cannot be put in jail, it seems that the risk is to pharmacy owners, who may also be pharmacists.

Finally, the Department of Health has projected a 100% increase in error reporting and a 30% reduction in errors. On what basis has it arrived at those conclusions?

[Lord Clement-Jones (LD)]

My Lords, as someone who has followed pharmacy policy for many years, I have a strong sense of déjà vu. However, that is for all the right reasons because I can assure the Minister that I heartily approve of the order before us. It was only six years ago that I and the noble Baroness, Lady Jolly, put forward an amendment in reasonably similar terms, specifically on 19 December 2011. The favourite Bill of the noble Baroness, Lady Thornton, the Health and Social Care Bill, was under discussion. The noble Earl, Lord Howe, for whom we all have huge respect, said:

“I also wish to reiterate our commitment to bring forward a suitable legislative change at the earliest possible opportunity. I hope that with those assurances, my noble friend will feel able to withdraw his amendment”.—[Official Report, 19/12/11; col. 1559.]


I am not sure whether that was the first or the last time that I have heard those words from a Minister, but six years does seem to be a fairly long time even in politics. I wonder whether it does not reflect a little the way that the wheels of government can turn slowly. Also, although I am afraid that this is the rather downbeat aspect, I do not think that community pharmacy in particular, of which I am a great proponent, is really central to government thinking in the way it should be. It is very much the unsung hero of the health service and we should be making much greater use of it.

I have to refer back to the original debate. One of the objections to the amendment at the time was the fact that Northern Ireland was not properly included in it. Northern Ireland is now included, but of course the arrangements are slightly different because only registered pharmacists will be subject to this order. I am not sure in my own mind whether that means that only registered pharmacists can make use of these defences or whether they are free and clear of the duties entirely. I hope that the Minister can give some clarity on that aspect.

Another aspect I am very interested in is one on which the noble Baroness made a strong point, as did her honourable friend Julie Cooper in the Commons, who I believe is married to a pharmacist so probably feels pretty strongly about these things. As I read the order, the Government have chosen not to change the offence; rather, they have opted to change the defence. That still means, therefore, that the criminal offences are all there. That really illustrates the point made by the noble Baroness, Lady Thornton. It seems to keep a sword hanging over the pharmacist in an unhelpful way.

The Minister mentioned hospital pharmacists. Can she put a date on which they might be brought in, because time passes? It is only six years since we last talked about this issue. However, I was heartened to hear what she had to say about the culture of learning, because that was the motive behind the original amendment. It is absolutely what the Royal Pharmaceutical Society is seeking. I pay huge tribute to the society because it has been extremely patient about this matter. I shall read Hansard with considerable interest.

In closing, of course today is not the time for a full debate on the future of pharmacy. There are a great many aspects to it, including the Murray report and various other related developments, but I hope that the Government will start to grasp much more effectively the opportunity to make the best use of the real and valuable resource that is represented by community pharmacy. It is a gap in our health policy and I hope that the Government will take it forward.

[Baroness Jolly (LD)]

My Lords, I shall be brief in my support of this statutory instrument. I too had a feeling of déjà vu when preparing for this debate. I looked up the debate and sure enough, it was on 19 December 2011 that I spoke, as did my noble friend and the noble Baroness, Lady Thornton, and as indeed did the noble Baroness, Lady Finlay, who is currently our Deputy Chairman of Committees. The only person we are missing is the noble Lord, Lord Patel.

[Lord Clement-Jones]

And the noble Earl, Lord Howe.

[Baroness Jolly]

Indeed, yes.

My noble friend Lord Clement-Jones has given the Committee the detail. I, too, champion local community pharmacies and pharmacists. This SI covers some of the content of his original amendment and will have a considerable impact on the profession. We are all human; we make mistakes. In the previous debate, I outlined a mistake which happened within my own circle at home and caused a large high-street pharmacy to change the way in which it dispensed and stored medicines. The measure will have an impact in that some pharmacists and pharmacy assistants will feel more confident in owning up to making mistakes. We are encouraging people within the health and social care service to do this because we will then learn and share good practice. It is good legislation: mistakes are confessed to and rectified, and lessons are learned.

We heard from the Minister at the outset of this debate that more legislation will be coming down the track to look at other things. When that legislation comes before us for debate, I hope that all the areas that have been exposed today as being in need of tidying will be tidied up.

[Baroness Chisholm of Owlpen]

I hate it when notes come over one’s right shoulder just as one is about to stand up, because one never has time to read them.

I thank all noble Lords for their points. The noble Baronesses, Lady Thornton and Lady Jolly, and the noble Lord, Lord Clement-Jones, all said that the measure was a long time coming. I certainly agree; six years is clearly far too long. I say in mitigation that we were hoping to bring it forward in 2015, but several things happened which I am sure noble Lords will remember: an election, followed in 2016 by a referendum, which rather held things up. Even so, 2009 to 2015 was quite a long time, but we must welcome it now.

The noble Baroness, Lady Thornton, referred to there being no formal requirement to report. We want to encourage pharmacists to feel that they can come forward and report. We do not want to put strong legislation in place for that; we want there to be a feeling of openness, that they can come forward without feeling that that they are likely to be prosecuted. With the champions and the guidance in place, that should happen, and they should get used to this just being part of what they do without fear of further prosecution.

The noble Baroness, Lady Thornton, mentioned pharmacy owners. We want pharmacy owners to have systems in place whereby anyone who discovers an error makes sure that the patient is notified. If this needs doing, the legislation deliberately incentivises candour on the part of all responsible people at the pharmacy. The noble Baroness asked also whether there should be a mandate for reporting errors. As I said earlier, the defences have been drafted to incentivise the reporting of errors not just by the error maker; in addition, all pharmacy professionals are already subject to professional standards set out by the pharmacy regulators, the General Pharmaceutical Council and the Pharmaceutical Society of Northern Ireland. These standards include duty of candour, which includes an obligation to be open and honest.

The noble Lord, Lord Clement-Jones, mentioned pharmacy technicians in Northern Ireland. They are not registered in Northern Ireland as they are here, so they cannot come under these defences. The criminal offences are still there, so this measure makes the right balance. If there is gross negligence or serious errors are made, there is still legislation in place whereby pharmacists can be prosecuted.

I do not have the date for this to go forward for care and hospital settings, but come this summer they will be starting to look into how to bring that forward. It will be interesting to learn how this works in the pharmacy setting and then to bring that forward. We are keen that that happens.

I certainly hear what the noble Lord, Lord Clement-Jones, said about appreciating pharmacies. We do indeed, and we realise what a very important role they have to play not only for supplying medicines but for giving advice. The noble Baroness, Lady Jolly, mentioned one of the errors we hope will be picked up in the new form—coloured boxes. I remember so well as a nurse the danger if you have different medicines in the same coloured boxes when you grab them quickly. Luckily you always had two people checking the medicines in nursing so errors rarely occurred, but that is exactly what we hope this will pick up.

I hope I have answered all the questions raised, in which case I finish by saying that we feel the order will add further impetus to the work already under way to reduce medical errors across the health service and provide much-needed assurance that pharmacy professionals can discuss inadvertent dispensing errors without fear of prosecution. It is important that the pharmacy professions build on this, help to underpin a learning culture that puts the patient first, and ensure that patients receive excellent care and service from registered pharmacies.

Motion agreed.

Town and Country Planning (Fees for Applications, Deemed Applications, Requests and Site Visits) (England) (Amendment) Regulations 2017

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

17:28

Moved by

[Lord Bourne of Aberystwyth]

That the Grand Committee do consider the Town and Country Planning (Fees for Applications, Deemed Applications, Requests and Site Visits) (England) (Amendment) Regulations 2017.

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, it is a great pleasure to see the noble Baroness, Lady Finlay of Llandaff, in the Chair. The draft Town and Country Planning (Fees for Applications, Deemed Applications, Requests and Site Visits) (England) (Amendment) Regulations 2017 were laid before the House on 19 October 2017—that is a relief. I had a feeling like when I passed my driving test and I was out for the first time: it is a feeling of great power, but as though I might need assistance. The regulations will increase nationally set planning application fees by 20% and introduce fees for new categories of development. If approved by the Committee and the other place they will come into effect 28 days after they are made. They are due to be debated in the other place a week today.

It would be useful to give some context to these regulations. We want to make sure that the planning system is valued, resilient and capable of providing the service that local people and planning applicants expect. We also want to provide local authorities with the capacity and capability to support the Government’s objective to build more homes more quickly. I recognise that planning fees have not increased since 2012; therefore, the increase in planning fees set out today is a significant step towards addressing the widespread concerns of underresourced local planning authorities.

The housing White Paper of earlier this year stated that we would increase planning fees by 20% for those authorities that committed to invest the additional fee income in their planning department. Ring-fencing the additional fees in this way will ensure that resources are directly invested to support the delivery of an effective planning system. I am pleased to say that all local planning authorities in England have accepted this offer. Based on current activity, this uplift in planning fees could generate more than £75 million of additional fee income annually for local authorities. This is equal to the average salary of approximately 1,600 planners and other professionals who play a role in the planning process. This should bring the total planning application fee income to approximately £450 million per annum. The 20% increase keeps planning application fees at a modest level for householders and developers compared to overall planning costs—roughly 0.25% of development costs, I think—while providing local authorities with the necessary resources to turn round applications efficiently and effectively.

In developing these regulations, we undertook a technical consultation in 2016 on proposals to increase planning application fees. The majority of respondents, from all sectors, supported increasing planning fees, often citing concerns about resourcing in local authority planning departments. We are also very grateful to the Local Government Association for its work to promote performance improvement. Local government authorities are our partners. Their research suggests that since fees were last increased in 2012, local authorities have been relying on local taxpayers to support the delivery of their planning services.

I turn now to the specifics of what the regulations do. They deliver the housing White Paper commitment to increase nationally-set planning application fees by 20% and to introduce other technical changes in relation to fees charged by local planning authorities. These changes deliver on previous government commitments.

Regulation 1 sets out the scope of the regulations, in that they apply only in England and will come into force 28 days after they are made. Regulation 2 provides for an increase of 20% for all existing fees for planning applications and advertisement consents.

In addition, the regulations bring forward four technical changes. Regulation 3 inserts a new fee of £402 per 0.1 hectare for applications for permission in principle. This will follow new powers that we intend to provide to local authorities to grant permission in principle to suitable sites on application. We will be doing that by regulation. In other words, this is a new fee for a new power that was not previously in the regulations. The same principle applies in Regulation 4, which enables any mayoral development corporation or urban development corporation to charge for giving pre-application advice. This provides the same powers to development corporations as already exist for other local planning authorities. Again, this is a new fee for a new process.

Regulation 5(2) provides for a planning application fee to be charged by local planning authorities for applications necessary because a permitted development right has been removed. The right may have been removed either through an Article 4 direction or through a condition imposed on a planning permission. Many noble Lords will appreciate that this delivers on a commitment I gave to my noble friend Lord True, and to others in the House, during the passage of the Bill that became this year’s Neighbourhood Planning Act.

Finally in relation to these technical changes, Regulation 5(3) introduces a new fee of £96 for requests for prior approval for the new permitted development rights introduced in April 2015 and April 2017. These include the rights for the installation of solar photovoltaic equipment on non-domestic buildings, the erection of click-and-collect facilities within the land area of a shop, the temporary use of buildings or land for film-making purposes, and the provision of temporary school buildings on vacant commercial land for state-funded schools. Again, all of those are new fees for new processes.

We continue to keep the fee resourcing of local authority planning departments at the forefront of our thoughts and to keep under review where fees can be charged. In the consultation document on local housing need, Planning for the Right Homes in the Right Places, we have consulted on the potential for increasing planning fees by a further 20% for those authorities that are delivering the homes that their communities need. Again, this was presaged in the White Paper. The consultation closed recently and the responses will help to inform our thinking on how to ensure that the framework for planning fees delivers the resources necessary to support high-quality performance. We are now analysing those responses.

In conclusion, I must reiterate that it is vital to have well-resourced, effective and efficient local authority planning departments in order to provide new homes and deliver economic growth. I pay tribute to the planning departments of our local authorities throughout England. We expect local authorities to match these recommended fee increases with an ongoing improvement of service when handling planning applications. In bringing forward these changes, we are ensuring that they have the necessary resources to take on and deal efficiently with the increasing demands being made of them. I commend these regulations to the Committee.

[Baroness Pinnock (LD)]

I draw attention to my registered interests as a councillor in Kirklees and as one of the many vice-presidents of the Local Government Association. As a local councillor and someone who is interested in planning, I welcome the 20% increase in fees across all types of planning application, although it has been a long time coming.

However, I note with some concern that the noble Lord, Lord Bourne, did not refer to the fact that the resultant gain in income will cover only around half of the current deficit in financing the planning applications processed by the local planning authority. Paragraph 7.3 of the Explanatory Memorandum draws attention to this. It says that,

“the Government is seeking to reduce the funding gap, and estimate that some £80m additional fee income will be raised annually”.

I also note that the Minister referred to an annual increase of £75 million. The paragraph goes on to state:

“Therefore, although the fee increase will help to address some of this shortfall, even taking this additional income into account, authorities’ costs will overall still be higher than the fee charged”.


We continue to say that the Government are expecting hard-pressed council tax payers to subsidise developers. Given that the interesting figure of 0.25% of planning costs is what the planning fee represents, it seems that we ought to be asking developers to pay the full cost of the planning application. My rough guess is that it would mean a 40% increase. It is not acceptable for council tax payers to continue to subsidise development, and the developers who will make considerable profits out of the projects they undertake.

I noted the new type of planning known as “planning in principle” referred to by the Minister. When I read it, it seemed to be outline planning consent, and I would like to understand what the difference is. In the explanation it talks about there being none of the detail but perhaps only access and considering the principle of building on a certain site. I take that to be outline planning consent and I should therefore like to know what the difference is.

The Minister went on to refer to the opportunity of a further 20% increase in planning fees which would be dependent on local planning authorities delivering on housebuilding targets. This is a bit of a punishment for those authorities that grant planning consent for applications in a timely way but then find that developers sit on them for years and keep coming back with requests for time extensions on their permissions. I cite my own ward in Kirklees, where we have 600 planning consents—that is just one ward, not a whole authority—waiting for development. No doubt my council would not qualify for the further 20%, regardless of the fact that it had granted all these planning permissions.

Perhaps it is because I am new to all this, but I want to comment on this business of the Government undertaking to define planning application fees. Planning permissions and the whole planning process are a local planning authority matter and I believe that planning fees ought to be determined by local government. I do not understand why central government wants to keep such a tight hold on this. If there was more freedom for local planning authorities to determine fees, I am sure that they would introduce innovative processes and be a bit more business-like. If you wanted to attract more development, maybe you would cut fees for development that was within the local authority’s strategic vision. I am not sure why central government has to keep a tight hold of planning fees. I look forward to the Minister’s response on that.

With those comments, in totality I welcome the increase in fees. Local taxpayers have subsidised development for far too long. I look forward to a further 20%, so that they do not subsidise it at all.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I welcome the noble Baroness, Lady Finlay, to the Chair, as did the noble Lord, Lord Bourne. I draw the Committee’s attention to my registered interests as a councillor in the London Borough of Lewisham and a vice-president of the Local Government Association.

Like the noble Baroness, Lady Pinnock, I welcome the measure as far as it goes, in that it increases the fees that local authorities charge for planning applications. That is welcome, as are the fees for the new categories. The 20% increase will make a difference, but council tax payers will still be subsidising the planning process. As has been mentioned many times, that is regrettable. In paragraph 7.3 of the Explanatory Notes, that seems to have been accepted, although I do not think that these proposals go far enough. As the Explanatory Notes say, the last increase was in 2012, which highlights a problem—that is five years ago and costs have gone up since. I accept the point that the noble Baroness, Lady Pinnock, made in asking why the Government are still setting these fees nationally. If they are going to carry on doing that they should look at some way of inflation-proofing this, otherwise we will be sitting here in another five or six years’ time agreeing the fees again. Costs increase all the time for local authorities and waiting five years is far too long. As the noble Baroness said, these matters should be dealt with by local authorities, which will set fees connected to their areas.

The Explanatory Notes also mention applications for permission in principle. A new figure is being proposed, but the fee is set lower than it is for present applications. The justification is that less work will be involved, so you do not need a bigger fee. But of course the fee we have now does not cover it. There is a new fee to be charged but, again, it will not cover the cost of even that work. That is odd logic, unless you always want to set the fees at a lower level than the cost so you always have the council tax payer subsidising the payment process. I would have thought that we would want to get out of that at some point—if not today, certainly in the future. Having said that, I welcome the increase. It is going in the right direction.

We will be talking about pilots later but I have suggested before that perhaps at least one council in the whole of England should do a pilot on full costs recovery. I cannot see the harm of just trying it. At the end of the day it may not work, but if we could find one place to volunteer to do that it would give the Government useful information about whether that is something we could do. I have called for it, as have colleagues. Perhaps we should do that. Having said that, I am happy to support the regulations, as far as they go.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Baroness, Lady Pinnock, and the noble Lord, Lord Kennedy, for their comments, their general support and, indeed, their constructive approach. I will try to deal with the points they raised.

First, in relation to whether we should have gone further, I appreciate that it is the Government’s job to bear down on costs and obviously there is a concern, which we all share, about ensuring that we build more. Having said that the planning fees represent only 0.25% of the development costs, we nevertheless have to be aware of the fact that there must be a level where it would begin to be a disincentive to development. That said, as I outlined and the noble Baroness, Lady Pinnock, referred to, we are looking at a potential 20% tied to housing target delivery and we are analysing the responses. I do not see this as punishing those authorities that do not make it. This is very much a carrot, not a stick. I expect that many local authorities will want to respond favourably to this.

However, I listened carefully to the noble Lord and the noble Baroness as I know they have lots of experience in local government. I realise they know what they are talking about—nearly always—particularly on these areas. They made a fair point. There have been gaps under previous Governments when the fees have not gone up as they perhaps should have. I liked the constructive suggestions from the noble Lord, which I will take away, about the index-linking and the pilots. Both are worthy of discussion so we will have a look at them. The current regulations do not provide for index-linking and I suspect that we would need primary legislation to amend the enabling power. That said, let us see if there is some merit in that suggestion because I appreciate that we need to ensure that planning departments are properly resourced. The noble Lord and the noble Baroness are as aware of that as anyone.

The fee for permission in principle—a new route to planning permission, as the noble Baroness knows, giving developers up-front certainty that sites are suitable for housing-led development—was not plucked out of the air, as it were. There was discussion with local authorities and others about fixing that fee, which we consider appropriate. It is a new fee but we have not had massive representations against it—I am right in saying that—in so far as there were any representations. I think it probably is an appropriate fee, as the others are. I appreciate the general point that this is new territory.

In relation to the point raised by the noble Baroness and the noble Lord about the national setting of fees, this has always been the approach under successive Governments. That does not necessarily mean that it is the correct approach, I know, but it has. There are a couple of issues concerning setting fees nationally. Allowing local planning authorities to set their own fee levels risks the principle of ring-fencing this. I suppose a ring-fence could be created but it would be a little clunky. But there is also a risk, which would be more of a concern to me and to the Government, that uncertainty in relation to fees may act as a disincentive to home owners and small developers in particular to undertaking development in a particular area. There might be a race to the bottom. We should be careful what we wish for because there is a risk that this could end up underresourcing public authorities by pushing them to charge lower fees than might be sensible. I shall need to look at this carefully but, as I say, my initial view is that it might be difficult and not achieve what we want.

That said, I take the points made about index-linking very seriously; it would save us the difficulty of passing primary legislation. We shall take the suggestion away and look at it for the longer view. The pilot is also a constructive suggestion. With that, I welcome the approach of both the noble Lord and the noble Baroness in their welcome of the fact that we are increasing planning fees.

[Lord Kennedy of Southwark]

I am pleased that the noble Lord is going to look at the suggestions. The general point to make is that we hear in our authority and from local government generally that there is a lot of pressure in many areas of service. If there is one area where you could get close to full cost recovery, it is this one, and that would be progress. I take the point that it might hamper development, but I am not convinced that 0.25% of the development costs would be the deal-breaker. If council tax payers are subsidising the planning process, it means that money is not being used for other services which are equally if not more important for the authority to deliver. We hear debates right around the local government sphere about the problems and pressures on budgets and the cuts that have been made in the past six or seven years. That is a serious point for local government, so I am grateful to the Minister for saying that he will take a look at this.

[Lord Bourne of Aberystwyth]

We are getting closer to full cost recovery with these regulations and I appeal to the noble Lord’s legendary patience to await the consultation on the other 20%. That will go a long way for many authorities which I know are trying and succeeding to meet their housing targets. However, the general point has certainly been taken on board.

Motion agreed.

Combined Authorities (Mayoral Elections) (Amendment) Order 2017

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

17:52

Moved by

[Lord Young of Cookham]

That the Grand Committee do consider the Combined Authorities (Mayoral Elections) (Amendment) Order 2017.

[Lord Young of Cookham (Con)]

My Lords, in speaking to this order I shall speak also to the Local Authorities (Mayoral Elections) (England and Wales) Regulations 2017. The purpose of these instruments is to modify provisions in the Representation of the People Act 2000 to enable the pilot scheme provisions to apply to combined authority elections and local mayoral elections. These provisions were brought into effect in 2000 and used extensively in pilots in 2007. There has been no piloting of changes to the voting process since 2007 but new polls have been introduced to other local authority elections; namely, elected local mayors and mayors for combined authorities. At present, the 2000 Act piloting provisions do not fully apply to these new polls.

Earlier this year, the Government announced that they would be conducting pilots for voter identification at the local elections in May 2018, in line with their manifesto commitment to,

“legislate to ensure that a form of identification must be presented before voting”.

Voter ID is part of the Government’s commitment to improve the security and resilience of the electoral system that underpins our democracy, and will ensure that people have confidence in our democratic processes. Five authorities have indicated their intention to run voter ID pilots at the local elections in May 2018: Woking, Gosport, Bromley, Swindon and Watford, while Tower Hamlets will pilot new security features for postal voting. Watford and Tower Hamlets will also be holding local mayoral elections in addition to their local council elections.

The powers to alter electoral conduct rules for the purpose of running pilots are contained in Section 10 of the Representation of the People Act 2000. Section 11 of that Act enables the Secretary of State to apply measures trialled in a pilot scheme generally, taking into account any report on the scheme provided by the Electoral Commission under Section 10. Currently, these sections make provision to conduct pilot schemes in local authority and Greater London Authority elections.

As I indicated a moment ago, two of the local authorities that plan to conduct pilot schemes in May 2018 for local government elections will also be holding a local authority mayoral election on the same day. These polls are usually held in combination, for the benefit of electors and administrators. The proposed changes will allow pilot schemes to be conducted at both these polls. This will ensure that voters have a smooth voting experience. It would be confusing for voters if the provisions being piloted applied to one poll but not the other poll being held on the same day. The changes will also facilitate the effective administration of the polls being held.

More generally, the statutory instruments we are considering will enable pilot scheme orders to be made that are intended to improve the voting experience for voters and make the electoral process more secure. The pilot order schemes will also allow evidence to be collected for statutory evaluation by the Electoral Commission of the impact of voter ID in polling stations. That evidence and evaluation will inform the Government’s decision about how most successfully to meet their manifesto commitment to introduce voter ID nationally. There are currently no pilot schemes planned at a combined authority mayoral election—“metro mayors”, as the media have termed them—but the order will facilitate any pilot scheme orders for combined authority mayoral elections to be held in the future.

I turn briefly to the detail of the proposed changes. As I explained, Section 10 of the Representation of the People Act 2000 enables the Secretary of State to, by order, make provision for running pilot schemes relating to the conduct of local government elections in England and Wales. Section 11 allows the Secretary of State to apply those changes generally. Section 10 as drafted does not enable changes to be made to the conduct rules for local mayoral elections. Also, provisions in Section 11 that enable measures tested in a pilot scheme to apply generally and on a permanent basis do not encompass conduct rules for local mayoral elections. When the mayoral rules were made in 2007, provision was made to apply Sections 10 and 11 of the RPA 2000 to mayoral elections. However, a further modification was needed to enable changes to be made to the mayoral conduct rules as those rules are made under the Local Government Act 2000. Sections 10 and 11 enable changes to be made only to conduct rules made under the Representation of the People Acts. This was a technical oversight. The regulations make these modifications to enable pilot scheme orders under Section 10 of the RPA 2000 to make changes to the mayoral conduct rules. This will enable pilot scheme orders to be made that will facilitate voter ID pilot schemes during local mayoral elections in the short term, and any other pilot schemes in the longer term.

I turn to the Combined Authorities (Mayoral Elections) (Amendment) Order 2017. Similar to local mayoral elections, Sections 10 and 11 of the RPA 2000, as currently drafted, do not enable the conduct rules for combined authority mayoral elections to be modified. When the combined authority mayoral order was made in 2017, provision was made to apply Sections 10 and 11 of the RPA 2000 to combined authority mayoral elections. However, a further modification was needed to enable changes to be made to the 2017 conduct rules, made under the Local Democracy, Economic Development and Construction Act 2009. Again, this was a technical oversight. The order makes these modifications to enable pilot scheme orders under Section 10 of the RPA 2000 to make changes to the combined authority conduct rules for the purpose of conducting pilots.

We are also taking the opportunity to address a technical issue concerning the subscription of candidates’ nomination papers at combined authority mayoral elections. The order will amend the definitions of “elector” and “local government elector” to clarify who may subscribe a nomination paper. A subscriber must be of voting age on the day of the poll and they must be on the local government register of electors on the last day for the publication of the notice of election, which must be published no later than 25 working days before polling day. It also includes new versions of the form of the nomination paper for use by candidates of the combined authority and mayoral elections as a consequence of these changes.

The provision for the combined authority mayoral elections did not contain the limitation of the register being the one produced by the last day for publication of the notice of election, which is the case for other polls. This meant that administrators had to check subscribers on the register up to that date and beyond it, which opens up scope for confusion and error, as this was unlike the position for other polls. This change brings the provision in line with those for other polls and therefore also supports more effective administration when polls are held in combination. These amendments will make combined authority mayoral elections consistent with other polls on this issue and provide certainty to candidates and administrators on who may subscribe a nomination paper.

Our principal stakeholders, the Electoral Commission and the Association of Electoral Administrators, have been consulted on these draft statutory instruments and they are content. Furthermore, they have expressed support for voter identification pilots in general. The Cabinet Office and the Electoral Commission will undertake detailed evaluation of the pilots, after which the Government will announce the next step towards implementing voter ID nationally.

We consider that these instruments are necessary for the conduct of electoral pilots in respect of local mayoral elections and combined authority mayoral elections, and that they make the law governing candidates’ nominations at combined authority mayoral elections consistent with other polls. I commend these instruments to the Committee.

[Baroness Pinnock (LD)]

My Lords, again I draw the attention of the Committee to my registered interests as an elected councillor in Kirklees and a vice-president of the Local Government Association. I understand, appreciate and welcome the technical changes in these two statutory instruments, which ensure that the opportunity to take part in the pilot for voting ID, among others, can include mayoral elections.

My noble friend Lady Thornhill is currently the elected Mayor of Watford, which is one of the pilot areas in next year’s elections. No doubt it was that and the Tower Hamlets situation that have triggered these SIs. I asked my noble friend Lady Thornhill what sort of ID they were using. It is quite interesting: they require people to bring their polling cards as their form of identity when they vote. Failing that—because those involved in elections know that polling cards constantly get lost—they can bring other forms of written ID. Interestingly, they are not required to provide photographic ID.

I am concerned that, following the report by Eric Pickles, the Government seem to be focusing their attention on voter identification in order to improve the integrity of the ballot, rather than focusing on the area where there is evidence of larger fraud: the use of postal votes. I am concerned, and have been for a long time, about the abuse of postal votes, for a number of reasons. One reason is that for some families in some communities—where the whole family votes by post—a secret ballot does not exist. In particular, that has a negative effect on women’s rights to express their own opinion when they vote. That issue, unfortunately, has not been addressed through this.

I also draw the Minister’s attention to the widespread use of postal votes in areas whereby they are collected and filled in by others. We know this from court cases. Despite the best efforts, which I accept have been made, to improve the identifiers on postal vote applications and hence on the form and the ballots as they are completed, in my experience they might have reduced but certainly have not prevented continuing abuse of the postal voting system.

Lastly, when it comes to voter identification, we need to learn from the experience of those of us who have been involved in elections. I will relate an experience I have had to illustrate the point. It took place a few years ago, but I will not say in which area it was. A guy drove his car down the street and pressed the horn. People came out of various houses. The man in the car handed out polling cards and off those people went to vote. Linking the polling card with the person has not prevented abuse in the past and I am not necessarily convinced that voter ID would reduce it now. It might also prevent some people voting because they would not want to have photographic identification.

I am all in favour of improving the integrity of the ballot because it has been eroded over the past few years, but I am not convinced that we have found the solutions. Having said that, I totally support these statutory instruments.

[Lord Campbell-Savours (Lab)]

My Lords, the noble Baroness, Lady Pinnock, has just referred to improving the integrity of the ballot. That is precisely what was behind the debates we had some years ago on electoral registration, which I opposed most vigorously, as indeed did some of my noble and honourable friends. The reason was quite simple. We are wasting millions of pounds on electoral registration when in fact we should be doing what the noble Baroness herself said. We should be concentrating our efforts on where the real fraud lies, and that is in selected areas. I remember moving an amendment to do something precisely to that effect in this place. We had a Labour Government at the time but they rejected it. We should not have been wasting money on a national scheme; we should have concentrated our efforts on those areas with a real problem. We knew that where there was a problem, local authorities themselves would ask for additional resources to sort out the issues. Of course that is why we still have some fraud in the system.

I want to go a little wider on this. The noble Baroness referred, I think, to polling cards. Again, there is an inconsistency because she wants to enforce some kind of system to make sure that ID works. Well, why not go the whole hog and have ID cards, which would sort out the whole problem? In those circumstances we could do away with electoral registration. We would go down exactly the same route as I did the other day with the Minister, the noble Lord, Lord Young, at the Dispatch Box, because he knows that the ID card is the way to sort this problem out.

I want to turn to something else regarding the nomination form because there has been some discussion about nomination papers. I have always believed that when a candidate stands for public office, there should be a declaration of interest. Why should there not be a full declaration of interest on the nomination form which is published by the local authority, whether it be a candidate for a parish council, Parliament or whatever? The public would then know the interests of the person standing. The problems with these people standing for public office often arise out of the fact that they have an interest which subsequently turns out to have compromised the positions that they are taking within their respective authorities. I put that to the Minister—I do not expect an answer today. However, let us now consider the whole question of declaration of interests by candidates being published at elections where everyone can see them.

Lastly, I raise the whole question of the voting system. One of the great—I suppose it was minor—contributions I have made in my modest political career was to devise the supplementary vote system. I named it in my house, brought it here, and in the end it was adopted by the Labour Government and is still in operation in mayoral elections. I would like to see an audit on how effective it has been, because there is still some criticism of the supplementary vote. My view is that it works. When you check through the election results over the year in the various authorities, whether that is in police authorities or whatever, and you look at where it has worked, it has worked in some interesting areas. Have the Government done an audit of how it operates, and how effectively?

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I will make only a few brief remarks on the order and the regulations. Like the noble Baroness, Lady Pinnock, I refer the House to my interests as a councillor—in the London Borough of Lewisham—and as a vice-president of the Local Government Association.

In general I am supportive of the order and the regulations—I have no problem with them as such. However, there are some issues. As we have heard, one of the themes in the review is fraud. Issues of fraud have been reported far and wide over a number of years in the media and there have been a number of court cases in which people have, quite rightly, been prosecuted and some sent to prison, deservedly so. I think we all agree that we want to make sure that fraud is driven out of our electoral system, and if these go some way towards helping to do that, that is well and good and I support it.

We have had a number of pilots in this area of policy over a number of years—I certainly remember that the Labour Government, and particularly Jack Straw, loved pilots. I just hope that if we have these pilots, we will make a decision on them and move them along a little. I am all for pilots but I want a conclusion as well. If they are seen to improve the electoral system, we should go ahead with them.

On the nomination papers, obviously that is fine. I am surprised that we need to do that, but I am happy that we agree those nomination papers.

I may have heard the Minister say that we consult the people we normally consult, which is the Electoral Commission and the Association of Electoral Administrators—two fine bodies. I have certainly made the point—if not to the Minister then to other Ministers sitting in that position on behalf of the Government—that the one group that is always missed out is the political parties. We have some experts in these areas. I was a member of the Parliamentary Parties Panel, which is the statutory body that the commission consults, and I then became an electoral commissioner, so I sat on the Electoral Commission. I can tell your Lordships that at no point did these bodies consult on these issues with the political parties. They do not. They might say that they do, but they do not, and it is a shame. They might say that we do not need to on this one, because these are purely technical matters. There are people from all parties—we all know some of them very well— who are expert in these areas and can give valuable information, insight and experience. It is a shame; the Government should as a matter of course add in the political parties and formally consult them as well. It would not be a great problem for the Government to do that. We should certainly not rely on the Electoral Commission. As I said, it is a good body and great people—and great commissioners—work there, but I do not want it to consult, because it will not. It does not; it will talk to the administrators, and as this is a technical issue and not a campaign it will not involve the parties. Maybe we should think about that.

My noble friend Lord Campbell-Savours makes a valid point about ID cards and fraud. That certainly would have dealt with the issue. The issue is of course that some people do not have ID or what is acceptable ID when you go along to the polling station—what would be acceptable? Everyone has a passport or a driving licence, so what will not be acceptable? That is an issue to deal with. Also, Northern Ireland has a little electoral card, which is very popular, especially among young people, because they say, “It gets us into pubs and clubs because it proves we’re 18”. It is not an ID card but an electoral card provided by the Chief Electoral Officer for Northern Ireland.

My noble friend Lord Campbell-Savours mentioned the supplementary vote. All these systems are interesting and useful. I prefer the alternative vote, because it spreads the vote around more evenly than the supplementary vote, but other systems are definitely worth looking at.

Having said that, I support these measures as far as they go. I look forward to the noble Lord’s response.

[Lord Young of Cookham]

My Lords, I am grateful to all noble Lords who have taken part in this short debate, all of whom have indicated their broad support for the measures before the Committee but have raised a number of other issues. A number of those who have spoken are vice-presidents of the Local Government Association. I am not, but I was a vice-president of a predecessor body called the AMA. I was expelled either for rate-capping or for abolishing the GLC, which may well be spent convictions.

I will deal with some of the issues raised. The noble Baroness, Lady Pinnock, is quite right that there are a range of recommendations in the Pickles report. We are dealing with some of them, such as those on harvesting votes by political parties and behaviour at polling stations. They are being dealt with on a separate track.

Tower Hamlets is piloting postal vote ID, to pick up the point the noble Baroness made, so we will have more information on what the options are for dealing with the issue of potential fraud with postal votes, which she raised. In principle, postal votes are a good thing because they help drive up participation in the democratic process. They are a very convenient way of voting, so I would not want to move away from the system we have of postal votes on demand, but we will discover more from Tower Hamlets about how one can drive up the integrity of the system.

Turning to some of the other points made, I take the point that the noble Lord, Lord Campbell-Savours, made about trying to target the pilot schemes on particular areas where there are known to be problems. The approach we have adopted at this stage is to invite local authorities to take part in the pilot schemes, rather than be prescriptive, which is the approach he was in favour of. Tower Hamlets, which is an area where there has been some difficulty, is taking part in one of the pilot schemes on postal votes.

So far as declarations of interest are concerned, my experience is that the interests of candidates are widely advertised during the process of the campaign— quite often by their opponents. Putting them on the ballot paper would make the ballot paper very cumbersome. I think the noble Lord’s suggestion was that they might go on the nomination paper. We will look at that in conjunction with the Electoral Commission.

On the supplementary vote, there is a Private Member’s Bill coming up in the name of my noble friend Lord Balfe looking at alternative methods of electing local councillors. He is in favour of some form of PR for local government, so if the noble Lord is free on a Friday, there will be an opportunity for him further to develop his views. The supplementary vote is of course used at the moment, as the noble Lord said, for local mayors, combined authority mayors, the London mayor and the PCCs, so it is already embedded in part of the process. I do not think we have any plans to use it more widely.

[Lord Campbell-Savours]

Does the Minister not see the merit if we target where the problem is and then getting rid of the individual registration scheme? I see no benefit whatever in the scheme other than to deal with a problem in particular areas, which will be dealt with anyhow under other arrangements.

[Lord Young of Cookham]

Individual voter registration was introduced, I think with the support of the Opposition, by the last coalition Government. It is now there and it is an improvement—

[Lord Kennedy of Southwark]

I think the Minister will find that it was initially introduced by the Labour Government, then of course the coalition Government changed the rules when they brought the Act in at the start of that Government.

[Lord Young of Cookham]

But I think there was broad all-party support for individual voter registration, which was the point I was making. So we have a lone voice, which I respect, but it is an improvement on the previous system, where it was up to the householder to put people on the voters’ list. Where we are now is a much better system.

On the issue I was talking about a moment ago, we will have a look at declarations of interest but, as I said, putting it all on the ballot paper would make it more difficult for electors to understand. It could lead to errors and confusion in completing the ballot paper. I also mentioned registration. Changing the registration system has ensured that false names cannot be put on the register to allow ghost voters to cast fraudulent ballots, which had been a significant issue in the past.

The noble Baroness, Lady Pinnock, raised postal vote fraud. I am advised that there is no evidence of organised postal vote fraud since personal identifiers were introduced in 2007. Tower Hamlets will pilot changes to postal voting. On the Watford pilot, if a poll card is missing, the elector can cancel it and be issued with a new poll card to enable them to vote. Poll cards are one of the types of photo and non-photo IDs being tested in the 2018 pilots and, as she said, not all of them will involve having photo ID. We are addressing 48 of the recommendations in the Pickles review and will consider measures to improve the integrity of the postal vote process. The 2018 Tower Hamlets pilot will shed some light on how to take this further.

On advising the parliamentary parties—so in response to the noble Lord, Lord Kennedy—I used to be on a parliamentary panel set up by the Electoral Commission. We had regular meetings with the Electoral Commission and all three parties were represented on that panel. Of course, the political parties are represented on the Electoral Commission itself, so when we consult it I would hope that it might touch base with the political representatives on the commission. If not, they will have read this exchange and I am sure they will change their procedures to take on board that criticism. The noble Lord is right that the political parties should be consulted—of course, they are consulted right at the end, as we are doing at the moment in dealing with these statutory instruments.

The ID card system in Northern Ireland is voluntary. You can either get an ID card or use your passport, or some other system. It is very much a voluntary process.

If I have not dealt with all the questions raised, I will certainly write to noble Lords but I welcome their contributions and I commend these instruments to the Committee.

[Lord Kennedy of Southwark]

I have just a couple of points. My noble friend Lord Campbell-Savours talked about specific areas. When I was a commissioner, people at the commission would always talk about hotspots but it was never very clear about what was meant and where they are. That is part of the problem; they always went on about hotspots and I remember discussing them, but I could not get much progress at all.

On these instruments, yes, the commission does a good job and consults the political parties through the Parliamentary Parties Panel, which I was a member of as an official for many years. I was one of the first four political commissioners on the commission and when we had our board meeting, we would look at broad-brush things such as policy. We were not sitting and looking in detail at such regulations. Something is missing here. It is not intentional but it is missing and it would be useful to get that on the record and at some point to have it looked at. That is not a criticism but something that has fallen through the cracks.

Motion agreed.

Local Authorities (Mayoral Elections) (England and Wales) (Amendment) Regulations 2017

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

18:24

Moved by

[Lord Young of Cookham]

That the Grand Committee do consider the Local Authorities (Mayoral Elections) (England and Wales) (Amendment) Regulations 2017.

Motion agreed.

Communications Act 2003 and the Digital Economy Act 2017 (Consequential Amendments to Primary Legislation) Regulations 2017

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

18:25

Moved by

[Lord Ashton of Hyde]

That the Grand Committee do consider the Communications Act 2003 and the Digital Economy Act 2017 (Consequential Amendments to Primary Legislation) Regulations 2017.

[The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Lord Ashton of Hyde) (Con)]

My Lords, I intend to be brief. Noble Lords will recall that the Digital Economy Act 2017 received Royal Assent in April this year. That Act included reforms to the Electronic Communications Code, which provides the statutory framework for agreements between site providers and digital communications network operators.

The purpose of the reforms is to make it easier and cheaper for digital communications infrastructure to be installed and maintained, ensuring that this statutory framework supports the wider benefits of the UK’s world-leading digital communications services. The reformed code is subject to commencement by a separate statutory instrument, which will not require parliamentary scrutiny. We expect to bring the code into force by the end of December. However, before taking this step, we need to ensure that a number of sets of supporting regulations are in place.

In addition to the regulations before the Committee today, the supporting measures include two sets of regulations that were laid on 19 October 2017 under the negative procedure, which amend secondary legislation and make specific transitional provisions. Together, the purpose of all these regulations is to ensure a smooth transition from the existing legislation to the new code. They will therefore take effect only when the new code commences, which, as I mentioned, we expect to be by the end of December.

The draft Communications Act 2003 and the Digital Economy Act 2017 (Consequential Amendments to Primary Legislation) Regulations 2017 amend references in other primary legislation to the existing code and to provisions in the existing code, replacing them with terminology and cross-referencing aligned to the new code.

The draft Electronic Communications Code (Jurisdiction) Regulations 2017 bring into effect one of the code’s key reforms: transferring the jurisdiction for code disputes from the county courts to the Lands Tribunal in England and Wales, and from the sheriff court to the Lands Tribunal in Scotland. This reform was strongly recommended by the Law Commission following its consultation on the code, and is expected to ensure that code disputes can be dealt with more quickly and efficiently. The DCMS has worked closely with colleagues in the Ministry of Justice, and their counterparts in Scotland, to prepare for this change. I beg to move.

[Lord Clement-Jones (LD)]

My Lords, the Minister has reminded us of our happy days during the passage of the Digital Economy Bill—now the Digital Economy Act. Of course, we all like to be reminded of our days in the salt mines. These regulations are straightforward and we welcome them. I certainly do not intend to raise again any issues relating to the Electronic Communications Code. Certainly, I would not want to provoke another speech from the noble Lord, Lord Grantchester; that would be very unwise.

However, I will make a couple of comments relating to the implementation of the code. As I understand it, Ofcom is issuing a code of practice on top of that. There is some concern that although the direction of travel of the ECC was very clear, the code of practice is in a sense bringing back a slight bias in favour of the landowners. That is a concern of some commentators. One says:

“While the consultation around the code of practice is to be welcomed, if implemented in its current form, the code of practice is in danger of swinging the pendulum back too far in favour of landowners who will be able to challenge operators at every stage”.


I know that the Government were very keen to get the balance right. It will be interesting to hear what the Minister has to say about that.

The Minister may want to write to me about this, but this is a useful opportunity to ask about the direction of government policy in terms of EU regulatory reforms—if we can bear it. It looks like there are plans from Brussels for a new Electronic Communications Code which includes e-privacy regulation. Obviously, before we exit—if we exit—it will continue to be important to keep the digital single market and the single telecoms market in place. The question arises: will there be time? Will the new Electronic Communications Code, however it is brought in—whether by directive or regulation, I am not quite sure—happen? Will it fall outside? Will it be after 29 March? Will it fall during a transition period? I suspect there are many in the telecoms field and the general area of technology infrastructure who will be extremely interested in the answer to that.

Those are the two areas on which I would very much like to have an answer from the Minister, either now or at some stage in the future.

[Lord Griffiths of Burry Port (Lab)]

My Lords, I do not have very much to add. The allusion to happy days in the past, which I missed, unfortunately—

[Lord Clement-Jones]

Fortunately.

[Lord Griffiths of Burry Port]

From the noble Lord’s tone of voice, I honestly thought that it was a sunnier experience than that. Between that and a hypothetical happy future, when other things may or may not happen, I will stick to what is in front of us.

It all seems logical to me. I guess the simplicity of the proposals led to this being referred to me, with my simple mind. I understand perfectly that with the developments in electronic communications we have to have methods appropriate for handling the expansions of systems across the land. I note that the speed and effectiveness of dispute resolution becomes a possible consequence of decisions taken. The balance to which the noble Lord, Lord Clement-Jones, referred is indeed mentioned in these documents and is being sought. I am in no position to judge whether the view expressed that suggested movement back towards landowners is true, but I am sure the Minister will answer that question.

There is a consultation. I note that there is to be no impact assessment because there is no impact, it seems. It is nice to have read that at least six times in these papers. I commend all those who have gone through all the legislation, both past legislation in general and localised legislation from across the land. It is a job for somebody and I pay tribute to the nameless people who have done this trawl. It even goes into the county of my birth—Dyfed in south Wales—where I was rather disturbed to find that “statutory undertakers” are now to be called “operators”. In my life’s work as a Methodist minister, I had rather a lot to do with statutory undertakers and I am sorry that they have been defined out of existence.

There is a logic running through this. It is simplicity itself. It tidies up what is in front of us. I have no hesitation in supporting these measures.

[Lord Ashton of Hyde]

My Lords, I am grateful for both noble Lords’ comments. On the question from the noble Lord, Lord Clement-Jones, on the code of practice, it is not yet published. Extensive consultation was carried out. It is a bit difficult to speculate on its content, but it is important to remember that the code of practice is not binding and cannot change the balance that the law delivers. We spent some time considering that balance. It is certainly true that one of the points of the code was that it should enable operators to do things that were taking too long. There is certainly no intention to change that balance. We absolutely understand the need for operators to access land more easily and more speedily, but preferably on a consensual basis. That was the whole object. These regulations are to do with the occasions, which we hope will not be very often, where agreement cannot be reached, so we can go to a tribunal that has expert surveyors and people like that on it, rather than the county court, which is not expert. I say to the noble Lord that we have no intention and there was no desire to change the balance between landowners and operators. We will have to see what the code of practice says. It is not binding, but if need be we can talk to him when it comes out. We expect to commence the code in December. Ofcom has assured us that the code will come out before it comes into force.

We do not know the timings for the European ECC. If it is acceptable to the Committee I will look at some of the questions the noble Lord asked and do some research into them. We might not know the answers. I do not have them to hand, but if we do know I will come back to the noble Lord.

I am pleased that the noble Lord, Lord Griffiths, was able to come in at the end of this long process. He had one of the more happy experiences. I am very grateful to him. With that, I beg to move.

Motion agreed.

Electronic Communications Code (Jurisdiction) Regulations 2017

Wednesday 6th December 2017 Grand Committee

Considered in Grand Committee

18:37

Moved by

[Lord Ashton of Hyde]

That the Grand Committee do consider the Electronic Communications Code (Jurisdiction) Regulations 2017.

Motion agreed.

Criminal Justice (European Investigation Order) Regulations 2017

Wednesday 6th December 2017 Grand Committee

Motion to Take Note

18:38

Moved by

[Lord Rosser]

That the Grand Committee takes note of the Criminal Justice (European Investigation Order) Regulations 2017 (SI 2017/730).

Relevant documents: 4th and 5th Reports from the Secondary Legislation Scrutiny Committee

[Lord Rosser (Lab)]

The Criminal Justice (European Investigation Order) Regulations 2017 transpose an EU directive regarding the European investigation order which standardises the way one member state can ask another for help in pursuing cross-border criminality, through gathering evidence, investigating banking information, executing search warrants or taking evidence from witnesses.

The Secondary Legislation Scrutiny Committee raised questions about how temporary transfers of prisoners to another member state to help with its investigations are to be handled and what assurances there are that the prisoner will be returned. In its fourth report, published on 7 September, the committee said:

“Regrettably, the Home Office has failed to respond in the seven weeks since we made that request. We shall pursue those enquiries directly with the Minister”.


That the committee did, when the Minister of State for Policing and the Fire Service appeared before it on 12 September. I will return to the issue of the Home Office’s failure later.

In its fourth report, the Secondary Legislation Scrutiny Committee stated:

“Given that the changes these Regulations make are all recognised as a significant improvement on the MLA system, the House may wish to know what arrangements the Home Office proposes to make for such exchanges once we leave the European Union”.


I therefore ask the Minister for the answer to the question posed by the committee. In addition, what arrangements would we be left with for such exchanges if we were unable to reach a deal with the European Union on Brexit and leaving the European Union?

Turning to the committee’s concerns in relation to the provision allowing a prisoner, with his or her consent, to be temporarily transferred to the custody of another member state, can the Minister confirm that it will be Ministers who have to authorise such a transfer, rather than an official or officials, and that in so doing Ministers would need to be satisfied that it was only through the transfer being agreed that the necessary information or evidence could be obtained by the member state seeking the transfer?

Moving on from that stage in the process, what will happen if the receiving member state fails to return a transferred prisoner within a timescale which the authorising Minister here would presumably lay down clearly when agreeing to the temporary transfer? What is the redress available, how is it available, and how long would it take for that process to be completed successfully? It would not be a very effective process if it took any length of time at all to activate and for a conclusion to be reached which had real teeth, resulting as a minimum in the individual being promptly returned. I have to say that the responses given to the committee on this issue were, to say the least, somewhat vague. I hope that we can have greater clarity when the Minister responds to this point.

I referred earlier to the Minister for Policing and the Fire Service appearing before the Secondary Legislation Scrutiny Committee. In its fifth report, published on 14 September, the committee expressed its thanks to the Minister for meeting it and for the fulsome apology he made,

“for the lamentable lapse by his department in failing to answer our queries in a timely manner”.

The report went on to say:

“The Committee pointed out that the reason that they had so many questions was because the EM presented with this instrument assumed the reader had an extensive knowledge of both Directive 2014/41/EU and of the current UK system”,


contrary to the committee’s guidance, which,

“makes clear that we expect an EM to assume the reader has no prior knowledge of the subject and a better-targeted EM could have avoided the need for some of our more basic questions”.

Can the Minister say why the Home Office’s Explanatory Memorandum did not comply with the Secondary Legislation Scrutiny Committee’s guidance?

The committee went on to say in its fifth report:

“The Minister described the failure to respond to the Committee’s letter as an isolated incident, and the circumstances around it were being considered at the highest level in the Home Office. The Committee however commented that we had been in this position before: Home Office Ministers in July 2015 and November 2016 had both given undertakings to improve the way that the Home Office’s statutory instruments are presented. This case not only raised questions about the Home Office’s mechanisms for dealing with Parliamentary requests and the priority that they are given but also about the quality of the EM and the clearance process”.


Particularly in the light of the committee’s comments about the EM for this order, can the Minister spell out the changes that were made to process and procedure to deliver the commitments given by Home Office Ministers in July 2015 and November 2016 that the way the Home Office’s statutory instruments were presented would be improved? Can he also spell out exactly what changes have been made to process and procedure following the discussions “at the highest level” in the Home Office on the circumstances surrounding the delay in responding to the committee’s letter and to which the Minister for Policing referred in his oral evidence to the committee?

18:45

When the Minister for Policing appeared before the committee in September, he appeared to be unaware of the previous transgressions by his own department in July 2015 and November 2016. That in itself does not suggest that the department and its Ministers have taken as seriously as they should the concerns previously expressed by the committee. The Minister can help to quash any such thoughts by spelling out the precise actions taken by Home Office Ministers to properly and effectively address the concerns raised by the committee in each of the past two years. Responsibility lies at ministerial level, since Ministers gave the undertakings. He could also help to quash any such negative thoughts by spelling out the actions that have been taken, or will be taken, by Home Office Ministers to address the concerns raised by the committee in September about the failure to respond to its letter in a timely manner.

Finally, can the Minister say whether, first, the Home Office, and, secondly, the Government, accept—and will ensure that they abide by—the Secondary Legislation Scrutiny Committee’s clear statement in its fifth report that,

“although an increased volume of SIs was to be expected from all Government departments during the Brexit period, that pressure would not be an acceptable excuse for any decrease in the quality of the material presented to the House for scrutiny”?

I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I do not propose to deal with the post-Brexit situation; that is a land from whose bourn no traveller returns unscathed. I will, however, raise with my noble friend a couple of questions around the situation as proposed in the EIO.

I need to declare two interests. First, I am a trustee of a charity called Fair Trials International. As the name implies, we are concerned with the operation of justice. I do not speak for the organisation. As far as I know it has no objections to the EIO in principle. I support the idea that we have an opportunity to execute judicial arrangements swiftly, clearly and fairly. I hope, therefore, to get reassurance—I am sure that I will get it—from my noble friend about how things operate on the ground in real life as opposed to the calm deliberations at a quarter to seven on a Wednesday evening in the Moses Room. Secondly, I was a member of the Secondary Legislation Scrutiny Committee, and I am afraid that I was the person responsible for raising the “temporary” issue. I left the committee half way through this matter, so I have form where this is concerned.

It is obvious that for a state to hand over a citizen to another state is a fundamental decision. One of the primary reasons for the existence of individual states is the protection of their citizens as individuals. I hope that the Minister and the Committee will forgive me if I go through a practical example for a couple of minutes and get the Minister to explain to me how the real-life situation works. I note from paragraph 3.1 of the Explanatory Memorandum that so far only nine countries have signed up to the regulation. There is a larger list in Schedule 2 on page 40 of the SI, so I presume that all will eventually become signatories and abide by the convention.

My real-life example is not of concern to noble Lords: we all know where to press the hot buttons to protect our position. There are, however, many people who are less able to defend themselves. Let us assume that I am a football fan and I am going to Bucharest in Romania to watch a European football match. That country is on the Schedule 2 list, not on the list in paragraph 3.1 of the Explanatory Memorandum. Let us assume that it has signed up to this. I am going to see my team play Dinamo Bucharest, a good, quality European team. I go to the match and it is fine. After the match I go into a bar with some friends. We have some drinks and a good time is being had by all, but a fight breaks out in the street outside, somebody is stabbed, and people spill into the bar to try to get away from the violence. Understandably, the police are called. Of course they either anticipate trouble—or sometimes welcome it, as a chance to have a bit of a go at the football fans, whom they do not necessarily regard very highly. I am sitting there with my friends and am required to give my passport number and details, which I am happy to do, and then I go home.

A couple of months later, the man who was stabbed outside has died, and I am served with an EIO to come and give a witness statement about what I saw and what happened to me that night. This is where I would like the Minister to take me through the process. I assume that the EIO is then served, like the European arrest warrant, through a magistrate, probably through Westminster which is where the EAWs go, but I would like to be certain about that. The magistrate can dismiss the application, but if he grants it, as I read this regulation, various options are open to him. He can make a deposition under oath, arrange a telephone conference call, arrange for an interview by closed-circuit television, or he can arrange for my physical transfer. As I understand it, I have to consent to transfer, although I would like the Minister to confirm that.

If I am transferred, that places a considerable burden on me for reasons which I shall explain in a minute. How can I be certain that the magistrate, or whoever is the investigating authority, is certain that the transfer is the last resort? It may be that the police and the investigating authorities in Bucharest would much rather have me present, saying, “We really would like to get Hodgson here because he’s a serious witness, and we don’t think it’ll work well with closed-circuit TV”. How do we make sure that that is the last resort? After that, who is it who actually lets me go? The noble Lord, Lord Faulkner of Worcester, asked in the Secondary Legislation Scrutiny Committee,

“whether it will be the Home Secretary personally who will be authorising the prisoners to be sent abroad under these orders or some designated official and if it is an official, what sort of official will it be?”.

Mr Hurd, a Member of Parliament, replied that it will be “the Minister”. Does that mean every single EIO goes across the Home Secretary’s desk? I will be delighted to be told that that is the case. The idea of the EAW is that it is a much faster and slicker arrangement than that. I would therefore like to be certain that the answer—which I am sure was given in good faith—is accurate.

On arrival, when I have been transferred to Bucharest, I give my evidence. However, there is a question about the availability of translation services—that need not concern us because it is not part of this regulation—not only of whether the questions are being adequately translated, but also of whether I understand their significance. The questions asked in different jurisdictions may have different weight attached to them, but that is another question. How do I know when I will be free to return? There is a suggestion here that the authorising person, the Minister, will say that it will be so many days or weeks. Will it happen and how is my judicial representative able to say, “That’s not fair. It’s too long”. Alternatively, is it just ex cathedra with, “Sorry, you’re going for 10 days”, or a fortnight, or whatever? When I am there, and the police are certain that they have got me bang to rights, innocent though I am, they say, “Thank you for your evidence, that’s great”, but they say to themselves, “The case isn’t quite ready yet, but it’ll be ready in two or three days. Since Hodgson’s clearly guilty, let’s hang on to him”. “Two or three days” becomes a week, becomes two weeks, three weeks and so on. We need be clear about what “temporary” means and how it works. Nick Hurd makes it perfectly clear in a letter to the committee that a prisoner “must be returned”, but he does not say actually when. I am a football fan. A month without any pay may interfere with my ability to pay my rent or mortgage, put food on the table for my family and, above all, if I do not know when I am going to come back, to make alternative arrangements to deal with my developing domestic circumstances.

I repeat that I do not oppose the measure as it is a useful adjunct to inter-judicial co-operation between us and other countries, making sure that people who have committed crimes are dealt with and sorted out quickly, but I am worried about the potential gap between the perfectly drafted legal system laid out in the papers before us and what actually happens to a person who is not terribly sophisticated, does not always know their rights and may or may not have access to first-class legal advice. He or she surely needs to have real protections before we transfer them to a state elsewhere—any state. It is a matter of principle that we look after our citizens. We need to make sure that if we send them abroad, we do so with the proper protections and provisions to ensure that their interests as citizens of the United Kingdom are safeguarded.

[Baroness Ludford (LD)]

My Lords, I welcome this short debate. The European investigation order is a valuable instrument. Therefore, I am pleased that the Government are implementing it. I was involved with it when I was a Member of the European Parliament. I was the lead MEP for the liberal group and involved in all the co-decision negotiations with the Council in finalising it. It has been a source of regret to me and, I think, to my political colleagues in the European Parliament that successive British Governments have not fully taken part in the fair trial rights side of the EU programme alongside enforcement measures such as the European arrest warrant and the European investigation order—that partly relates to what has just been said.

I am a patron of Fair Trials International and a huge admirer of its work. The EIO is a sort of European arrest warrant for evidence. A fair criticism of the European arrest warrant is that it was occasionally used as a fishing expedition. It was meant to be used only from the perspective of charge and prosecution.

[Lord Hodgson of Astley Abbotts]

“Trial-ready” is the word.

[Baroness Ludford]

I do not think that that is in the EAW framework decision, but it was much discussed in the Julian Assange case with Sweden. Certainly, you had to be on the brink of those further stages of charge and prosecution—not when you just wanted to interview someone and were trying to collect evidence. I hope that the EIO will take the weight off the European arrest warrant and stop it being misused. That is all good. The EIO is for evidence; the search is for interception. It is much more efficient for police and prosecutors than relying on the rather clunky EU mutual legal assistance convention of 2000, which has never really worked. As the committee points out, it would be a very retrograde step to fall back on the MLA convention, just as having to fall back on bilateral extradition agreements under the aegis of the Council of Europe will be an alarmingly backward step if the UK is unable to stay in the European arrest warrant if we Brexit. So, like the noble Lord, Lord Rosser, I echo the question put by the committee about what concrete arrangements the Government propose to continue the efficiency and effectiveness that the EIO will deliver, as the European arrest warrant already does. In one of the committee’s reports, the Minister apparently said that,

“he hoped that close cooperation between Member States on security matters would continue, but the precise nature of future relations would be the subject of negotiation”.

Many of us are really quite eager to know how the Government propose to continue this essential cross-border police and prosecution co-operation.

19:00

I also want to ask about Regulation 28. Article 11(1)(f) of the directive gives us a ground for non-execution by the country which executed the EIO where,

“there are substantial grounds to believe that the execution of the investigative measure indicated in the EIO would be incompatible with the executing State’s obligations in accordance with Article 6 TEU and the Charter”.

We fought long and hard in the European Parliament to get those grounds for refusal in. Had they been in the European arrest warrant, we might have avoided some of the scandals which gave the EAW a bad name. One that Fair Trials International was deeply involved in concerned a constituent of mine when I was an MEP for London, the Andrei Simin case. It was a completely scandalous case where a young man had spent 18 months in appalling conditions in a top security jail in Athens before finally being released. It was a complete miscarriage of justice. I am afraid that those who did not like criminal co-operation measures jumped on that case in order to bash the EU over the head, as well as the idea of efficient extradition arrangements.

Regulation 28, which ostensibly transposes the directive, coyly does not actually spell out the human rights grounds for refusal; instead we have to refer to Schedule 4, which refers only to the grounds for refusal being incompatible with the European Convention on Human Rights within the meaning of the Human Rights Act. That of course is a non-EU measure, so there has been a complete wiping out of any reference to the charter because paragraph 1 of Article 6 of the Treaty on European Union states:

“The Union recognises the rights, freedoms and principles set out in the Charter of Fundamental Rights”.

The Minister may know of the charter because there has been some discussion of it during the passage of the Data Protection Bill, and I hope there will be more. It covers some grounds that are not in the convention and some provisions which are more modern and stronger than the European Convention on Human Rights. Unfortunately, there is a mood in some circles that is antipathetic to the European Charter of Fundamental Rights, which has always been much misunderstood. Put Europe and human rights together and many people start to jump up and down. However, the whole point of the charter is to protect people from the abuse of EU law by either EU institutions or member states. It is a protective measure for citizens. It is not about enlarging the powers and competence, but about restricting them in the name of EU law. A Home Office official giving evidence to the committee on the transferred prisoner issue referred to how such a person could raise a complaint under human rights. Surely the much fuller and stronger charter would be relevant and useful in, for instance, a case where there was any problem about the return of a transferred prisoner.

I will just correct myself—I am sorry, it has been a long week. It was the Symeou case. I ask Hansard to note that: Andrew Symeou was the person who suffered a miscarriage of justice under the European arrest warrant.

My last act as an MEP was to write a report calling for the reform of the European arrest warrant. One of the things I wanted was a clause similar to the one I have just invoked from the European investigation order. That was the first time the European Parliament had managed to get such a clause into an EU law enforcement measure. The failure of the Government to invoke the charter in this measure weakens the protection of people from any kind of abuse or misuse.

Finally, in answering the committee’s question about safeguards for the transfer of prisoners, the Home Office legal adviser explained that any recourse for problems in returning a transferred prisoner or a piece of evidence would be a matter for the European Court of Justice. That was in evidence to the committee in its recent report. Under the Government’s plans, if they happen, what happens after March 2019, or at least after a transition or implementation period, as the Government prefer to say? What alternative protection to court protection would replace the ECJ?

[Lord Young of Cookham (Con)]

My Lords, I am very grateful to the noble Lord, Lord Rosser, for allowing us to have this debate on the EIO. I will focus on the principal points raised during our discussions, which are, as I understand it, the failure of the Home Office to respond in time to the request for information from the committee and the language it used—I have read in full the minutes of the Secondary Legislation Scrutiny Committee’s meeting on 12 September. Then there was the question of what happens to the football fan, posed by my noble friend Lord Hodgson, then the issues of what happens to the prisoner transferred and their protections. Finally, there was the broader question of what happens post Brexit.

Rather than read out a fairly long brief about why the EIO is a marvellous instrument, I will focus on the specific issues raised during the discussion, beginning with the failure of the Home Office. The noble Lord, Lord Rosser, made the point that it was not the first time the Home Office had apologised for late submissions to the Lords committee. He asked why the assurances given on an earlier occasion had not been fulfilled and delicately asked why we should believe the assurances that have been given this time.

I begin by apologising yet again, as my honourable friend Nick Hurd did, for the time it took to respond to the request from the committee in respect of this legislation. There was a breakdown in the process for handling this piece of correspondence in the department. It was a serious administrative error. I and Ministers in the Home Office take the business of parliamentary scrutiny very seriously. Officials have looked into what happened to learn the lessons and to ensure this does not happen again. They have now put in place a robust process to improve the quality of the material put before parliamentary scrutiny committees. I read the comments from, I think, my noble friend Lady Finn, who complained about the language used.

This supervision includes personal oversight by Ministers, with a named senior civil servant held personally accountable throughout the development of the draft instruments. New quality assurance and trading interventions are already under way. These are all intended to reduce the need for committees to seek additional information and to ensure that when such requests are made there is a clear line of sight throughout the department to ensure that they are expedited.

The matter has been considered at the Home Secretary- chaired regular departmental Ministers’ meetings, which I now attend, to ensure that it is addressed and discussed at the highest level. I hope that this will assure the noble Lord, Lord Rosser, and others, that we take this very seriously.

[Lord Rosser]

The Minister referred a moment ago to “personal oversight by Ministers”. Can we have it quite clearly, then, that if this happens again, it will not be the responsibility of officials but of Ministers, full stop?

[Lord Young of Cookham]

Absolutely. As somebody who has been a Minister on and off for nearly 20 years, I am a fully-paid subscriber to ministerial accountability and responsibility to this House and the other place. I am not a Minister who will, if this happens again, pass responsibility on to civil servants.

On the question of the language, I apologise again for the quality of the memorandum on this occasion. As I said a moment ago, the Home Office has put in place robust processes to improve the quality of material put before the scrutiny committee, and again, this includes personal oversight by the Ministers, with a named civil servant within the apartment accountable for the development of these draft instruments. As I said a moment ago, the buck stops with Ministers.

In the example given by my noble friend Lord Hodgson, he would not be a prisoner in the UK, therefore the temporary transfer provisions simply would not apply. They apply only if the person is a prisoner in the UK. The Secretary of State then has to be satisfied, first, that the prisoner consents, and secondly, that no alternative means of providing evidence exists. In the evidence given by Stephen Jones on 12 September, we read:

“Baroness O’Loan: What if the prisoner refuses to go? … Stephen Jones: If the prisoner refuses to consent to the transfer taking place, then it will not happen”.


I hope that reassures my noble friend that he can go and watch his favourite football team in Bucharest and be an innocent witness to an exchange which may result in a crime being committed. He can come back to this country confident that he will not have to go back there under the provisions of the EIO.

The noble Baroness, Lady Ludford, and the noble Lord, Lord Rosser, raised the question of what will happen if a prisoner is not returned. First, the temporary transfer of persons held in custody for the purpose of investigation has already been possible for a number of years under the existing mutual legal assistance system, which the EIO replaced, so this order is not introducing a new provision. However, the UK central authority’s records suggest that the numbers for transferring prisoners held under custody are extremely low. We are aware of one instance of this happening in the past five years. The prisoner is normally able to give evidence in person through court or through video telephone conferencing, and it would have to be authorised by a Minister.

Under the directive, a country receiving a prisoner under an EIO must return the prisoner back to the executing state. However, I accept that the point is not explicit in legislation, which I think was the point raised by the noble Baroness, Lady Ludford. As with other matters relating to EU law, the Court of Justice of the European Union will be competent to give a view, in this instance on the application of the directive, and in particular on the interpretation of Article 22.1, which we consider makes it clear that a prisoner has to be sent back to the executing state—the UK—within the period stipulated by the executing state. Such an interpretive ruling would be binding on the member concerned.

[Lord Rosser]

How long would it take to go through this procedure?

19:15

[Lord Young of Cookham]

I do not have the answer at my fingertips. Clearly, it would have to go through the judicial process. As I indicated, we have transferred only one prisoner in the past five years and in that case there was not a problem with the prisoner being returned. In these circumstances the European convention offers similar protections to those in the charter but, unlike the EAW, which I think was mentioned by the noble Baroness, no detention or transfer can take place without consent under an EIO. I am advised that an urgent procedure is available if the person is in custody. That seems only fair. But I take the point that the noble Lord and the noble Baroness would like more information on this. I am also advised that effective dispute resolution mechanisms and protections for UK and EU citizens will be agreed as part of the negotiation on our future relationship with the EU.

That brings me to the final point raised. The fact that both noble Lords raised this indicates that when we do negotiate post Brexit, these particular issues need to be tied down to avoid any problems of delay in resolution. The question was: what contingency plans are in place in case no deal is reached with the EU and, indeed, what are we planning to do as part of an agreement? As the Prime Minister made clear in her Florence speech, we are unconditionally committed to maintaining Europe’s security now and after we leave the EU. What we must do now is agree the mechanisms to support ongoing co-operation. It is in no one’s interests that either the UK or Europe suffers a loss of operational capability as a result of the UK’s exit.

We have proposed a bold new strategic partnership with the EU, including a comprehensive agreement on security, law enforcement and criminal justice co-operation. That was set out in a paper on those subjects, which I think was debated earlier this year. We are seeking an overarching treaty with the EU that provides for practical operational co-operation, facilitates data-driven law enforcement, and allows multilateral co-operation through EU agencies. It is too early to say what future co-operation we may have in relation to individual measures, such as the EIO. In leaving the EU, we will end the direct jurisdiction of the Court of Justice of the EU. But there is significant precedent for the EU to have co-operation with third countries, including co-operation closely aligned to areas of EU law, but there is no precedent for a third country to submit to the jurisdiction of the CJEU. Effective mechanisms will be necessary to ensure that obligations that are agreed will be enforced after negotiations on the treaty.

I was asked what contingency plans are in place in case no deal is reached with the EU. We are confident that continued practical co-operation between the UK and EU on law enforcement and security is in the interests of both sides. The EU 27 made it clear in their Article 50 negotiating guidelines, published in April, that:

“The EU stands ready to establish partnerships in areas unrelated to trade, in particular the fight against terrorism and international crime, as well as security, defence and foreign policy”.


So we approach these negotiations anticipating that an agreement in this area can be reached. We do not want or expect a no-deal outcome. But a responsible Government should prepare for all potential outcomes, including the unlikely scenario in which no mutually satisfactory agreement can be reached. That is exactly what we are doing across the whole of government.

I hope I have addressed the specific issues raised.

[Lord Hodgson of Astley Abbotts]

As I understood it—and the noble Baroness, Lady Ludford, referred to this—one of the weaknesses of the EAW was that it was being used for fishing expeditions, which tended to undermine it, and that the EIO was to fill that gap; in other words, you could ask questions which did not require an EAW, which had been brought into disrepute in some senses. But that is not the case, is it? You have to be a prisoner before you can have an EIO, so we are back to fishing expeditions again. There is no way that an EIO could be served on the ordinary person in the street because they are not a prisoner. Our concern about fishing expedition continues, I think.

[Lord Young of Cookham]

It goes back to what the EIO aims to do. Basically, it is a judicial co-operation mechanism for providing assistance in investigating and prosecuting criminal offences and it replaces the existing scheme; that is, the existing EU and Council of Europe mutual legal assistance measures. It does this through introducing mutual recognition of other member states’ judicial decisions. As my noble friend said, it standardises the process for making requests by using a template form rather than a letter of request, and it specifies time limits for responding. All the evidence shows that it is already working quite well. A number of requests have been made and processed, and it is proving to be a much more efficient system than the one it replaces. As more member states sign up to the EIO, we believe that it will be an improvement on the previous mutual legal assistance scheme.

I am not sure that I have fully understood the point made by my noble friend, in which case I shall read it again in Hansard. I will drop him a line and hope to give him and the noble Baroness an assurance. As I have just said, the EIO is a mutual legal assistance measure. An individual can give a voluntary statement under an EIO or could be compelled to come to court in the UK in the same way as in domestic proceedings. I hope that that gives my noble friend the answer he was seeking.

[Baroness Ludford]

Perhaps I might invite the Minister to agree that one thing that would help in the situation of both the EIO and the EAW would be if the person concerned had legal advice and representation at both ends of the system. One of the regrets that I referred to in general terms was that the UK has not opted in to the directive on the right to a lawyer. That was a great shame, notwithstanding the controversies about legal aid. When the measure was agreed a few years ago, the gold standard was access to a lawyer. Had we opted in—hope springs eternal and there is still time—that would have motivated other member states to make sure that they came up to the mark, because a person who has legal advice and representation is going to be in a much stronger position to contest any unfair treatment.

It is a great pity that the UK, with its strengths in the rule of law and justice, has not opted in, apart from to the directive on interpretation and translation—which, contrary to the remark made by the Advocate-General for Scotland last week, is a directive, not a regulation. I was the rapporteur on it. Unfortunately, the UK did not choose to take part in the other ones in the so-called Stockholm programme of defence rights, so we have an unbalanced participation. I think that it would give everyone more confidence if the UK had a more balanced participation. I suppose that I am only asking the Minister to accept my remarks.

[Lord Young of Cookham]

I think I will respond to those remarks rather than accept them. The noble Baroness prefaced her remarks by saying “notwithstanding any arguments about legal aid”, but I think that that is probably exactly the issue, in that the proposition she has just put forward would mean extending legal aid into an area where it does not exist at the moment. That takes us into a broader argument about legal aid. Perhaps I might offer to write to the noble Baroness if I have misunderstood her comments.

[Lord Rosser]

I raised one question at the end of my remarks which I do not think the Minister has responded to, and I am quite happy to repeat it. It refers to a statement at the end of the fifth report of the Secondary Legislation Scrutiny Committee. I asked whether, first, the Home Office and, secondly, the Government, accept—and will ensure that they abide by—the committee’s clear statement in its fifth report that,

“although an increased volume of SIs was to be expected from all Government Departments during the Brexit period, that pressure would not be an acceptable excuse for any decrease in the quality of the material presented to the House for scrutiny”.

My question was, first, does the Home Office accept and will ensure that it abides by that and, secondly, do the Government accept and will ensure that they abide by it?

[Lord Young of Cookham]

I have in front of me the response given by the Minister to the committee—it was right at the end—to a question from my noble friend Lord Kirkwood of Kirkhope. He asked:

“Can you give us some assurance as the numbers ramp up that you think the quality will not suffer?”.


Mr Hurd replied:

“I can give you as much reassurance as I can. It needs to be tested. There will be a high volume of secondary legislation, but I am absolutely sincere in saying I hope and believe this instance we had to come and apologise for is exceptional and will not be repeated. It is a basic function of any department to support Ministers in the scrutiny process with Parliament. I cannot guarantee that balls will not get dropped at all because to err is human, but that is what has happened in this case”.


In its fifth report, the committee also made it clear that,

“although an increased volume of SIs was to be expected from all Government Departments during the Brexit period, that pressure would not be an acceptable excuse for any decrease in the quality of the material presented to the House for scrutiny”.

I accept that.

[Lord Rosser]

The Minister accepts it on behalf of the Government as well as on behalf of the Home Office, I take it.

[Lord Young of Cookham]

I accept it in the context that I have just repeated it.

[Lord Rosser]

I am not quite sure what answer I have had. I would have thought it fairly clear that if I asked whether that also represented the Government’s view, as opposed to the Home Office view, the Minister could have said either yes or no. I invite him to say either yes or no. Do the Government intend to accept and abide by the statement that he has just repeated, which appears at the end of the Secondary Legislation Committee’s report?

[Lord Young of Cookham]

At the risk of bringing my ministerial career to a premature end, I can say yes. Of course the Government accept the principle that the committee has made clear: that pressure would not be an acceptable excuse for any decrease in the quality of the material presented to the House for scrutiny. I am happy to put my name to that proposition.

[Lord Rosser]

I thank the Minister for his responses. I am sure that he would not say that he found himself in a difficult situation, since he has had no responsibility for the Home Office’s failures to which we have referred and which were referred to in the committee’s report. I am very grateful to him for making it clear that if there are further failures by the Home Office, the responsibility rests fair and square on the shoulders of Ministers. It is just not good enough to turn up in front of a committee or to make statements that somehow it is due to an administrative failure, which by implication means that they are passing the buck on to officials. Ministers gave assurances; Ministers are responsible for seeing that those assurances are kept and, if they are not, it is only Ministers who are responsible and accountable for that. They should be prepared to accept that responsibility if they have to appear in front of the committee again, and not seek to say words which imply that somebody else within the department at a lower than ministerial level is somehow responsible.

I also thank the noble Lord, Lord Hodgson of Astley Abbots, and the noble Baroness, Lady Ludford, for their contributions to this debate and for the issues they raised, along with the questions they asked and to which the Minister has had to respond. I say in closing only that my motive in tabling this Motion, apart from raising my specific questions, is that we have some duty when we see such a report from the Secondary Legislation Scrutiny Committee to make sure that it is debated. I do not think that the committee is prone to making such critical comments and observations about a department—and, in this instance, its failure—every five minutes. I think it really would have to be pushed to feel moved to write its fourth and fifth reports in the vein that it did. I will leave it at that and thank everyone who has participated. I thank the Minister again for his responses and, since this is a take-note Motion, I take it that this Committee agrees to take note of the Motion.

Motion agreed.

Committee adjourned at 7.29 pm.

House of Lords

Wednesday 6th December 2017 Lords Chamber

Wednesday 6 December 2017

15:00

Prayers—read by the Lord Bishop of Portsmouth.

Brexit: Health Policy

Wednesday 6th December 2017 Lords Chamber

Question

15:07

Asked by

[Baroness Quin]

To ask Her Majesty’s Government what are their priorities concerning health policy in the Brexit negotiations.

[The Parliamentary Under-Secretary of State, Department of Health (Lord O’Shaughnessy) (Con)]

As the UK leaves the European Union, the Government are committed to safeguarding the success of the health and care sectors as well as the UK as a whole. Our priority is to make sure that, whatever the outcome of the negotiations, British citizens will continue to receive world-class healthcare. We are undertaking detailed planning for all scenarios.

[Baroness Quin (Lab)]

Given the concerns expressed by the British Medical Association and others about such issues as recruitment and retention in the NHS, research, mutual recognition of qualifications, the market in pharmaceuticals and medicines and so on, do the Government agree that a full impact assessment of the effect of Brexit on this sector would be a very good idea? Since I understand some progress has been made on mutual rights between British and European Union citizens, will the Minister say whether that means that all British citizens will be able to enjoy entitlement to the European health insurance card in future?

[Lord O’Shaughnessy]

I can reassure the noble Baroness that we are meeting a range of stakeholders. Indeed, I met the BMA, which she specifically mentioned, yesterday to talk about the impact of Brexit on the workforce and other issues. I assure her that we have had extensive discussions with the NHS, doctors’ groups, nurses, industry and so on, so that we understand the consequences of a range of options and so that we make sure that ultimately patients’ health and interests are protected. The noble Baroness asked about mutual benefits. I think she was talking about reciprocal healthcare with the EHIC. We have made good progress so far in the withdrawal discussions. For example, we will continue to cover the healthcare costs of pensioners who are permanently resident abroad, and anyone abroad at the point of exit will be able to use their EHIC. That was all that the first-wave mandate allowed us to do, but as we get to the second phase, we will be able to talk about what the future looks like.

[Lord Spicer (Con)]

Is not the real reason behind these negotiations the protection of democracy, which is best conducted at the nation state level where the Government are directly accountable to the people and the people are accountable for the Government, which is a million miles away from the type of government we have from a bunch of bureaucrats in Brussels?

[Lord O’Shaughnessy]

My noble friend gives a wonderful exposition of the values of democracy, which I wholeheartedly endorse. I should point out that the UK Government are implementing the wishes of the British people, as expressed through the referendum, and that this position was supported by the manifestos of parties that gained 80% of the vote at the most recent general election.

[Baroness Jolly (LD)]

My Lords, EU workers comprise some 5.6% of the healthcare workforce overall, including 10% of our doctors and 7% of our nurses. Most of these workers, who are not trained in the UK, are able to come and work here through the EU mutual recognition of professional qualifications directive. Can the Minister reassure the House that these reciprocal arrangements are afforded to EU and UK health professionals in perpetuity?

[Lord O’Shaughnessy]

The noble Baroness is right about the important role that EU workers play in the NHS, and I pay tribute again to the work that they do. We value them and want them to stay. We are in a position with the stock of EU workers here—and, equally, UK workers in other health systems—to recognise those qualifications. Clearly we will have to agree to continue doing that as part of the future negotiations. It has to be said that some concerns have been expressed by bodies such as the GMC about how that operates. We are working with them to make sure we get that right.

[Lord Foulkes of Cumnock (Lab)]

My Lords, could the Minister remind us what the effect of Brexit has been on the location of the European Medicines Agency?

[Lord O’Shaughnessy]

The European Medicines Agency will be moving to Amsterdam.

[Lord Lansley (Con)]

My Lords, the life sciences sector deal has been published today. From the point of view of the pharmaceutical and medical devices industries, one of the important and immediate objectives of the negotiations is to secure agreement to mutual recognition for things such as batch product testing and release, so that at the very least, through the transitional deal, they will not be required to move elsewhere in Europe for batch product testing and release in March 2019. Could my noble friend reassure the industries that the transition deal will give them that degree of protection for an additional period?

[Lord O’Shaughnessy]

I thank my noble friend for mentioning the sector deal. There are some big announcements in it on investments and creating growth and jobs in the UK, which is a huge endorsement of our leading role as a life sciences hub throughout the world. We have said that we want a continued relationship with EMA. The MHRA, our sovereign regulator, makes a huge contribution, by both approving licences for medicines and issuing safety notices. It is our intention as we move to the next phase of talks that we will have that kind of relationship going forward with the EMA.

[Baroness Thornton (Lab)]

My Lords, to follow on from the point made by the noble Lord, Lord Lansley, there is great anxiety in the medical research and clinical worlds about research, medical trials, the regulatory framework and access to drugs, including new drugs. Can the Minister give the House a categorical guarantee today that UK patient access to crucial drugs will be maintained and that this access will not be restricted in any way when the UK leaves the European Union?

[Lord O’Shaughnessy]

The Secretary of State has set out very clearly that patients should not be disadvantaged as a result of the new arrangements, whatever they may be. Clearly, those new arrangements will be a matter for negotiation, but we will make sure that patients are not disadvantaged and that the industry can continue to get its drugs and devices to the UK market as quickly as it does now.

[Baroness Masham of Ilton (CB)]

My Lords, how many people from Europe who are in the medical field have already left because of insecurity and not knowing what is happening?

[Lord O’Shaughnessy]

I recognise that there is uncertainty. That is why we have set out our intention of offering a route to settled status for those people working here, and why we want the issues of citizens’ rights to be dealt with as soon as possible in the next phase of talks. The noble Baroness and other noble Lords will be interested to know that, if you compare June 2016 to June 2017, there are more EU workers working in the NHS from one year to the next.

[Lord Cunningham of Felling (Lab)]

My Lords—

[Lord Tebbit (Con)]

My Lords—

[The Lord Privy Seal (Baroness Evans of Bowes Park) (Con)]

It is the turn of the Conservative Benches.

[Lord Tebbit]

Does my noble friend understand—I am sure he does—that on both sides of the channel we are all concerned about the rights of British people in the EU and EU citizens here to health service treatment free of charge? Of course, the numbers are different. Would it not make it much more equal if we could agree with our friends in Europe that after Brexit we would issue a similar number of cards entitling people to treatment—Brits and EU citizens? If there was a disparity, whichever side needed more cards could buy them from the appropriate Government.

[Lord O’Shaughnessy]

My noble friend is, as ever, a huge source of ideas and advice, for which I am grateful. This point about reciprocal health care is really important, because our reciprocal healthcare arrangements predate membership of the European Union. They worked in the interests of people in both the UK and the European Union and I have every expectation that they will continue in the future.

Freedom of Speech: Hate Crime

Wednesday 6th December 2017 Lords Chamber

Question

15:16

Asked by

[Lord Vinson]

To ask Her Majesty’s Government, further to the Written Answer by Baroness Vere of Norbiton on 20 November (HL2876), what assessment they have made of the impact on freedom of speech of the definition of hate crime recently adopted by the Crown Prosecution Service to facilitate the reporting of incidents which is wider than the legal definition of such crime under the Crime and Disorder Act 1998 and the Criminal Justice Act 2003.

[Baroness Vere of Norbiton (Con)]

My Lords, the CPS seeks to balance the right to freedom of speech and expression with the duty of the state to act proportionately against those who wish to deepen and extend divisions in the social fabric of our nation. The public statements and the guidance are clear. The CPS recognises the potential impact of overzealous prosecutions on rights under Article 10 of the European Convention on Human Rights. Currently, we feel that the balance is correct.

[Lord Vinson (Con)]

I thank the Minister for her understandably somewhat evasive reply; I hope she is really concerned at the continuous attrition of freedom of speech. She will be aware that the Crown Prosecution Service, by widening unilaterally the definition of racially aggravated crime, has made a bad situation worse. People are afraid to speak their mind, and even a remark can be a criminal offence. Does she agree that freedom of expression must come before bruised feelings? Will she please instruct the CPS to re-examine its instructions and thus protect our ancient liberties?

[Baroness Vere of Norbiton]

I thank my noble friend for his series of questions. The CPS legal guidance and public statements on all strands of hate crimes were revised and published in August 2017. However, the flagging definition of hate crime was not changed—indeed, it has been the same since 2007. Both the police and the CPS use this definition to flag potential hate crime. He also mentioned the attrition of freedom of speech. I am afraid once again to disappoint my noble friend, but I am not sure I can agree with him. I am an avid user of Twitter and think we could all agree that there is freedom of speech on a daily basis, and perhaps increased vociferousness, which I think is a good thing.

[Lord Morris of Aberavon (Lab)]

My Lords, will the Government and the prosecuting authorities always remember that freedom of speech is one of our hard-fought-for liberties? Regrettably—and for very good reasons—inroads have had to be made, but there can be unintended consequences if one does not tread extremely carefully. When I was Attorney-General it was my statutory personal responsibility to authorise some prosecutions. One was of an old lady in her 80s who repeatedly published vile anti-Semitic literature and was repeatedly jailed for disobeying the court, and got immense publicity from so doing. When I eventually decided not to prosecute, no more was heard of her.

[Baroness Vere of Norbiton]

I think almost all noble Lords would agree that freedom of speech is a fundamental right. I think the noble and learned Lord was referring there to the offence of stirring up hatred from his time as Attorney-General, and indeed it does need the Attorney-General’s permission to prosecute those offences. In the last year there have just been four such prosecutions, all of which were successful.

[Lord Marks of Henley-on-Thames (LD)]

The Question from the noble Lord, Lord Vinson, makes the distinction between the perception of the victim and the hostile motivation of the accused, which has to be proved in court. I suggest that that is a very arid distinction in the context of decisions to investigate and prosecute. Does the Minister agree that the CPS can realistically base its definition of hate crime only on the perception of victims? Will she reaffirm the emphasis in her earlier Written Answer on the importance of the CPS retaining the confidence of the minority communities that are targeted by hate crime?

[Baroness Vere of Norbiton]

I think all noble Lords know the background to where we are today. Twenty years ago this country had a very poor record of dealing with hate crime, and confidence in the criminal justice system among BAME communities was extremely low. We have come a long way. It is important to remember that the definition is used for flagging crimes; when it comes to charging those crimes, they still have to be done within the same legal framework as always.

[Lord Mackay of Clashfern (Con)]

I do not think my noble friend has any authority to instruct the Director of Public Prosecutions in any way. However, she could write to ask the DPP whether she agrees with the statement in the Question that the definition is broader than what is in the statute and, only if so, to explain the authority on which that has been issued.

[Baroness Vere of Norbiton]

My Lords, I will happily write to the director to ask those questions. I believe the response will be that it is broader but it is not used for charging; it is used purely for flagging those cases that may be a hate crime. That definition is a very important one.

[Lord Pearson of Rannoch (UKIP)]

My Lords, will the Government confirm that the latest definition from the CPS of a hate crime is one which is perceived by the victim or any other person to be motivated by prejudice based on a person’s religion? Will the Government therefore confirm unequivocally that a Christian who says that Jesus is the only Son of the one true God cannot be arrested for hate crime or any other offence, however much it may offend a Muslim or anyone of any other religion?

[Baroness Vere of Norbiton]

My Lords, I am not going to comment on that last question from the noble Lord. However, I will say that when the public statements were revised, the definition did not change; it has been the same for the last 10 years. The noble Lord will also be interested to know that that was as a result of a public consultation that went on for 13 weeks. There were 126 responses, and overall they were positive and welcomed the revised public statements.

Private Rented Sector: Electrical Safety Checks

Wednesday 6th December 2017 Lords Chamber

Question

15:23

Asked by

[Baroness Kennedy of Cradley]

To ask Her Majesty’s Government whether they intend to introduce mandatory electrical safety checks in the private rented sector.

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, the Landlord and Tenant Act 1985 requires landlords to keep electrical installations in repair and proper working order. Local authorities have powers to ensure that properties are free of potentially dangerous hazards. The Housing and Planning Act 2016 includes the power for electrical safety standards in the private rented sector to be set in secondary legislation. An independent working group has recommended mandating five-yearly electrical installation checks. We welcome its report and will consult on its recommendations in the new year. However, following the Grenfell tragedy, we must take account of the conclusions of the Hackitt review of building regulations and fire safety, which are expected in spring next year.

[Baroness Kennedy of Cradley (Lab)]

I thank the Minister for that reply, which sums up exactly what the problem is. Electrical safety checks are mandatory every five years in Scotland and are due to be brought in in Wales. In England, the enabling power that the Minister mentions, which was passed in May 2016, has not been enacted despite the working group that he mentions recommending that it should be. The further consultation that he mentioned, which is a consultation on the consultation that has already happened, has to take account of the independent review of Grenfell, a report that will not be published until spring 2018, two years after the enabling power was passed. This is unnecessary, and private renters in England will rightly see it as the Government dragging their feet. Does the Minister think there is a particular problem in England that warrants such a delay to this common-sense proposal?

[Lord Bourne of Aberystwyth]

My Lords, the noble Baroness is wrong on a couple of things. First, we are not waiting for the Grenfell review, which is a quite separate inquiry; we are waiting for the Hackitt review and are about to receive the interim report before Christmas. That is the first point to make. That does not stop progress being made, and we are looking at this in the department. I am sure that the noble Baroness and others agree that it would not be sensible to have immediate action on these recommendations without taking account of the important work being done by Dame Judith Hackitt, who is well qualified in this field, and seeing what her recommendations are.

[Lord Tope (LD)]

My Lords, to clarify, has the Minister just said that the Government are waiting for the interim report of the Hackitt review or the final conclusions? That would make a significant difference, I hope, to the Government’s decision. Given that there is further delay, for good or bad reasons, are they also considering introducing mandatory electrical safety checks in the social rented sector, especially given the sad events at Grenfell Tower?

[Lord Bourne of Aberystwyth]

My Lords, perhaps I may deal with the latter point first. The enabling legislation, the Housing and Planning Act, does not enable us to do anything in relation to the social rented sector—only the private rented sector. The noble Lord will be aware that we are coming up with a Green Paper on social rented sector housing shortly, and that will be the opportunity to look at that particular question. The action that we are proposing will await the final report of the Hackitt review, which is due in the spring. However, given that there is an interim report, work will be able to start on the basis of it. Indeed, we have been looking at and welcome the recommendations. It is not that we are doing nothing; it is just that it would be sensible, in the light of this important review, to wait to see what Hackitt recommends, rather than do this in a piecemeal way with one piece of legislation and then have to take further action three or four months later.

[Lord Palmer (CB)]

My Lords, I completely and utterly fail to understand why, given that checks have been a legal requirement in Scotland for many years, they have not been implemented much sooner in England. I declare an interest as a resident of Scotland and having one or two rented properties.

[Lord Bourne of Aberystwyth]

My Lords, I am grateful to the noble Lord for putting that on the record. This is the very nature of devolution. It should not amaze noble Lords in this House that Scotland and Wales on occasion do things differently in devolved areas. That does not mean that we do not talk and learn lessons. In the DCLG in particular, we have a devolution forum that meets regularly to discuss these issues so that we can learn from each other.

[Lord Cunningham of Felling (Lab)]

My Lords, I cannot speak for Scotland or Wales, but does the Minister recognise that in England, particularly in university towns and cities, all sorts of properties are in multiple occupation and local authorities—including, I might say, Labour authorities—take no account of what is going on, with blocked flues, gas fires with no exhausts and electrical failures? As we know from the record, many students have died as a consequence of this totally unacceptable situation. What are the Government going to do to address it?

[Lord Bourne of Aberystwyth]

My Lords, the noble Lord speaks with some justification about issues primarily of enforcement. Local authorities have powers available to them that they should be exercising. I am not sure whether he was intending to bring in the carbon monoxide situation where, in fact, mortality is very low and there are provisions in relation to enforcement of the regulations on solid fuel. That does not exist at the moment in relation to gas, but a working party is looking at this matter. There is a consultation on it, which started on 7 November.

[Lord Campbell-Savours (Lab)]

My Lords, why not make this mandatory on a change of tenancy, as against in guidance, when often landlords are not competent persons as defined in the regulations?

[Lord Bourne of Aberystwyth]

My Lords, I am not sure whether the noble Lord is talking about the installation or checking of appliances. Again, this is something on which the Hackitt review will no doubt opine, and we will take account of that when we see the interim and final reports. It is not that we are not intending to do anything; we intend to do something in the round, rather than in a piecemeal fashion, to ensure that the measures are sensible.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, first I should say what an excellent Question from my noble friend.

I refer the House to my entry in the register of interests. The Minister himself announced from the Dispatch Box on 29 March that the Government were going to introduce this measure in the private rented sector. Undoubtedly, it will save lives. Does he accept the deep frustration by campaigners such as Electrical Safety First at it not moving forward quickly? When we get the report in the spring, it will be two years from when the power was taken. Are any groups or organisations that are opposed to it putting pressure on the Government?

[Lord Bourne of Aberystwyth]

My Lords, first I congratulate the noble Lord on ensuring that this Question was book-ended by the Kennedy family—one at the beginning and one at the end.

I accept that action will be necessary. I think every fair-minded person would see the sense of waiting for the Hackitt review before taking definitive action, but of course action is needed. We welcome the report. We have said that we want to look at the issue in the round in the light of what Dame Judith Hackitt, whom I think everyone welcomed for the review of building regulations and fire safety, says in her full report. It is not that we are not doing anything; we are waiting to see, and I think that most fair-minded people would welcome that.

Video Games: Domestic Violence and Child Abuse

Wednesday 6th December 2017 Lords Chamber

Question

15:30

Asked by

[Lord Storey]

To ask Her Majesty’s Government what action they are taking to restrict the sale of video games featuring domestic violence and child abuse.

[The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Lord Ashton of Hyde) (Con)]

My Lords, under the Video Recordings Act, games on physical media are referred to the Video Standards Council for classification if they contain content unsuitable for children. Anyone supplying a game rated 12, 16 or 18 under the Pan-European Game Information age-rating system to someone below the appropriate age risks a fine or jail sentence. The Video Standards Council can refuse to certify a game containing material that is illegal or that it considers would cause harm to players.

[Lord Storey (LD)]

I thank the Minister for his reply. I am sure that he would agree with Andy Burrows from the NSPCC, who said:

“Any video game that trivialises or normalises child abuse, neglect or domestic violence for entertainment is unacceptable”.


The Video Standards Council, which took over from the British Board of Film Classification, is more like a trade organisation than a regulatory body and uses a very light-touch approach to classifying video games, which does not meet the concerns of parents. In fact, none has been made unavailable or removed from the shelves. Will he consider strengthening how we deal with young people—children—and video games?

[Lord Ashton of Hyde]

The noble Lord is absolutely correct to say that, at the moment, the council has not effectively banned any video game, but its members are the professionals, set up to do the job under the Act. They were the people who Parliament decided were correct to do this and have access to expert advice, including psychologists and legal advice. The video games industry knows that the council can effectively ban a video game if it is unsuitable. However, I take the point that these things need looking at occasionally, and part of the internet safety strategy deals directly with video games. We are asking questions about that to see whether anything further needs to be done.

[Lord Laming (CB)]

Does the Minister agree that we should never allow anything to give the impression that either domestic violence or the abuse of children is normal or acceptable behaviour? This issue needs to be taken very seriously indeed.

[Lord Ashton of Hyde]

I do agree, as any sensible and rational person would. That is why we are looking at child safety in the round, particularly online, which is the new area, and will consider further things that need to be done.

[Baroness Howe of Idlicote (CB)]

My Lords, does the Minister agree that because of amendments introduced in your Lordships’ House to the Digital Economy Bill in March, it will now be perfectly possible for adults using the internet to access very realistic animated computer-generated images of child sex abuse and pornographic violence against women? Does he further agree that it was a terrible mistake to introduce this different enforcement standard online from that which applies offline, and will he undertake to introduce urgent legislation to address this error?

[Lord Ashton of Hyde]

I took the Digital Economy Bill through this House so I cannot agree with the first part of the noble Baroness’s question. These things that are beyond the pale in many ways were available on the internet before and have nothing to do with what is now the Digital Economy Act. We are looking at ways to make this country the best place to be safe online and we will continue to do that.

[Lord Cormack (Con)]

My Lords, why is there any equivocation here? Cannot my noble friend accept that the logical consequence of what every noble Lord has said this afternoon—and what he himself has said—is that these things should be banned, full stop?

[Lord Ashton of Hyde]

That is why we set up an independent body. That is better than giving me or any other Minister the power of censorship over these things.

[Baroness Smith of Basildon (Lab)]

My Lords, I think the noble Lord is really missing the point here. He says there is an independent body set up to do this, but the fact is that it is not doing it. It is all very well having a body to do it, and having rules, regulations and legislation, but if they are not acted upon there is a serious problem. He has said several times that it needs looking at and that something needs to be done. May I press him to take this away and, on the specific issue of violence in video games, to come back to this House with a report of what can be done, and how the Government can take some responsibility for this and not leave it to an independent body that is clearly not doing its job?

[Lord Ashton of Hyde]

I do not agree with the noble Baroness and I see no evidence that this body is not doing its job. It classified the age for 146 out of 498 video games in 2016 as 18, meaning that only adults should be allowed to watch them and that it is a criminal offence to allow other people below that age to do so.

[Lord Paddick (LD)]

My Lords, does the Minister not agree that any depiction of child abuse is likely to normalise that behaviour, not just in the minds of children who are less likely to report it, but also in those of potential perpetrators? Does he not agree that if no video game has ever been banned, something really needs to be done about this so-called independent body that is supposed to be taking action?

[Lord Ashton of Hyde]

I agree that showing child abuse in a video game is likely to normalise it and I accept there is a difference between, for example, showing it in a play or a film, which does happen. But, set in the context, it might give the right message, depending on what the results are. The difference is that an adult of a particularly perverted nature can access a video game and choose to go down that path, so I do agree. However, I do not agree with the argument—I see no evidence—that because no game has been banned, the Video Standards Council is not doing a proper job. Its members are the experts—they have help from psychologists and they rate these video games according to that advice.

Scotland Act 1998 (Insolvency Functions) Order 2017

Wednesday 6th December 2017 Lords Chamber

Scotland Act 1998 (Specification of Devolved Tax) (Wild Fisheries) Order 2017

Motions to Approve

15:38

Moved by

[Viscount Younger of Leckie]

That the draft Orders laid before the House on 14 September be approved.

Considered in Grand Committee on 29 November

Motions agreed.

Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No. 2) Regulations 2017

Wednesday 6th December 2017 Lords Chamber

Motion to Approve

15:38

Moved by

[Baroness Buscombe]

That the draft Regulations laid before the House on 10 July be approved.

Considered in Grand Committee on 29 November

Motion agreed.

Telecommunications Infrastructure (Relief from Non-Domestic Rates) Bill

3rd reading (Hansard): House of Lords
Wednesday 6th December 2017 Lords Chamber

Third Reading

15:39

Clause 1: Relief from local non-domestic rates: occupied hereditaments

Amendment 1

Moved by

[Lord Bourne of Aberystwyth]

1: Clause 1, page 1, line 14, after “energy,” insert—
“(aa) the day concerned falls before 1 April 2022,”

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, this amendment will place in the Bill the five-year duration for the rate relief scheme for new fibre. The scheme will apply retrospectively from 1 April 2017 to 31 March 2022. The need to have the five years on the face of the Bill was discussed at Report. I am most grateful to the noble Lord, Lord Kennedy, for raising this matter and agreeing to withdraw his amendment at that stage so that we could bring forward these changes.

The amendments will also allow for the period of the rate relief scheme to be extended by regulation using the affirmative resolution procedure. This will ensure that, if the Chancellor wants to repeat or extend the rate relief scheme, that can happen quickly without the need for another Bill but still with the approval of Parliament. I trust that noble Lords will agree that the amendment meets the commitment I gave on Report. I beg to move.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I am very grateful to the noble Lord, Lord Bourne of Aberystwyth. I draw the House’s attention to my interests as a local councillor in Lewisham and vice-president of the Local Government Association. As he said, we had a very fruitful meeting after I tabled my amendment at Report. I was very happy to withdraw that, and I am very pleased with what the Minister has brought back today. As he says, it has enabled the Government to put the dates in the Bill. If they want at some future point to extend the scheme, they can, without the need for primary legislation. It is a very sensible move.

[Baroness Pinnock (LD)]

My Lords, I draw the House’s attention to my register of interests as a councillor in Kirklees and as another vice-president of the Local Government Association. As we discussed on Report, we agree with and support the amendments proposed by the noble Lord, Lord Bourne, and initiated by the noble Lord, Lord Kennedy. We thank the Minister for his very helpful meetings on the Bill. I have certainly explored a number of issues, although I have not got very far, and I do not intend to let them go. There is a growing need to think about the accessibility and affordability of broadband and mobile networks for people less well off than the majority, when they are going to rely on them for access to public services and other important aspects of their lives. That issue will not go away, and I hope Ministers will take that point away and think about it.

As for the amendments, we will obviously support them.

[Lord Bourne of Aberystwyth]

My Lords, I shall respond to the typically generous comments from the noble Lord, Lord Kennedy, and the noble Baroness, Lady Pinnock, regarding the Bill in general. I also want to put on record a couple of other issues. First, I undertook that we would look at gaming, and after discussing the issue with Ofcom and Gamma Telecom—I have shared this with the opposition parties—they have concluded that there is no risk of gaming in relation to fibre, but we shall keep a watching brief on that issue. I also take note of what the noble Baroness said about rural issues and deprived and isolated areas that are difficult to get to. Again, we would want to take account of and pay special attention to that.

At Second Reading we benefited from hearing about the concerns about business rates of the noble Earl, Lord Erroll, and my noble friend Lady Harding. I am very grateful to the noble Lord, Lord Kennedy, and the noble Baroness, Lady Pinnock, for their constructive approach to the Bill. I am also grateful to my noble friend and co-pilot Lord Ashton for the support and expert knowledge he has provided throughout the Bill’s passage. I also extend thanks to the Bill team: Jonathan Denning, Nick Cooper, Pete McDougall, Stewart Kemsley, Thomas Adams and the ever-smiling Homaira Abdullah.

This Bill will help to close the digital divide and to get higher-quality, more reliable connectivity to households and businesses across the country, benefiting every sector of the economy. I beg to move.

Amendment 1 agreed.

Amendments 2 to 4

Moved by

[Lord Bourne of Aberystwyth]

2: Clause 1, page 1, line 16, leave out “that day” and insert “the day concerned”

3: Clause 1, page 1, line 16, at end insert—
“(4FA) The appropriate national authority may by regulations amend paragraph (aa) of subsection (4F) above so as to substitute a later date for the date for the time being specified in that paragraph.”

4: Clause 1, page 1, line 17, leave out “subsection (4F)” and insert “subsections (4F) and (4FA)”

Amendments 2 to 4 agreed.

Clause 2: Relief from local non-domestic rates: unoccupied hereditaments

Amendments 5 to 8

Moved by

[Lord Bourne of Aberystwyth]

5: Clause 2, page 3, line 6, after “energy,” insert—
“(aa) the chargeable day falls before 1 April 2022,”

6: Clause 2, page 3, line 8, leave out “that” and insert “the chargeable”

7: Clause 2, page 3, line 21, at end insert—
“(4EA) The appropriate national authority may by regulations amend paragraph (aa) of subsection (4C) so as to substitute a later date for the date for the time being specified in that paragraph.”

8: Clause 2, page 3, line 22, leave out “(4E)” and insert “(4EA)”

Amendments 5 to 8 agreed.

Clause 3: Relief from central non-domestic rates

Amendments 9 to 12

Moved by

[Lord Bourne of Aberystwyth]

9: Clause 3, page 3, line 38, after “list,” insert—
“(ba) the chargeable day falls before 1 April 2022,”

10: Clause 3, page 3, line 40, leave out “that” and insert “the chargeable”

11: Clause 3, page 4, line 17, leave out “this section” and insert “subsection (3)”

12: Clause 3, page 4, line 22, at end insert—
“(4A) The appropriate national authority may by regulations amend paragraph (ba) of subsection (1) so as to substitute a later date for the date for the time being specified in that paragraph.”

Amendments 9 to 12 agreed.

Schedule: Consequential amendments

Amendment 13

Moved by

[Lord Bourne of Aberystwyth]

13: The Schedule, page 6, line 25, at end insert—
“6A_ In section 143 (orders and regulations)—(a) in subsection (3), for “(3A)” substitute “(3ZA)”;(b) after subsection (3) insert—“(3ZA) The power to make regulations under section 43(4FA), 45(4EA) or 54ZA(4A) is exercisable by statutory instrument, and a statutory instrument containing any such regulations (whether alone or with other provision) may not be made—(a) in the case of regulations relating to England, unless a draft of the instrument has been laid before and approved by resolution of each House of Parliament;(b) in the case of regulations relating to Wales, unless a draft of the instrument has been laid before and approved by resolution of the National Assembly for Wales.””

Amendment 13 agreed.

Motion

Moved by

[Lord Bourne of Aberystwyth]

That the Bill do now pass.

[Lord Kennedy of Southwark]

My Lords, briefly, I want again to thank the noble Lord for handling this Bill in his usual courteous manner. It has broad support across the House and I have been very happy to work with the noble Lord and his colleagues on it. I also thank his Bill team—all the names that he mentioned. I have met a number of his officials and they have been helpful and courteous at all times.

Bill passed and returned to the Commons with amendments.

Sanctions and Anti-Money Laundering Bill [HL]

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 6th December 2017 Lords Chamber

Committee (3rd Day)

15:47

Clause 41: Money laundering and terrorist financing etc

Amendment 68ZA

Moved by

[Lord Davidson of Glen Clova]

68ZA: Clause 41, page 28, line 34, at beginning insert “improving”

[Lord Davidson of Glen Clova (Lab)]

My Lords, I beg to move Amendment 68ZA and will refer to the other amendments standing in my name. The rationale for this amendment springs from the considerable and widespread concern that there is insufficient democratic oversight of the future anti-money laundering and counterterrorist financing regime, which together with broad delegated powers will permit any future Government to both bypass Parliament and weaken the UK’s anti-money laundering and terrorist financing regime. Accordingly, the amendment seeks to impose an expressly ameliorative obligation on ministerially created regulation in detecting, investigating or preventing money laundering or terrorist financing, or indeed implementing the standards of the Financial Action Task Force.

When the current Foreign Secretary talks of a low-tax, low-regulation dream of a post-Brexit UK, it will be appreciated that he creates concern over whether this includes deregulating our current anti-money laundering and terrorist financing regime in due course. Given the importance hitherto of the UK’s AML and terrorist financing regime marching in lockstep with the EU, the low-regulation rhetoric has a destabilising impact on the perceptions of our European partners. A low-regulation AML and terrorist financing regime in the UK would of course create a new and substantial weakness in the global battle against economic crime, and would be an allurement to organised crime.

The role of the City as the pre-eminent global financial centre places certain responsibilities on the Government, including the maintenance of a strong and up-to-date AML and terrorist financing regime. It would be interesting to hear from the Minister what consideration the Government have given to the adverse effect on access to EU financial markets if UK financial services were subject to an AML and terrorist financing regime diverging materially from the EU regime. Obviously, there will not be an impact assessment of this, but some indication might be helpful.

Be that as it may, the amendment would improve confidence that the UK will not succumb to any temptation to weaken its current regime, and go for a low-regulation regime, in the event that the UK leaves the EU. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak to the amendments tabled in my name and in that of my noble friend Lady Kramer. First let me take a brief moment to set the context. At Second Reading the Minister, the noble Lord, Lord Ahmad, said that this Bill was,

“about powers and not policy—it is a technical Bill”—[Official Report, 1/11/17; col. 1374].

Later, when replying to the debate, stimulated by comments by my noble friend Lord McNally, he amended his comment that the Bill was technical and said that it was about principles.

I do not agree. I would say that the problem with the Bill is that there are no principles, because they have not been carried over; there are only unconstrained powers. That is even more the case in the money-laundering part of the Bill. The principles, the starting points, are not defined. In fact, current law is undermined—and, as has already been well expounded on previous days in Committee, the good intentions of the current Minister and the Opposition Front Bench are no safeguard for the future.

There is also the widening effect when EU legislation is no longer governed by the policy constraints of EU treaties or the Charter of Fundamental Rights, which has a particular place in relation to the subject matter of the Bill. In transposition, all that has gone. This leaves us with two fears to address: first, that good law might be wantonly minimised or revoked, and, secondly, that wide powers might be used oppressively or for the wrong purpose. Both those prospects take advantage of the inadequacy of statutory instruments as a way to deal with fundamental matters.

Amendment 68A, which would replace Clause 41, Amendment 69E, which is about standards and designations, Amendment 72A, which would delete Clause 44(3), and Amendment 69A, which deals with exemptions from amendment and revocation, together address the fears that I have outlined. Before getting into the detail I will explain how they fit together. Of course, at this stage they are probing and illustrative, and I know that they are not perfect.

Amendment 68A would delete Clause 41 and replace it with an anchored principle that the money laundering regulations 2017 will continue, and that if they are to be amended, it must be done by an Act of Parliament. Amendment 69E, which could have been rolled up into the same amendment but stands separately, would provide an exception to the requirement for an Act of Parliament for amendment, and would allow for regulations to follow Financial Action Task Force standards and to update the definition of high-risk countries.

I think that there is general agreement that that is needed, but within that context—my Amendment 69E is not perfect in this respect—I have to caution that following FATF standards does not necessarily take into account civil liberties, so a framework of policy is also needed for that. Clause 41 does not give any guarantees of any such framework being carried over, and that aspect needs more attention. So the two amendments that I have outlined lay the general shape as I see that it should be. There are, however, many ways in which the provisions of the Bill, and elsewhere, can render complete change or revocation to whatever shape is laid out.

Amendment 72A to Clause 44(3) would remove the prospect of shape shifting from within the Bill. It would remove the potential to change, by regulation, the definitions of terrorist financing that were themselves made in separate Acts of Parliament that did not envisage change by regulation.

Amendment 69A is there to remind us that shape shifting and revocation options exist externally of this Bill via the European Union (Withdrawal) Bill and the Legislative and Regulatory Reform Act 2006, which can, by regulation, revoke all or part of any Act or regulation in the name of efficiency. Of course, there is no escaping the fact that procedures to combat money laundering and terrorist financing must impose burdens, which to some means inefficiency. The noble and learned Lord, Lord Davidson, has already hinted at some of that. Amendment 69A would, therefore, exempt from revocation or amendment under the two Acts that I have just mentioned.

As regards the deletion of Clause 41, I, too, have had emails from NGOs and others raising concern about the lowering of standards, including one from Global Witness suggesting that Clause 41 be narrowed to permit only enhancement of legislation. I appreciate that is what the amendment moved by the noble and learned Lord, Lord Davidson, sets out to do, and I borrowed some of the language from that to use in one of my amendments. However, the problem is that it is not only in Clause 41(1) that legislation can be done away with by regulation. It appears again, particularly in Schedule 2, where, under paragraph 20, there is carte blanche to change or revoke the money laundering regulations 2017, and one can only interpret that as some kind of intention so to do. I have already mentioned the withdrawal Bill—Clauses 7 and 17 of that Bill are prime suspects—and the “revoke anything” provision in the Legislative and Regulatory Reform Act. So we need to do more to protect against revocation of things that we do not want to see revoked.

On the other fear, of being overbearing, there is the prospect that the already wide definitions of money laundering or terrorist financing could be extended. This is where Clause 44(3) comes in, which uses Clause 1 to modify definitions of terrorist financing that appear in the four other pieces of legislation mentioned in Clause 41(3). Thus Clause 1, which we have already heard quite a lot about as regards the sanctions part of this Bill, now creeps into the anti-money laundering part. It is also worth reminding ourselves that the Delegated Powers and Regulatory Reform Committee has already said in paragraph 37 of its report that each of prevention, detection and investigation have the potential to allow the grant of significant powers affecting the rights of individuals and bodies—and that is before any tinkering with the definition of terrorist financing and before considering the removal of European protections on civil liberties.

Of course, under Clause 1, one of the objectives for change includes furthering a foreign policy objective of the United Kingdom. I pointed out on the first day of debate how UK terrorist legislation was used to freeze the assets of Landsbanki for having reckless capital adequacy and interest rate policies. This was what got them into difficulty—things that were nothing to do with terrorism. Is that the kind of thing that in future might be a foreign policy objective? In that particular instance, I know that it was cooked up in the Treasury. But what guarantees are there against all kinds of disconnected foreign policy objectives? All that flows from Clause 1 becomes relevant in the money-laundering part of the Bill.

16:00

The four pieces of legislation in Clause 41(3) that can be amended by regulation by virtue of Clause 44(3) are: the Terrorism Act 2000; the Anti-terrorism, Crime and Security Act 2001—I think that that is of Landsbanki fame; the Terrorist Asset-Freezing etc. Act 2010 and the ISIL and al-Qaeda regulation that originated from the UN and then an EU regulation. Those primary Acts, which collectively define terrorist financing, do not—or at least did not—of themselves seem to provide for amendment by regulation. This Bill is a serious extension to allow perpetual regulatory change to Acts that, when conceived and passed, had no such provision.

Alas, I do not discount the possibility that some other Act, somewhere else, may already have snuck through and established regulatory contamination. Will the Minister advise on whether this change by regulation is new for the Acts I have mentioned and whether the collective effect of Clauses 41(3) and 44(3) is a definitive policy choice intentionally to give new, wide, permanent power to amend sensitive Acts by regulation? For my own part I can see no Brexit reason—or speed reason—why that needs to be done for what seems to be a shaming assault on the exemplary standards of British legislation that my heart hoped existed and that was frequently boasted about to me and everybody else in Brussels.

As I said at the start, everything is worse in the money laundering part. That is because it does not have provisions requiring, for example, ministerial guidance, which appears in Clause 36 with regard to Clause 1 for the sanctions part of the Bill. It is not clear whether any of that extends to any of Clause 41, but maybe the Minister can explain whether there is a piece of Ariadne’s thread extending around that part of the labyrinth and whether it stretches as far as the imperious Clause 41(1), and what those guidelines might contain in the context of money laundering. It is no good praying in aid the fact that guidance is mentioned in the money laundering regulations 2017, because Schedule 2 positively flags that they can all be changed so the Minotaur can eat them.

Clause 41, and what links to it, fails both the fear tests that I outlined at the start. It gives extensive and unjustified powers. Clause 41(1) allows the creation of a whole new generic framework, all by itself, through regulation without policy, guidance or safeguards other than already wide definitions that are themselves changeable by regulation by interaction with other parts of the Bill. Clause 41(2) enables a whole swathe of powers that, via Schedule 2, potentially dispenses with the entire policy framework of the money laundering regulations 2017 and replaces it with something else, again without requiring any guidance or safeguards. I will return to that separately in the context of Schedule 2 not standing part of the Bill.

Clause 41(3), in cahoots with Clauses 44(3) and 1, newly allows meddling in other sensitive primary legislation via regulation, or it could be all wiped away by other provisions in and outside of the Bill. The solution is to fix what we have on the face of the Bill, and that needs not 100 clauses but just one saying that the money laundering regulations cannot be fundamentally changed or done away with without an Act of Parliament, other than for limited regulatory power to upgrade in line with international procedures—and I would add to protect civil liberties. If something so serious came along that changing our existing wide definitions of money laundering or terrorist financing was necessary, it would need to be something quite unexpected and would belong, as it has in the past, in primary legislation, not in this viper’s nest of tortuous entanglements that yields unfettered powers.

As with sanctions, legislation of this type can create collateral damage to innocent people and requires the utmost care. Due to its all-or-nothing nature, regulation is not adapted to do that. Nor does the Bill, or Clause 41, provide the stable policy environment post Brexit that was promised. What the Government have provided, with sweet words about no policy change, is a wolf in sheep’s clothing, even if the Government did not intend to be a wolf.

[Baroness Kramer (LD)]

My Lords, I support the thought process behind the amendment of the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins, and I also support my noble friend Lady Bowles. I do not think that I can better the explanation that she has given but perhaps I can reinforce a few of the key points.

Clause 41 has a huge impact on the balance of power between this Parliament and the Executive. Historically, the laws that have governed not the crime of anti-money laundering but the anti-money laundering regulations that provide the network with which to prevent money laundering have gone through an intensive democratic process within the European Union. They have gone through consultation, scrutiny, debate and votes within the European Parliament, and through discussion and presumably votes within the Council. The consequence has been a directive from which flows implementation within the UK through regulation, but only in the context of the very extensive democratic scrutinising and challenging process that has taken place beforehand.

In this transposition, that entire democratic process is destroyed in Clause 41—it disappears entirely. The process that has taken place in the European Parliament and the European Council and its various committees, as well as in the consultation and everything that surrounds it, disappears to be replaced purely by statutory instruments. That is a fundamental shift in the balance of power between a democratic body and an Executive body. I thought that the whole purpose of Brexit was to take the powers that lay with the European Parliament and the Council and to transfer them to this place, not to transfer them wholly to the Executive so that they could use that very narrow strategy of regulation. As my noble friend pointed out, this goes deep and wide. There are no frameworks and no constraints within the Bill that limit the range of powers that it essentially conveys and confers upon the Executive.

The Delegated Powers and Regulatory Reform Committee obviously responded with great vehemence to all this. It concluded:

“We take the view that the FCO”—


the committee saw it as a Foreign Office Bill but I think we may get a response from the Treasury—

“has not provided sufficient justification for the delegation of powers by clause 41, particularly having regard to their wide scope and the significance of the powers conferred. Accordingly we consider the delegation of powers by clause 41 to be inappropriate”.

When we have talked—the Minister has been kind enough to agree to meetings with him and his officials—the argument that has been placed before us is that this enables us to act with speed because speed is essential in the anti-money laundering arena. I think we can all agree that speed and the processes of the European Parliament and Council are not tangled together. If the European Parliament and Council feel it is appropriate to take the time and focus to develop the policy framework then surely there is no urgency for the United Kingdom to throw it away simply to be able to move directly to regulation.

As my noble friend said, it is quite possible within the amendments she has drafted to carve out the small arena in which speed might be relevant. It is limited. It is rare. It might happen and it can be carved out without requiring the rest of the framework to be dismissed and abandoned for a purely regulatory process.

When we had those meetings, my understanding was that one of the reasons for drafting Clause 41 in this way was to allow the consequences of the fifth money laundering directive—which is currently in process in the European Parliament and Commission; I think it is in trialogue at the moment—to be implemented in the UK. That process has taken a sufficiently long time that it seems perfectly possible for it to go through a process within this Parliament with its democratic background. We will probably have those regulations in place before Brexit—perhaps with the possibility of a spillover. I believe that, for those specific regulations, that is something that could very quickly be accommodated. What is fascinating, though, is that if that were the Government’s purpose, there would have been a very tight sunset clause for this—perhaps one of days or a few weeks—but there is no sunset clause. This process of acting through regulation and not through democratic process would be in perpetuity.

I want to pick up the comments from the noble and learned Lord, Lord Davidson. When I speak with these Ministers and with the Opposition today, I understand that they have a personal commitment, and I believe the Government have a commitment, to strong but proportionate anti-money laundering processes. It is because of that personal commitment to proportionality and good regulation that they have felt it completely unnecessary to enshrine those two factors in the Bill. I like very much the phrase that the noble and learned Lord, Lord Davidson, used. When I say we are talking to sheep, I mean it only in the benign sense of sheep—I think sheep are lovely; I do not mean it in a passive way. However, the framework of a Bill designed around those who have benign intentions will provide equal power for those who do not have benign intentions. I think every one of us in this House has often had conversations with people—particularly in the City of London, where I spend a certain amount of my time—who believe that it is absolutely necessary to go back to light-touch regulation and that we are overly fussed about issues such as money laundering and really do not understand the dynamics of modern business; and that it might be necessary for our future, post Brexit, to move to something that is much looser to ensure that London remains attractive. I attribute none of that to the Ministers who are sitting here. But they must recognise that they have permitted the inaction of just such an approach through regulation alone by the language they have put in the Bill. I have no idea if Clause 41 and the related clauses have been drafted in this way simply because there was very little time and, frankly, very little effort put into them, or whether there was a fundamental attempt to achieve a transfer of power. If it was the latter, it is crucial that Ministers tell us why this particular structure has been chosen.

16:15

[The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)]

My Lords, I thank noble Lords for introducing their respective amendments. I recognise, as I did at Second Reading, that there has been a good deal of interest in the anti-money laundering provisions of the Bill. In that regard, noble Lords may have noticed—and I am delighted—that I have been joined by my noble friend Lord Bates beside me on the Government Front Bench. I shall defer to him for some of the groups that we will discuss today.

Importantly, I hope this emphasises three things to the Committee: first; the Government’s cross-Whitehall and collaborative approach to the Bill; secondly, the Government’s recognition, as I said, that this is an important Bill and our desire is to get it right; and thirdly, as I hope noble Lords acknowledge—I know I speak for myself and my noble friend—that the Government deeply value what this House brings to discussions and scrutiny and equally respect its role in this regard. That is also true of today’s Committee. We have therefore ensured that appropriate Ministers are present to listen to the points raised by noble Lords.

The description of a wolf in sheep’s clothing took me back to reading the story of the Big Bad Wolf to my three and five year-old children. I assure noble Lords that there are no surprises in the Bill. The intent is very clear. I shall also provide greater detail in laying out the context behind the Government’s response to the amendments before us because that is important to your Lordships’ Committee.

Amendments 68ZA, 68ZB and 68ZC propose that regulations made under Clause 41 may be made only for the purposes of improving the detection, investigation or prevention of money laundering or terrorist financing, or for improving the implementation of international standards published by the Financial Action Task Force. I agree with the intention behind these amendments. This Government and our predecessor have, since 2015, led the way in combating money laundering and terrorist financing. Earlier this year, we brought the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 into force, ensuring that our anti-money laundering and counterterrorist financing regime met the global standards set by the Financial Action Task Force. We are the only G20 country with a public register of company beneficial ownership and, through the Criminal Finances Act 2017, we are taking further action to permit banks to share information relevant to identifying financial crime.

The United Kingdom plays an active role in shaping the international standards set by the Financial Action Task Force, and has done so since it was first established in 1989. In view of the UK’s clear intentions and long record in leading the way in this area, and taking particular account of the commitment shown by this Government and our predecessor, I do not think these amendments are required to take us any further forward. I am sure that the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins, would agree that, realistically, no Government would bring forward regulations under Clause 41 to weaken our abilities to detect, investigate or prevent money laundering or terrorist financing, or worsen our compliance with international standards. Therefore, I hope the noble and learned Lord may be minded to withdraw his amendment.

Turning to Clause 41 in more detail and Amendment 68A, I understand that Amendments 68A, 69A and 69E—tabled by the noble Baroness—seek to protect the current anti-money laundering regime. That is set out in the 2017 money laundering regulations—I set out the full title earlier and will not burden the Committee with it again—which implement the EU’s fourth money laundering directive. Although I sympathise with that intention, I hope I can reassure the Committee that the level of protection afforded by these amendments is excessive and may have unwelcome effects.

Current regulations on money laundering and terrorist financing follow the internationally agreed standards set by the FATF and impose granular obligations on regulated firms. The UK has chosen to follow the FATF standards as anti-money laundering regimes are more effective where they are aligned internationally. That is a general principle accepted by noble Lords. As a general point, the precise nature of the obligations contained in regulations, such as detail of how firms should approach conducting due diligence on their customers and the factors they should take into account in assessing risk, is better suited to secondary legislation than primary.

That follows the approach typically taken in the UK and elsewhere to establishing detailed obligations on regulated firms. For example, the UK transposition of the fourth EU money laundering directive was given effect through primary legislation, for matters of a general nature—including existing provisions of the Proceeds of Crime Act 2002, the Terrorism Act 2000 and the Anti-Terrorism, Crime and Security Act 2001—with more detailed requirements on firms relating to, for example, their approach to due diligence and identifying beneficial owners being made in the 2017 money laundering regulations. A similar approach to transposition was taken by other EU member states.

To provide more detail on the UK legislation relating to the prevention of money laundering, the Proceeds of Crime Act 2002 establishes the general obligations on the regulated sector to report details of transactions that give rise to suspicion of money laundering or terrorist financing. Part 7 of that legislation additionally establishes the substantive money laundering offences relating to the concealment, acquisition, use and possession of criminal property. The 2017 money laundering regulations establish further and more detailed obligations, such as how firms should conduct due diligence on customers, establish and maintain group-wide policies and procedures, and assess risk connected with different customers. Unlike the provisions contained in POCA, those obligations are better suited to secondary legislation, given the detailed requirements that they impose on firms and the need to keep the detail of such obligations updated, to address emerging risks.

An example of the need to address emerging risks can be found through the rapidly evolving policy framework at EU and international level. As noble Lords will be aware, the EU’s fourth money laundering directive was largely transposed into UK law in June via secondary legislation, through the money laundering regulations, as I have said. Yet noble Lords will also be aware that amendments to the fourth money laundering directive were being negotiated even before EU member states had transposed the original directive, demonstrating that anti-money laundering and counterterrorist financing standards can evolve at a rapid pace. The noble Baroness, Lady Kramer, made the point about the justification that the Government are giving and continue to give in this regard: to quickly and effectively address emerging risks and ensure that the UK is a hostile environment for illicit finance, it is right that we use secondary legislation to implement future policy changes. That will ensure that the UK stays aligned with the evolving international standards in this area.

[Baroness Kramer]

I hope that the Minister can clarify something. He said that it is important to have access to regulation to reflect changing policy standards. Where are those standards? Are they in a piece of legislation? Are they up for debate in this House? Are they really what one Minister decides is policy? Perhaps he can explain that, because that is the missing piece—there is no structure for policy to go through a democratic process.

[Lord Ahmad of Wimbledon]

As I have already indicated—and I will perhaps challenge the noble Baroness—when we take the legislation in a wider sense, whatever the legislation, there is primary and secondary legislation. As I have said before on secondary legislation, the procedure being put forward by the Government would allow that policy to be stated and debated in both Houses of Parliament.

I shall finish the point. In terms of existing money laundering, I have already alluded to the fact that with the previous directive the money laundering regulations laid out the detail to which the noble Baroness refers.

[Baroness Kramer]

I must press the Minister on this. He used the word “allow”. I am sure the Government can do what they wish in that sense and can bring forward primary legislation, which this is. Will the Minister confirm that it does not have to go through primary legislation? The—in effect—primary legislation that sits behind the 2017 regulations that he described took place within the extensive process of democratic debate, scrutiny and votes in the European Parliament. I am trying to understand where that piece goes in this legislation.

[Lord Ahmad of Wimbledon]

My Lords, once we leave the European Union—and I notice the change in tack from the noble Baroness who said “when” and not “if” any more—

[Baroness Kramer]

It was an error on my part. The more we go into this discussion, the more “if” sounds realistic.

[Lord Ahmad of Wimbledon]

The noble Baroness knows how much I care for the accuracy of Hansard. She has clarified that.

In this case, the Government’s view is that there will be scrutiny of all future legislation once we have left the European Union. The Government will decide what element of policy that is subsequently translated into legislation will appear as primary legislation or as secondary legislation. However, for the purposes of this Bill, which I will come on to in a moment, there are certain elements that we are laying out in primary legislation and in secondary legislation. In both cases, after we leave the EU it will not be scrutiny in the European Parliament but scrutiny in this Parliament, and the Government will ensure it. I ask the noble Baroness to reflect on this point. When I come to the more substantive comment, if she will allow me, there are mechanisms within secondary legislation to allow for the effective debate to which I alluded at Second Reading.

To get back to the point that I was making—perhaps we differ on this and I acknowledge what the noble Baroness says—we believe that in order to address emerging risks quickly and effectively it is important to ensure that the UK is a hostile environment for illicit finance. This is consistent with the broader regulatory regime relating to financial services, for example, which also requires swifter tools that can be more readily updated to address emerging risks than primary legislation. A similar approach to implementing the standards set by the FATF is applied outside the UK in countries such as the United States. There, the Currency and Foreign Transactions Reporting Act 1970 imposes requirements relating to the reporting of suspicious transactions and so is broadly analogous to the Proceeds of Crime Act 2002. The detailed requirements of the international standards relating to areas such as due diligence and record keeping are then established through regulations promulgated by the Financial Crimes Enforcement Network, housed within the Department of the Treasury.

The Government are committed to parliamentary scrutiny of legislation made through delegated powers as we leave the European Union. This is the point I wish to make to the noble Baroness. I have made it before, but I hope it will reassure some, if not all, noble Lords that regulations made under Clause 41 will be subject to the draft affirmative procedure, unless they update the list of high-risk third countries, in which case they will be subject to the made-affirmative procedure. I made this point previously. I emphasise that updates to the list of high-risk countries will still require parliamentary approval, but they need to be put in place swiftly, as I am sure many noble Lords accept, so that banks and businesses can start to apply the enhanced due diligence measures which are appropriate for these high-risk areas.

The use of secondary legislation to amend anti-money laundering and counterterrorist financing regulations is consistent with our legislative approach in the past. The noble Baroness, Lady Bowles, raised the use of secondary legislation with certain Acts, but in general that is not new. I believe I have already made this point, but it was used, for example, to put the money laundering regulations 2017 in place following the fourth money laundering directive. It also provides consistency with our approach to regulations related to financial services and ensures that our anti-money laundering and counterterrorist financing regime remains consistent with internationally agreed standards. It also avoids the unusual position whereby secondary legislation made by a Minister cannot be changed without primary legislation made by Parliament. I hope that I have convinced the House that Amendment 68A is unnecessary and would place an excessive burden on legislation that needs to be flexible and capable of rapid change.

16:30

[Baroness Bowles of Berkhamsted]

The Minister said that the reason this is done in regulations is because telling a bank how to do its due diligence is too detailed for primary legislation. But he is rather overstating the case, because Regulation 18 of the 2017 money laundering regulations says that, “A relevant person”—this would be the bank—

“must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its business is subject”.

The first requirement there is:

“In carrying out the risk assessment required under paragraph (1), a relevant person must take into account … information made available to them by the supervisory authority”,


under Regulation 17. If you go back, you find that the supervisory authority has to take notice of what the Treasury and the Home Office have said. So this is a cascade that automatically updates. If there is a new risk, the Government identify it, along with mitigating measures, and tell the supervisors, which devise ways to update the information for their sectors. Then the onus is still on the individual businesses to work out how to do this. Yes, there is a list of factors to include, but it is within the power of the Government to say, “This is an extra factor; it does not even need any legislation”. However, it embeds the duties of the Government to have a position and to come out with their reports and then the duties of the supervisors. None of that is definitely retained, because everything to do with this money laundering directive can be rubbed out. So it is not about the excruciating detail that the Minister says it is—the excruciating detail comes from the supervisors.

[Lord Ahmad of Wimbledon]

I understand the point the noble Baroness makes, but it is not about—to use her term—the excruciating detail. Secondary legislation—with parliamentary scrutiny—provides the Government with the ability to react to rapidly changing circumstances. Relying on primary legislation would not allow the Government to do that. We have a difference of opinion in that regard—but, on the point she made, guidance to financial institutions would follow whatever legislation and whatever rules and laws prevail at that given time.

I turn to Amendment 69A. After the EU (Withdrawal) Bill receives Royal Assent, the powers under the Bill as they are drafted will allow changes to the money laundering regulations 2017 and to the funds transfer regulation which are appropriate to prevent deficiencies that arise as a result of the UK ceasing to be a member of the European Union. It will not enable any other changes to be made. I note that the noble Baronesses, Lady Bowles and Lady Kramer, are aware of the need to make such changes to the money laundering regulations 2017, as demonstrated by Amendment 69D, which we will discuss later today. However, the Government’s approach in this area is to ensure continuity for regulated firms, and certainty for businesses as to the nature of the obligations with which they need to comply.

In order to ensure that our anti-money laundering regime makes legal sense on withdrawal from the EU, we anticipate laying brief regulations made under the power in Clause 7 of the EU (Withdrawal) Bill so as to fix a limited number of deficiencies within the money laundering regulations and the funds transfer regulation. Our approach will make amendments such as—for example—removing references to the Government needing to have regard to reports published by the European Commission and to the Government having to file notifications of risk assessments with EU institutions. It would not be appropriate to keep these obligations, as I am sure noble Lords acknowledge, once the UK ceases to be a member of the European Union.

Given the necessity for such changes in order to have functioning UK law, I do not agree with Amendment 69A, which would remove the ability to make these necessary fixes to our existing laws. Being unable to make necessary changes of the type that I describe would not take account of the fact—the basic fact—that the UK will have ceased to be a member of the European Union.

Legislative reform orders that derive from the 2006 Act are designed to reduce the regulatory burden rather than achieve any policy changes. They must meet a number of preconditions before they can be used to reduce regulatory burdens. Most importantly, they are not allowed to remove any necessary protection, and are therefore not a risk to regulatory safeguards within the money laundering regulations 2017.

I do not agree with the proposed exclusion of a useful tool to ensure that the UK’s anti-money laundering regimes can be simpler, easier to understand and easier to comply with, while ensuring—a point well made by the noble Baronesses in speaking to their amendments—that standards are not driven down, which I agree with, and the strength of the system is maintained. That is another point of principle I agree with.

I hope the Committee will also consider how legislative reform orders are used. There is no convention to use them to make controversial changes, and the preconditions in the 2006 Act will always apply. I believe that the preconditions of the 2006 Act are the appropriate way of constraining the use of its powers. Further, disapplying legislative reform orders in a single case might suggest that it would be appropriate to use them in other similar contexts.

I turn now to the proposed new clause contained in Amendment 69E that would limit amendments to the money laundering regulations 2017 to only those which implement standards published by the Financial Action Task Force, or that identify or revoke a designation of a high-risk third country. I should add that I am again grateful that within the clause both noble Baronesses recognise that new powers are required to update the UK’s money laundering regime after we leave the EU.

The Government are committed to playing a leading role in shaping global anti-money laundering standards through our membership of the Financial Action Task Force. Noble Lords will be aware that we led a successful campaign through the FATF to clarify that only some charitable organisations, such as those working in conflict zones, are vulnerable to terrorist financing, and in doing so improved the ability of civil society organisations to function and receive funding. We have also actively worked to clarify the obligations on the private sector to share financial intelligence. In doing so, we are addressing a key priority for the private sector, which consistently delivers the message that we will be better able to manage financial crime risk if it is able to share more information regarding suspicious customers.

It is right that the Government have the power to update the UK regime when such standards change. There are, however, several areas where the UK’s anti-money laundering regime already goes beyond these standards. Our recently established register of trusts generating tax consequences, for example, goes beyond the standards set by the Financial Action Task Force. Similarly, the decision at Budget 2015 to regulate virtual currency exchanges for the purposes of anti-money laundering and counterterrorist financing did not reflect an expectation of the Financial Action Task Force—it went beyond and it was a policy decision to which we expect to give effect through transposing amendments to the fourth EU anti-money laundering directive.

Although we will remain aligned with Financial Action Task Force standards after the UK ceases to be a member of the EU, our anti-money laundering regime already exceeds its standards in certain areas and we will wish to ensure that our defences against misuse of the financial system remain ahead of global standards, rather than solely reflecting them. Ensuring that we can make regulations so as to detect, investigate and prevent money laundering or terrorist financing, as well as to implement the standards of the Financial Action Task Force, is the most certain method of placing future changes to our anti-money laundering system on a sound legal basis. Adopting the amendment would limit our ability to do so in future.

[Baroness Bowles of Berkhamsted]

I concede that maybe we should have said “be at least as strict as”, but there is nothing in the Bill that says we are going to maintain and be ahead of global standards. We would all be a great deal happier if there were something in there indicating that standards would be maintained. We know there are good intentions, the Government have been doing good things and the Front Bench opposite would do good things, but it is not there in writing. That is what is fundamental to this: the principles are not fixed.

[Lord Ahmad of Wimbledon]

I thank the noble Baroness for acknowledging the actions that this Government have taken and—I am sure I speak for the Front Benches—for the faith that she has in both Front Benches. I have listened carefully to her point. The point that I am making is that the UK has already shown that through our commitment to the FATF, which we will continue to be part of. Not only are we complying but we are leading, and that role will continue and indeed be strengthened by the UK’s membership of the FATF. The objectives and obligations that it asks member states to adhere to will continue after we leave the EU.

I turn to Amendment 72A. The definition of terrorist financing contained in Clause 41 of the Bill is identical to that which already exists in the 2017 money laundering regulations. This definition provides that “terrorist financing” means an act that constitutes an offence under various legislative provisions, being sections of the Terrorism Act 2000; the Anti-Terrorism, Crime and Security Act 2001, the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011 and the Terrorist Asset-Freezing etc. Act 2010.

As noble Lords will note, elements of the definition of terrorist financing within Clause 41 cross-refer to secondary legislation that creates a criminal offence; namely regulation 10 of the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011. This provides that any person who contravenes prohibitions contained elsewhere in those regulations commits an offence relating to the financing of terrorism. The offences created through those regulations play an important role in deterring the financing of terrorist organisations. Regulation 14 of those regulations further provides that a person guilty of the relevant offence is liable, on conviction on indictment, to imprisonment for a term not exceeding two years’ imprisonment or to a fine or indeed both.

Clause 1 of the Bill provides that an appropriate Minister may make sanctions regulations where doing so would further the prevention of terrorism, whether in the UK or elsewhere. It is possible that such regulations made under the powers conferred by Clause 1 could impose targeted sanctions and penalties similar to those that are established through the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011, and which are already captured within the definition of terrorist financing within the 2017 money laundering regulations. If such regulations are made, they will effectively update the UK’s regime for counterterrorist financing. I am sure noble Lords will also note that the reference in the definition to the Terrorist Asset Freezing Act etc. 2010 will become obsolete when Part 1 of that Act is repealed.

In these circumstances, it is right that the definition of terrorist financing within Clause 41 of this Bill can be updated so that the UK’s counterterrorist financing framework can be applied consistently, working off a single definition of terrorist financing. Clause 45(5) of the Bill provides that any regulations updating this definition would rightly be made through the draft affirmative procedure, providing Parliament with an opportunity for fully scrutinising any such changes. In the absence of such a power, the Government would otherwise be obliged to maintain a definition of terrorist financing within this legislation that could quickly go out of date and so limit the effectiveness of our response to the financing of terrorist groups.

16:45

[Baroness Bowles of Berkhamsted]

My Lords, there are a lot of regulations going on here that interact with one another. Will they be considered one by one, so that they can be looked at comprehensively, or will they come in a great big wodge—akin to the sort of thing we get on money laundering?

[Lord Ahmad of Wimbledon]

My Lords, I am sure that the noble Baroness will accept that there are times when it makes sense to discuss certain regulations together in a group. At other times, they will be discussed individually. We will certainly look at the context of each regulation and introduce it in the appropriate manner. The key point I would make in all this is that, under the procedure we have adopted, we want to ensure that there is effective scrutiny.

I totally accept the point of principle and have noted our difference of opinion on the point made by both noble Baronesses and others on primary and secondary legislation. However, I have explained why the Government believe their approach is the right one. I also appreciate the patience of Members of the Committee in our detailed discussions setting the context, which I am sure will be reflected in our discussions today. I thank noble Lords for their patience and indulgence, and hope that they are minded to withdraw or not move their amendments.

[Lord Davidson of Glen Clova]

My Lords, the patience of this side has not been strained by the Minister, who provided a complex and interesting setting-out of the way in which the UK envisages the future. The debate in this complicated and difficult area has been most useful.

The noble Baroness, Lady Bowles, provided an intensive forensic analysis, which, I suspect, may leave one or two questions that require answers that we may, no doubt, look at on Report. Plainly, there is a difference of view between the Government and the Opposition as to the way forward on minor matters but not on the substantive way forward. While I therefore recognise the tack made on the Bill by the noble Baroness, Lady Bowles, we do not share the way forward that she suggests. However, we recognise a number of the concerns she identifies.

The noble Baroness, Lady Kramer, set out her assessment of the damage to democratic scrutiny that this approach adopts. One does, of course, speculate what would happen if a Labour Government had proposed such wide powers for Ministers. One might imagine that certain Brexiteers would have fairly vociferous views on any such proposal.

The speed argument for the anti-money laundering aspect of this clause is not entirely clear, to this side at least. As to the answer stating that there are emerging risks, it would perhaps be useful to have some examples of how they have emerged and how the current system has failed to deal with them.

The noble Baroness, Lady Kramer, identified the possibility of a sunset clause. She will be pleased to see that my noble friend Lord Collins has an amendment proposing such a clause.

I must reject the ovine reference. We are trying to find a way forward that is consonant with a good, strong regime on AML and terrorist financing. I welcome the Minister’s intention to get it right. He sees improvement as a way forward and we share that approach. Our concern is that not every future Minister might share this Minister’s good intentions and is therefore to push the legislation in an improving direction, and it is for that reason alone that we advanced this amendment.

The Minister set out the UK position at length. Long may it continue; it certainly puts the UK in a strong, leading position in relation to money laundering and terrorist financing protection. At this stage, we will go way and think about this further. I beg leave to withdraw the amendment.

Amendment 68ZA withdrawn.

Amendments 68ZB to 68A not moved.

Clause 41 agreed.

Amendment 69

Moved by

[Lord Hodgson of Astley Abbotts]

69: After Clause 41, insert the following new Clause—
“Public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK
(1) In addition to the provisions made under paragraph 6 of Schedule 2, for the purpose of preventing money laundering in the UK property market and public procurement, the Secretary of State must create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts.(2) The register must be implemented within 12 months of the day on which this Act is passed.”

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I begin by giving two apologies to the Committee. The first is on behalf of my noble friend Lord Faulks, in whose name the amendment was tabled. He is unavoidably detained overseas. As I shall explain in a moment, he and I tabled a similar amendment during Committee on the Criminal Finances Act, and he asked if I would take up the cudgel on his behalf tonight. I went to put my name down to the amendment but found that several other noble Lords had beaten me to the punch. Secondly, I apologise to the Committee for not having taken part in proceedings on the Bill before, but I have taken the precaution of reading the relevant sections of Hansard with care. With that, and knowing that several noble Lords want to contribute to this debate, I will cut to the chase, if I may.

At the outset, I thank the Minister my noble friend Lord Ahmad for his offer of a meeting to discuss this matter. Although I am always delighted to meet him, it seemed to me that such a meeting might be more productive after this debate, when he has had a chance to reflect on the range of concerns that may be raised around the Committee and that that might be a better use of his time.

The purpose of Amendment 69 is simple: it inserts a new clause which increases the pressure on the Government to fulfil their long-stated commitment to introduce a public register of the beneficial ownership of UK properties owned by companies and other legal entities overseas. To those Members of your Lordships’ House who were present during proceedings on the Criminal Finances Act earlier this year, the arguments are familiar—some might say, depressingly familiar—but we have a new pilot at the helm tonight, although he has temporarily left the Chamber. I am delighted to be talking to my noble friend Lord Bates. I was offered a meeting with my noble friend Lord Ahmad, so I thought that he might reply to the debate, but never mind. We have a new pilot, anyway, in place of my noble friend Lady Williams of Trafford, who was the Minister on the previous Bill, so, for my noble friend who is coming fresh to this topic, let me summarise the position.

The reasons why UK property is an attractive asset class for someone from overseas can be simply stated. First, property rights in the United Kingdom have been sacrosanct for nearly 400 years. Mr John McDonnell, the shadow Chancellor of the Exchequer, flirted with the idea of seizing property in North Kensington to be handed over to former residents of Grenfell Tower, but I am not sure that that has become Labour Party policy. Secondly, the cities of the United Kingdom remain attractive, engaging and safe places to live. Finally, in recent years at least, UK property as an asset class has appreciated in value.

If you live in less secure and happy circumstances than prevail in this country, where better than in the United Kingdom to buy a bolthole—the value of which has in recent years most conveniently grown enormously? The result has been a veritable flood of overseas money into the property market of London and other major cities. How great a flood is unclear—indeed, one purpose behind the amendment is to try to shed greater light and transparency on the extent of the flood—but, to put it no higher, there is suspicion that not all the hands from which the money to purchase these properties comes are as clean as they might be.

Noble Lords will have received briefings from the pressure group Global Witness which are self-explanatory. They may also have caught the article in last Sunday’s Telegraph, headed, “Fears that ‘dirty money’ paid for Uzbek dictator’s daughter’s £17 million Mayfair and Belgravia homes”.

As I said a few minutes ago, my noble friend Lord Faulks and I tabled an amendment to the Criminal Finances Bill on Report with broadly similar purposes to this one which we are discussing tonight. In her reply, my noble friend Lady Williams of Trafford gave some encouraging and soothing words. She said:

“I am pleased to have the opportunity to return to this issue. The clear abuse of the London property market and high-value properties across the country … to launder money, including the proceeds of corruption, has to be stopped. We must not allow this city to be a haven for kleptocrats hiding their ill-gotten gains. That is why the Government share the ambition of creating such a register”.


She went to say:

“Subject to the outcome of the general election, it remains our intention to introduce legislation to create the register as soon as parliamentary time allows. I hope this provides my noble friends”—


that is, my noble friend Lord Faulks and myself—

“with the reassurances that they seek”—[ Official Report, 25/4/17; cols. 1333-34.]

The general election is now out of the way, but no progress seems to have been made as regards to the implementation of this important policy promise.

It should not be forgotten that as long ago as May 2016, at the international anti-corruption summit held in London, the Government committed to creating a new register showing the beneficial owners of overseas companies that own or want to buy property in the UK, and of overseas companies involved in central government contracts. So this amendment is well in line with government policy.

In her ministerial foreword to the relevant consultation establishing such a register, Margot James MP emphasised that it was important,

“to ensure the integrity and reputation of the UK property market … A higher level of transparency will boost investor confidence”.

Responses to that consultation have now been in for more than six months, so what now is happening?

Of course I understand the eternal pressure of a crowded legislative programme, which has been made significantly worse by the results of Brexit, but the Long Title of this Bill makes it clear that its purposes are,

“to make provision for the purposes of the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing Standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system; and for connected purposes”.

So no one can suggest that this amendment is out of scope with this Bill. Rather, it seems absolutely within the scope of the Bill and, moreover, consistent with government policy and, frankly, a matter of some urgency.

Given that the setting up of the register does, as I understand it, require primary legislation, I now have to ask my noble friends on the Front Bench the question: if not now, when? It is simply not adequate once again to respond by saying, “When parliamentary time allows”. I suspect that parliamentary time will not allow it in the near future, and this really important step for stamping out corruption will drift further and further into the middle and long distance.

There has been a tendency to think that this is an issue confined to London, so before I finish, I draw my noble friend’s attention to the extent that, as London property prices have risen, overseas purchasers have begun to turn their attention to other UK cities. In preparation for our debate earlier this year, I took some time to trawl through the provincial press and I found examples, inter alia, in Birmingham, Bristol and Manchester. I used the Manchester example in the debate then because I thought it would be of particular interest to my noble friend Lady Williams, because she is Baroness Williams of Trafford, in the City of Manchester.

The example in Manchester was of a development of 282 flats over 29 storeys at One Cambridge Street in that city. Purchasers were drawn from 18 different nationalities, including Azerbaijan, China, Japan and Zimbabwe, and 125 flats were bought as a bloc for £25.7 million by OFY, a company based in the British Virgin Islands. Only two of the 282 flats are owned by Britons. The developer’s sales brochure includes the statement:

“The generously proportioned apartments have … appeal to owner-occupiers, investors and renters. In other words, the scheme is appealing to several sectors of the market, including those looking to make the step towards getting on to the housing ladder and more established owner-occupiers”.


Whether first-time buyers would really think that a 99.2% overseas ownership was a fair result I leave to others to judge.

17:00

To conclude, we may be having something of a national crisis of identity at the moment, but one thing of which we can be proud is our respect for the rule of law and the integrity of our judicial system. It is a supreme irony that these very things contribute to the attraction of owning real property in this country to those whose resources may have too often been obtained through crime or corruption. Allowing billions of pounds to be owned by murky foreign companies is a blot on our reputation, to say nothing of the general havoc created by helping to drive the property market higher to levels where no normal young person can even dream of aspiring to own their own house or flat near the centre of our great cities.

The amendment is directed against all those who would corrupt the integrity of our system and allow our country to be a safe haven for the proceeds of crime. I very much hope that your Lordships’ House will support it, and I beg to move.

[Baroness Bowles of Berkhamsted]

My Lords, I have only a little bit to add on this—you may be relieved to know—because I was present during, and participated in, the debates on the Criminal Finances Bill. I saw that this amendment had been tabled and I was available at the time, and I thought that because there had been so much support for it during the passage of that Bill I had better get my name on this amendment quick, before the list got full up. That is why I am second on the list of names attached to the amendment. I did not table an amendment myself because I did not think that it was right to steal somebody else’s good work when I expected that something like this would arrive.

Almost everything has been said by the noble Lord, Lord Hodgson. This is something that needs to be done, and this is an opportunity to do it. It would need very persuasive reasons for me to concede that it should not be done now. As I did at Second Reading, again I remind noble Lords of the context which stretches across everything to do with money laundering and transparency, and that is that the eyes of the EU are upon us. These issues, such as people purchasing property in London with dubious money, are ones on which I often heard accusations when I was chair of the Economic and Monetary Affairs Committee. I was often trying to do something useful for the UK, and one weapon to try to take out my contribution was to attack the UK for not being such a good place because we allowed money laundering and the proceeds of money laundering to reside here in the UK and elsewhere. It is in that context that I suggest to the Minister that he looks kindly on this amendment and sees too that, as the noble Lord, Lord Hodgson, says, now is the time to do it.

[Lord Rooker (Lab)]

My Lords, I support the amendment. Like the noble Lord, Lord Hodgson, I apologise for not having been involved in previous aspects of the Bill, but I participated in the Criminal Finances Bill, and particularly on this area. As we have a new Minister, I shall use that excuse to develop a bit of what we have from history to assist his briefing. But it is a matter of regret that people still consider the UK, and London in particular, a bolthole for dirty money. London is not nicknamed “Londongrad” for no reason.

There is the legacy of the former Prime Minister, David Cameron, to whom I pay a massive tribute on this issue. He took a bigger stand than any previous Prime Minister, and I shall quote him on the record, because it is important. He made that speech in Singapore in July 2015, and he could not have been clearer. I shall quote three or four paragraphs, because it is important to what I want to say and the examples I want to give.

He said that,

“this is a challenge for everyone – including ASEAN, including Britain. We too must get our house in order – and we are. And that is why the UK government has legislated to ensure that from next year, Britain will become the first major country to establish a publicly accessible central registry showing who really owns and controls all British companies.

This will open up a new era of corporate transparency in Britain. But, of course, it will only apply in Britain and for British companies. So the aim should surely be for others to follow. To really tackle corruption effectively, we need to be able to trace data from one country to another. We don’t want criminals to be able to go unnoticed, just because they move money across borders or have assets in different countries. The torchlight should be able to follow them. If we are to win, we must make sure that there is nowhere to hide.


So I’ll continue to make the case for transparency with international partners – including the British Overseas Territories and Crown Dependencies. And I am willing to go further, and take concrete steps to force the pace. And that includes looking at whether we can get foreign companies investing in the UK to step up to the same level of transparency.


Now with £122 billion of property in England and Wales owned by offshore companies we know that some high-value properties – particularly in London – are being bought by people overseas through anonymous shell companies, some of them with plundered or laundered cash. Just last week, there were allegations of links between a former Kazakh secret police chief and a London property portfolio worth nearly £150 million.


I’m determined that the UK must not become a safe haven for corrupt money from around the world. We need to stop corrupt officials or organised criminals using anonymous shell companies to invest their ill-gotten gains in London property, without being tracked down”.


It was a seminal speech and an incredible read from a British Prime Minister. In some ways, I much regret that we do not get the same thing from the present Prime Minister, because it looks as though things have gone a bit flaky.

As part of the briefing for the Bill, Global Witness and Transparency International produced some of their previous examples. I will not go through them all but there are a couple that I want to raise. The research from Transparency International identified £4 billion-worth of property bought in London with suspicious wealth. Where information is available, Transparency International has found that 98% of the companies involved in the purchases are based in secrecy jurisdictions and that 90% are incorporated in the British Virgin Islands alone. Among this information—Global Witness was a partner—it was revealed that a £147 million property on London’s Baker Street could be linked back to Rakhat Aliyev, the former head of the Kazakh secret police, as referenced by the Prime Minister.

This made me go back to my monopoly chart, which was provided on the first kleptocracy tour of London in February 2016, when Members were invited to go with journalists to various places in London to hear the story of various properties, who bought them and where the money may have come from. The properties in Baker Street of Rakhat Aliyev, the former KGB chief, and their location in the building were pointed out—we had the address and the postcode. He could never have purchased those properties from his salary; it would have been absolutely impossible. We have to be careful about tracking him down because, in 2015, he was found dead in his prison cell in Austria—he had been up to other things and had been arrested.

There were other properties listed on the chart, but I am not going to go through any more of them because the examples are always there. When we have examples like this, we cannot just ignore them. But nothing seems to happen. Journalists, investigators and people who want a democratic, open, transparent and modern rule-of-law Russia come to London to look at the situation and to talk to people. However, there are issues relating to what we have done so far.

I shall come to the Land Registry in a minute, but the brief from Transparency International went on to say that its analysis of the recent Land Registry data, and that of Who Owns England? and Global Witness, revealed that in the two years since the property register was promised, nothing had changed. Financial investigators, civil society and the wider public are still in the dark about the real people behind the 86,397 properties in England and Wales owned by companies registered offshore in the secrecy jurisdictions. The analysis found that, just in 2015, 87% of all the properties owned by overseas companies had an owner in a secrecy jurisdiction, and 57,318 were owned by companies registered in the British Overseas Territories, jurisdictions which do not publish.

Over the last two years the UK Government have made some progress in tackling corruption and money laundering and set the global standard on beneficial ownership transfers by launching a public register of companies—and in the last Parliament, of course, they introduced the unexplained wealth orders. But we need to know who is behind the companies, and where their money has come from. That is absolutely crucial. Otherwise the proceeds of crime will continue to pour into the UK, particularly into London. Evidence has been given to the consultation that closed in March 2017, but as of today there are no results.

Before I make my final point, I advise the Minister, as I did his predecessor, to see the film “From Russia with Cash”—and I think there is also one called “From Ukraine with Cash”. They are easily available, and watching them would benefit the wider debate about what is actually happening here, in this country. I want to refer to the text of the amendment, regarding bids for UK contracts, because the same issue was raised by David Cameron in his Singapore speech. This should not just be about property, but also about overseas companies bidding for contracts in the UK. We should know who owns them.

Let us see how far we have got in the UK. David Cameron said in his Singapore speech that as a first step, he had asked,

“the Land Registry this autumn”,

that is, autumn 2015,

“to publish data on which foreign companies own which land and property titles in England and Wales. This will apply to around 100,000 titles held on the Land Register”.

One evening last week I put that to the test, and applied to the Land Registry for the overseas ownership data. I went through all the seven steps on the website: status, names, date of birth—which I thought was a bit irrelevant, but I filled it in—address and telephone number; I went through the process to prove I was not a robot, and then I agreed the terms. Fortunately, I was able, as I went through it all, to print each page, so I know exactly what information I gave. However, when I came to step 7—downloading the data sets—it said, “Please note these download links will only remain valid for 4 minutes 47 seconds”. After five minutes my little computer said that there were four minutes still to go—at which time, of course, the thing closed down. So I tried it again, and got exactly the same results.

No wonder people cannot find out information, on the basis of things that we have already done, and which we boast about. We are asking the Government to go further than they have already gone with regard to overseas companies, but it is being made difficult to access what is supposed to be there already for public access. There was no cost, and every step was completed, but I ended up with less than five minutes to download. Perhaps that is down to the barmy broadband speeds we have failed to provide. I was in central London when I tried to do this, by the way; I was not at home in Shropshire. This is crazy, and the Minister needs to look at it—although I may have done something completely wrong, in which case I will take advice.

I just want to strengthen what the noble Lord, Lord Hodgson, said, and what the noble Lord, Lord Faulks, said during the earlier attempts to do this. I realise that this discussion will definitely upset a lot of people, as the previous Prime Minister said. However, the fact of the matter is that so much money is piling into London—leaving aside the rest of the country—that there will come a time when it will put our economy at risk. We are talking about huge amounts. The National Crime Agency is concerned about it and people in that agency are on record as having said various things. It looks as though the instruction has been given, “Turn a blind eye to this money coming in because it is good that it comes in”. The fact that it is completely distorting London property prices and making London another country within the UK is beside the point.

17:15

Some researchers have information on who owns what in London, and what their previous jobs were. I have a copy of the register that shows that apartments 138A and 138B in Whitehall Court were sold for £11,400,000 to Sova Real Estate, which is incorporated in Russia. I also have a copy of the Russian register of interests which shows that the beneficial owner of that company is a former Minister. There is no way that his salary could have provided the money to buy those flats; that is impossible. They are above the Farmers Club, if anyone wants to know where I am talking about. It is absolutely astonishing that bags of information are available on this issue but nothing seems to happen. The one thing that would shake things up would be if this amendment were approved. We would then find out what is happening and end the damage building up in our country. That is why I support the amendment.

[Lord Freeman (Con)]

My Lords, I very much support the comments of my noble friend Lord Hodgson. As the Minister knows, at Second Reading I very much supported the sentiments which have been expressed so clearly by my noble friend. Indeed, I believe that the proposed new clause in this amendment is very much in line with government policy. If there is a meeting, I hope that I might be included in it along with other colleagues.

[Baroness Kramer]

My Lords, everything that can be said has been said brilliantly. I hope that we will get an update from the Government which convinces us that this issue is back on track.

[Lord Collins of Highbury (Lab)]

My Lords, I note that the Minister was about to stand up but I cannot allow him to jump in so soon.

I congratulate the noble Lord, Lord Hodgson, on moving this amendment. I was disappointed that the noble Lord, Lord Faulks, was not present but he has done a grand job and a very persuasive one. Like my noble friend, I congratulate the former Prime Minister, David Cameron, on initiating consideration of this issue. We are talking not just about government policy but about a government commitment. The noble Lord, Lord Hodgson, is absolutely right—there is no better place than this Bill for this commitment to be delivered. That is why we wholeheartedly support this amendment.

I am glad that the noble Lord, Lord Bates, will respond to the amendment because he knows only too well the cost arising from this money flooding into London. We talk about the impact on London property prices and about corruption but we know that the poorest countries lose an estimated trillion pounds a year through tax evasion and corruption. The poorest in our world suffer as a result. That is why we must see the Government deliver on this solid commitment. My noble friend gave clear examples of what is happening and we have received briefs from Transparency International, but you have only to look down the river from the Terrace here to see St George Tower, a fantastic round tower. Two-thirds of it is in foreign ownership and a quarter is held through offshore companies based in tax havens. We only have to look there to see what is going on. This was a commitment of the former Prime Minister and it is an appropriate Bill. The commitment was that it would be introduced by April 2018.

We have heard how long it is since the consultation was concluded. The sad fact that the consultation has not been published is a bit of an indication about the timetable for any proposed legislation. We have an opportunity here and I hope the noble Lord, Lord Bates, will take it up. In previous Committee sittings we heard from the noble Lord, Lord Ahmad, about how he has been in listening mode and will take the opportunity to take this away. This is a perfect example of how we can deliver on a clear commitment made by the former Prime Minister.

Regarding commitments, at the Anti-Corruption Summit there was also a commitment to update the anti-corruption strategy by the end of 2016. That strategy is now long overdue. I hope the Minister will take the opportunity to say how the Government are committing to this general, overall strategy, because all these things are linked. I look forward with interest to hearing from the Minister how this commitment will be met.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, my noble friend Lord Hodgson began his remarks by welcoming me as a fresh face to this topic. That will probably turn out to be classic understatement, but I am delighted to be here on a very important topic.

I first pay tribute to all noble Lords—in particular to the noble Lord, Lord Hodgson, for standing in for the noble Lord, Lord Faulks, and for the energy and commitment they have both shown on this topic over some time. I guess noble Lords will want to hear about the current position so let me get straight to it.

This amendment would set down in legislation a commitment made at the 2016 Anti-Corruption Summit, which the UK convened, to establish a public register of company beneficial ownership information for foreign companies which already own or buy property in the UK, or which bid on UK central government contracts. This was a point referred to by the noble Lord, Lord Rooker.

The Government remain committed to this policy and our intention is to act in this space; that intention has not faltered since the noble Baroness, Lady Williams, gave a commitment earlier this year. My noble friend Lord Hodgson is right to table this amendment—just as my noble friend Lord Faulks and other noble Lords are right to support it—to remind the Government of this commitment. I welcome him doing so.

The UK is a world leader in promoting corporate transparency. We legislated in 2015 to establish a public register of company beneficial ownership—that was how we described it, and it was actually done. We remain the only country in the G20 to have established such a register. The noble Baroness, Lady Bowles, said that the eyes of the EU are on us. I hope they are because we are leading on this; we are not following. We have recently expanded the register to include other forms of legal entity established in the UK, and we remain committed to this agenda.

Earlier this year, the Department for Business, Energy and Industrial Strategy published a call for evidence on the design and implementation of the register of overseas companies that own UK property. As that call for evidence noted, this register will be the first of its type in the world, reflecting the Government’s continued commitment to being a world leader in this area.

The innovative nature of the register does, however, bring with it issues of legal complexity. The Department for Business, Energy and Industrial Strategy has identified that it will require complex amendments to the existing company law framework in the UK, with new functions being delegated to the Registrar of Companies, as well as the three land registries in England and Wales, Scotland and Northern Ireland. I will ensure that the comments about downloads are relayed to the Land Registry. Consideration will also need to be given to the acquisition, use and processing of information.

In addition, a robust enforcement mechanism will be essential, and the Government propose to implement this via the land registration system. Careful consideration will be needed as to how this will be applied to new and existing landowners, while ensuring appropriate protection for third parties. It will also require consideration of the appropriate penalty regime to be applied to persons who fail to comply with the obligation to include the necessary details on the register. These and other issues relating to the operation of the register were raised by respondents to the Government’s call for evidence earlier this year. We have been considering these so as to inform the design of the register.

I make it clear that the Government remain committed to establishing this register and to fulfilling our commitment at the 2016 Anti-Corruption Summit. My noble friend Lady Williams reiterated this commitment yesterday, speaking at the inaugural Global Forum on Asset Recovery in Washington DC. The Department for Business, Energy and Industrial Strategy expects to respond formally to the call for evidence early in the new year. That response will focus, as did the call for evidence, on how the register will be established and not on whether it will be established.

So as to fully take account of the extensive work that the Government, private sector and civil society have already conducted, and continue to conduct, on the design of this register, it is right that we allow the Department for Business, Energy and Industrial Strategy to conclude the process that is already well advanced and to publish its response to the call for evidence early in the new year. This will ensure that the register is well designed, takes full account of the representations received and provides a legally robust mechanism for registering the beneficial owners of overseas companies that own UK property. So as to further inform the response from the Department for Business, Energy and Industrial Strategy, I will ensure that it is fully aware of the points made by noble Lords today in support of establishing the register.

I should add that earlier my noble friend Lord Ahmad gave a commitment to meet my noble friends Lord Hodgson and Lord Freeman and other noble Lords who are interested in this area to update them on matters and to get further information on what they would like to see.

I hope that I have given the Committee some reassurance on our intention to act and on the next steps that we have planned, and that noble Lords can have confidence that no provision is required in this Bill to secure the progress that my noble friends Lord Faulks and Lord Hodgson seek. Therefore, I ask my noble friend to withdraw the amendment.

[Lord Rooker]

I am grateful to the Minister and would like to add one point. All these properties have been purchased in this country, so there has been conveyancing and the involvement of estate agents. Looking at the list, it is strange that all the lawyers and solicitors involved are the blue-chip City gang who are purchasing these properties. I know that Global Witness and Transparency International and others have to be acutely careful when they say anything publicly because the next day they get a letter from one of these companies advising them that it has been noted. It is not in these people’s interests that we have a register, but I say to the Minister that we will be watching this. He has given a very firm commitment, which I certainly appreciate, but a lot of people with vested interests—our own citizens and companies here in the City and in the legal structures—will not be happy with this, because all these properties have been purchased. Someone has done the conveyancing of this crooked money that has come into London and we have to be aware of that.

17:30

[Lord Bates]

That is right. We are certainly not going to shrink from the commitment from the previous Prime Minister, with which the current Prime Minister is in agreement. We want to see that happen. We have also, of course, taken certain actions in relation to this area. For example, the annual tax on enveloped dwellings, known as ATED, was introduced in April 2013 to ensure that those who place UK residential property in a company pay a fair share of tax.

My noble friend Lord Hodgson asked whether the number of purchasers was increasing. The anecdotal evidence and the facts suggest that. The ATED receipts in 2015-16 were £178 million, a 53% increase on the previous year. It is at least an indicator of the scale of the undoubted challenge. We stand by the commitment made earlier this year. However, because we lead the world in seeking to be the first major economy to have such a register, there are legal consequences. The same lawyers who do the conveyancing will be reading through the fine print of any legislation that comes forward. We have to make sure that it is watertight to ensure that the right people are affected by it and, as the noble Lord, Lord Collins, said, that other people are dissuaded from making those investments here.

With those reassurances and the commitment to meet again, I hope that my noble friend will withdraw his amendment.

[Lord Hodgson of Astley Abbotts]

My Lords, I am very grateful to all noble Lords who have spoken in support of this amendment: the noble Baroness, Lady Bowles, the noble Lord, Lord Rooker—he has shown that his investigative nose is as sharp as ever—my noble friend Lord Freeman, the noble Baroness, Lady Kramer, and the noble Lord, Lord Collins of Highbury.

My noble friend Lord Bates defended his wicket a great deal better than the English test team has been doing in Australia. He quite fairly drew attention to the Government’s efforts in relation to additional tax for properties owned inside a company and so on. But we have been round the familiar arguments, and nine months after the consultation closed seems a very long time for careful consideration.

I think we will take the Minister up on the invitation offered by his friend for a meeting. I am concerned that there will be a response early in the new year, just as we wave goodbye to this piece of legislation. I am not clear whether this requires additional primary legislation. If so, how will it be fitted into our programme? It could be tacked on to this Bill but once it has gone I am not aware of much else coming down the track where this register and all the other stuff could be included

We have been round this a great many times. I am grateful for the Minister’s initial response. He understands the strength of feeling on all sides of the House that this situation should not be allowed to continue. We look forward to the meeting and, in the meantime, I beg leave to withdraw the amendment.

Amendment 69 withdrawn.

Amendment 69A not moved.

Amendment 69B

Moved by

[Baroness Bowles of Berkhamsted]

69B: After Clause 41, insert the following new Clause—
“Failure to prevent money laundering
(1) A relevant body (B) is guilty of an offence if a person commits a money laundering facilitation offence when acting in the capacity of a person associated with B.(2) For the purposes of this section “money laundering facilitation offence” means—(a) concealing, disguising, converting, transferring or removing criminal property under section 327 of the Proceeds of Crime Act 2002 (concealing etc);(b) entering into an arrangement which the person knows, or suspects, facilitates (by whatever means) the acquisition, retention, use, or control of criminal property under section 328 of the Proceeds of Crime Act 2002 (arrangements); or(c) the acquisition, use or possession of criminal property, under section 329 of the Proceeds of Crime Act 2002 (acquisition, use and possession).(3) It is a defence for B to prove that, when the money laundering facilitation offence was committed, B had in place adequate procedures designed to prevent persons acting in the capacity of a person associated with B from committing such an offence.(4) A relevant body guilty of an offence under this section is liable—(a) on conviction on indictment, to a fine, (b) on summary conviction in England and Wales, to a fine, or(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.(5) It is immaterial for the purposes of this section whether—(a) any relevant conduct of a relevant body, or(b) any conduct which constitutes part of a relevant criminal offence,takes place in the United Kingdom or elsewhere.(6) In this section, “relevant body” and “acting in the capacity of a person associated with B” have the same meaning as in section 44 of the Criminal Finances Act 2017 (meaning of relevant body and acting in the capacity of an associated person).”

[Baroness Bowles of Berkhamsted]

My Lords, this amendment introduces a new corporate criminal offence of failure to prevent money laundering. The UK already has two failure to prevent corporate criminal offences. The first is in Section 7 of the Bribery Act and the second was introduced recently in the Criminal Finances Act for tax evasion. The wording of the proposed offence is modelled on those existing offences, especially the more recent one that uses the form of facilitation.

Proposed new subsection (2) contains a definition of what the money laundering facilitation offence would be. Proposed new subsection (3) introduces the defence of adequate procedures being in place. The other proposed new subsections follow the format already established in earlier, similar offence types specifying fines, and also cover behaviour outside the United Kingdom.

The money laundering regulations 2017 already establish provisions about procedures for businesses most likely to be used for money laundering. Under those regulations, there are substantial regulatory fines for a company that fails to comply. However, regulatory fines, even large ones, are often taken as a cost of doing business, and they do not have the same impact on a company as a criminal conviction, which is taken much more seriously by both the company and the directors. As a consequence, it makes them sit up and take notice about the controls that are in place and the quality of their internal audit procedures.

In tandem with the possibility of entering into a deferred prosecution agreement, a “failure to prevent” can be a very powerful tool, both as a deterrent and a means of prosecution. Why do we need it? It is a well-known fact that, in the UK, it is almost impossible to find a large company guilty of a criminal offence because our criminal law applies a doctrine of intent derived from law relevant to an individual. Corporate intent requires the finding of a senior responsible individual or “directing mind”—and that is next to impossible in large companies where directors are not regarded as able to know everything and, indeed, the concept of collective responsibility of boards effectively prevents it. It can pay not to even look too hard. For small companies, a director is far more easily assumed to know everything. With little likelihood of being prosecuted in a large company, there is also little incentive for it to enter into a deferred prosecution arrangement—and that is reflected in prosecution statistics. Various other factors taken into account all favour large companies against small companies. Our law is unbalanced.

The Crown Prosecution Service’s legal guidance itself says under its “further evidential considerations” in paragraph 21:

“The smaller the corporation, the more likely it will be that guilty knowledge can be attributed to the controlling officer and therefore to the company itself”.


As long ago as 2010, the Law Commission, at paragraph 5.84 of its consultation paper 195 called the identification doctrine,

“an inappropriate and ineffective method of establishing criminal liability of corporations”.

The Attorney-General was not able to prosecute firms for LIBOR and the observation was made by the Telegraph’s chief business correspondent in 2016 with regard to LIBOR and Forex that,

“we outsource corporate accountability for criminality in the City to US prosecutors”.

The same story is repeated for money laundering. The US achieved deferred prosecution agreements against HSBC and a fine of £1.2 billion. In the UK, only regulatory investigations have been opened, and commentators have blamed the identification regime. Jonathan Fisher QC told the press that it would be “difficult and clumsy” for the FCA to criminally prosecute HSBC as the FCA,

“would have to show that a director or some other controlling mind in the parent company in London knew all about the alleged misconduct”.

So there are rewards for ignorance. Indeed, if any noble Lords watched the appearance of the HSBC chair, CEO and chair of audit before the various Commons Select Committees that they made appearances at, they would have seen that the issue of internal audit was one of the issues that was probed—without success. Sitting and saying nothing is by far the safest option.

The UK introduced a failure-to-prevent offence for bribery in Section 7 of the Bribery Act. The effect of that was reinforced by the introduction of deferred prosecution agreements in 2014. It is useful to consider the effect of the “before and after” of those provisions by looking at BAE, which represents the situation before, and Rolls-Royce, which represents the situation after. Before Section 7 of the Bribery Act, we had the longest-running bribery investigation ever: BAE settled with the SFO. I quote from the blog of David Corker, another lawyer specialising in financial crime litigation, who said that,

“BAE’s obduracy resulted in a humiliating settlement for the SFO and a profound defeat for the interests of justice … BAE was able to dictate the terms of the SFO’s surrender: a plea of guilt to an obscure books and records offence buried away in the Companies Act, the payment of a trifling gratuity to faraway governments at BAE’s discretion”—

that is, BAE chose whether to pay it or not—

“and an everlasting immunity for all its employees who had conducted and overseen the bribery”.

No wonder it was called “humiliating”.

In the “after” scenario in 2017, after Section 7, Rolls-Royce admitted its systemic corruption, paid a fine of £500 million and, instead of seeking immunity for its employees, committed itself to helping the SFO. The need for, and effect of, such a corporate criminal offence are therefore clear. Without such an offence, it will continue to be extremely difficult to prosecute large companies for money laundering offences and the UK will continue to outsource its justice to the United States. Again, I pray in aid the EU situation—but it is unlikely to impress in Brussels, which is progressively turning the handle on these issues and is well able to have them in a list of regulatory requirements that need to be in place to gain any equivalence, or any deal, on financial services.

I turn to Amendment 69C, which requires that if the correct anti-money laundering procedures are not in place—meaning that there had been a corporate conviction of a failure to prevent money laundering—the Secretary of State should ask the court to investigate whether the directors were fit and proper. An automatic finding that they were unfit is not intended; the intention is to mirror what happens under competition law where, following a breach of competition law, the director’s role is looked at. It is already possible for the Secretary of State to refer to the court under their own volition, but I am seeking that there should be some kind of routine follow-up to see whether the directors were, in effect, wantonly negligent or disregarding of their duties, in particular with regard to how they handled internal audit.

I am sure that the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins—who submitted Amendment 69F, calling for a public consultation on corporate liability—will note the overlap with the issues of their concern. I will be interested to hear what is said. Personally, from the general evidence available—including from the Law Commission as long ago as 2010—I am not sure whether consultation is needed on the need to reform corporate liability in general. It is a matter of getting on with it and doing it. There are other areas in which the whole identification doctrine rears its head. Hopefully they will be looked at in due course—but right now, I believe that in the field of economic crime, where we have the precedents for failure-to-prevent offences, the mechanism is known and has been effective and we should proceed to avail ourselves of it. I beg to move.

17:45

[Lord Hain (Lab)]

My Lords, it is a pleasure to follow such an expert and impressive speech from the noble Baroness, Lady Bowles, in moving Amendment 69B. The amendment is supported by my noble friend Lord Collins, and I have put my name to it. It introduces a failure to prevent offence.

In June 2011, the then Financial Services Authority found shocking inadequacies in UK banks’ anti-money laundering controls, with one-third of banks accepting,

“very high levels of money-laundering risk”,

and three-quarters of banks failing to take adequate measures to establish the legitimacy of the wealth they were handling. The then acting head of financial crime at the FSA, Tracey McDermott, said publicly:

“The banks are just not taking the rules seriously enough”.


Yet, after all these strong words, what happened? Instead of the FSA—now the FCA—getting tough with the banks, since 2010 there have been only 10 convictions under the money laundering regulations, not one of them of a bank. It is therefore hardly surprising that there have been repeated money laundering scandals involving UK banks. There is simply no adequate deterrent or serious regulatory risk to make UK banks turn away profitable business that they are offered, and there will not be until the FCA starts prosecuting people and banks for failing to apply the regulations.

By chance, I met a business analyst this morning. Although I did not know it beforehand, he happened to be an expert in this area, and he described London as the money laundering capital of the world. If he is right, that is shameful. The UK is woefully behind where it should be on holding banks and financial institutions to account for money laundering. HSBC was fined $1.2 billion in the US in a criminal settlement for money laundering, and just a few weeks ago it was fined $352 million in France to settle criminal charges for money laundering. Despite being a UK-headquartered bank, and despite being under investigation since last December by the FCA, HSBC has not yet faced regulatory sanction in this country, even though it has been named repeatedly in corruption cases, for example in Nigeria in 2012 and during the 2000s. No UK action was taken against HSBC in any of those cases. Earlier this year, HSBC was again implicated, with other British banks, in laundering ill-gotten money out of Russia.

A failure to prevent offence for money laundering, as provided for in Amendment 69B, would make it significantly easier to hold large global banks such as HSBC to account for poor procedures and for turning a blind eye to handling corrupt wealth. Without this reform, as Jonathan Fisher QC, a money laundering expert, has explained, it would be difficult and clumsy for the FCA or any other agency to prosecute a bank such as HSBC because it would have to show that a director or some other controlling mind in the parent company in London knew about the alleged misconduct. Indeed, it would have to show that that director intended the misconduct to happen. This is an exceptionally high bar which makes it virtually impossible to hold large global financial actors such as HSBC to account in the UK.

In my speech at Second Reading on 1 November 2017, I described a vivid context for this Bill: the massive money laundering organised from the very top of government in South Africa—the presidency itself—and the systematic transnational financial crime network facilitated by an Indian/South African family, the Guptas, and the presidential family, the Zumas. British-based financial institutions such as HSBC, Standard Chartered, the Bank of Baroda and other international institutions have been conduits for laundering hundreds of millions of pounds or billions of rands, mostly through Dubai and Hong Kong.

The South African Parliament itself is in the process of holding a public inquiry into large-scale state capture involving even larger-scale corruption and looting of state-owned enterprises. On 21 November 2017, Mr Zola Andile Tsotsi, erstwhile chair of the state-owned electricity generator, Eskom, gave evidence under oath. What resulted is the first smoking gun implicating the President of South Africa, Jacob Zuma, who exerted shadow control over state-owned enterprises which have been exploited through large-scale looting and money laundering, from which his family and friends have benefited. He did this by deploying one of his nominees, Ms Dudu Myeni, a person near and dear to him—he fathered a child by her. Educated as a primary school teacher, in 2012 she was appointed chair of Africa’s largest state-owned airline, South African Airways. In early December 2015, the then Minister of Finance, Nhlanhla Nene, rejected her request to renegotiate a fleet renewal deal for SAA, because it smacked of corruption. Within days, the President sacked Minister Nene.

Evidence before the South African parliamentary public inquiry showed that, as chair of the state-owned airline, Ms Myeni not only facilitated looting by the Zuma and Gupta families, but also sought to control, instruct and manipulate the running of another state-owned power utility, Eskom, from which the Gupta family, through an intricate network of companies, have siphoned off billions of rands, via various banks, including London-based banks which I am asking the British authorities to investigate. I am grateful to the FCA for the contact it has had with me to pursue this.

First, Eskom chair Mr Tsotsi was ordered by the government Minister for Public Enterprises in February 2015 to refrain from “interfering” with the management of Eskom. He only chaired the Eskom board, after all—why on earth should he bother himself with holding to account the executives underneath him? This ministerial instruction, to put it simply, was aimed at stopping him scrutinising the decisions and behaviour of Eskom and instead ensuring he turned a blind eye to the corrupt award of multibillion-rand contracts to the benefit of the Gupta and Zuma families.

According to the evidence at the parliamentary inquiry that same day in February 2015, Mr Tony Gupta phoned Mr Tsotsi, accusing him of not “helping us with anything”, adding: “We are the ones that put you in the position you are in. We are the ones who can take you out!”. A few days later, on the eve of the newly appointed Eskom board’s first meeting, President Zuma called Mr Tsotsi, instructing him that the board meeting be postponed, without even giving reasons. Less than a week later, Mr Tsotsi was instructed by South African Airways chair Ms Dudu Myeni to attend the presidential residence on 7 March 2015, where she unlawfully ordered the suspension of three of Eskom’s key executive members. President Zuma arrived late to the meeting and ordered that Mr Tsotsi go along with the plan, resulting in one of the most notorious examples of looting in South Africa’s recent history. This Zuma-Gupta conspiracy then left the door wide open for the appointment of Gupta stooges, who in less than 18 months had bled the power utility dry. It now faces bankruptcy and has been downgraded by international financial institutions due to governance failures. I am explaining the background before coming to the point about money laundering and the responsibility of UK authorities.

Eskom has more than 471 billion rands in outstanding debt, the majority of which is guaranteed by the South African Government and owed mainly to funders outside the country. In October 2017, Eskom revealed to its largest shareholder, the South African Government, that the power utility only had 1.2 billion rands left in its cash reserves until the end of November 2017, when it should have had 20 billion rands. It is estimated that by the end of January 2018, Eskom will be running a deficit of 5 billion rands. Eskom’s virtually giving billions to the Gupta-Zuma syndicate through nonsensical consulting contracts, tenders for fictitious goods and services, and advances to allow them to buy the coal mines from which they then sold back overpriced, poor-quality coal is the underlying cause of what went wrong.

Similarly, in September 2017, South African Airways was given emergency Treasury funds to help it repay loans of 3 billion rand to Citibank, again diverting precious money from taxpayers into the pockets of the Zumas and Guptas. The bill is being picked up by taxpayers when there is a shortage of the decent schools, hospitals, housing and job opportunities those billions should be spent on.

Each South African state-owned enterprise has been looted using the same modus operandi by the same elite individuals at the very top of the chain—namely President Zuma and his family, and the now infamous Gupta family. They have placed cronies such as Ms Myeni in key decision-making positions in these public enterprises to ensure that all valuable tenders are siphoned off to the Guptas, and in return a cut is then given to the Zuma family. Hundreds of millions of pounds have been siphoned off these important public companies in a process that has been described by the South African media as “state capture”. What is more, well-placed South African whistleblowers inform me that UK financial and banking institutions have been used for the systemic transnational financial crime network run by Gupta and Zuma families.

Then there is the shadowy figure of Mr Nick Linnell, a “Mr Fixit” who, in the late 1970s, operated in the illegal racist white minority regime of Ian Smith in then Rhodesia. He was unlawfully hired by Eskom, on Ms Myeni’s instructions, to assist in unlawfully getting rid of certain executives, thereby clearing the way for the corrupt capture of Eskom. It has now emerged that South African Airways, through dubious unauthorised payments to Mr Linnell, and working hand-in-glove with the remnants of South Africa’s notorious apartheid police, has deliberately targeted well-known anti-corruption activists. This has resulted in unlawful arrests, detention and torture, as part of a desperate attempt to silence these courageous men and women, to stop them exposing systemic state-sponsored corruption. By the way, last weekend it was announced that Dudu Myeni had been appointed as the special adviser to the Transport Minister and that she came “highly recommended”.

I therefore hope not only that this amendment will be supported by the Government but that there will be an immediate investigation by the City of London Police, the Metropolitan Police and the financial regulatory authorities into all bank accounts held in London by any South African state-owned company. Can the Minister, in replying to the amendment, please give me an assurance that this investigation will proceed? Because of the South African Airways chair’s patently unlawful involvement with the Zuma and Gupta families, the authorities should start their investigations with the airline, which is known to bank here in London, to ensure that its UK accounts have not been used for the illegal laundering of moneys from the proceeds of financial crime in South Africa, and that payments from it into UK banks have not been used to pay off stooges who have unlawfully targeted corruption whistleblowers.

The British Government must not permit any UK-based financial institution to be complicit in the plundering of state-owned companies in foreign lands, especially when that plunder affects the poorest of the poor. South Africa suffered enough repression over the apartheid years, and we cannot stand idly by while economic repression replaces racial oppression, serving the greed of corrupt leaders, when we have the ability to help stop it.

The exposure of HSBC, Standard Chartered and the Bank of Baroda to the parasitic Gupta financial crime network is currently the subject of international law enforcement investigations from the FBI to our own FCA. Inevitably, when dirty money from a global criminal network infects one financial institution, it will sequentially infect a number of others. This is the result of what is known as “correspondent banking”—a term that I have just been educated in—which by its complex nature is often misunderstood. Correspondent banks are international banks that clear smaller, generally domestic banks’ foreign currency transactions through large financial centres. In practice, this means that one transaction can move through a chain of financial institutions from the point of payment before it reaches its intended beneficiary. This creates significant money laundering and terrorist financing risks because each bank in the chain has to rely on the other to correctly identify the customer, determine the real owner and monitor the transaction. In essence, the correspondent bank is only as strong as the weakest link in the chain.

18:00

Umpteen domestic and regional banks will inevitably have been part of the money laundering chain of Gupta money. These include, in South Africa, Nedbank and Standard Bank; in the UAE, Habib Bank; in China, Citibank China and Bank of China; and almost certainly every well-known bank in continental Europe.

In the UK, Barclays Bank, which has a significant presence in South Africa and Africa, together with Santander, which also has a global footprint, should be given a red flag warning to check their exposure to Gupta money laundering—both direct and indirect. It is essential that all UK banks refuse to have anything to do with the Guptas or Zumas. I hope that the Minister will confirm that that will happen and that the same warning is given to RBS, Lloyds and any other UK banks—indeed, any bank that has had any contact with the Guptas or Zumas, inadvertently or knowingly. I, for example, passed sheets of evidence from HSBC accounts to the FCA only recently. In those accounts are clear debits—hard payments—to members of the Gupta family here in Britain. So this is infecting the whole of our banking and the whole of our country.

It is not good enough for those banks to argue that they reported suspicious transactions to their relevant domestic regulatory authorities. For over 10 years the Guptas have washed their money, aided by a labyrinth of correspondent banks—names that we would all recognise and probably bank with. Had these banks closed the Gupta accounts of their own volition, even five years ago, and not simply in reaction to recent political and investigatory journalist pressures, South Africa might not be on her economic knees today.

In the same way as other companies such as Bell Pottinger, KPMG, SAP and McKinsey have been exposed and called to account for complicity in corruption for doing business with the Guptas, so too must these banks of ours. It is not good enough just to haul HSBC, Standard Chartered and Baroda over the coals, because the nature of dirty money is that it passes through a chain of banks from originator to beneficiary. The banks in between are also guilty, and if they do not act, they risk exposure and reputational damage of the kind suffered by HSBC. Look at what happened to Bell Pottinger: as a result, it went bankrupt.

The message from our Parliament should be loud and clear: no UK commercial entity should have anything to do with the Guptas or Zumas. By accepting this amendment, the Government would at last demonstrate that the UK is serious about ensuring that its financial institutions stop being used to pilfer public money from countries around the world and ensure that banks do not put profit before ethics when handling risky money.

[Lord Davidson of Glen Clova]

My Lords, I pay tribute to my noble friend Lord Hain for that remarkable and well-researched analysis of the real problems that money laundering can cause, and the need perhaps to look at money laundering enforcement in the UK rather more sharply than has been done in the past. He has set out the most remarkable tale of corruption in South Africa and the impact it has had on global banking, and not just within the UK.

On Amendment 69B, we are wholly supportive of the underlying principle of criminalising corporate failure to prevent money laundering. I assume that this amendment cannot be contentious. As the noble Baroness, Lady Bowles, pointed out, the Government and the Law Commission both concur in assessing the nigh impossibility of prosecuting large global commercial actors under current corporate liability legislation. It is clear that identifying the involvement of the directing mind in such entities is a major obstacle. Of course, as the noble Baroness pointed out, that skews prosecutions towards the SME sector and risks leaving major crimes unprosecuted. The Serious Fraud Office, which has the difficult and complex task of prosecuting such offenders, repeatedly has called for such an offence, as do Transparency International, Global Witness and Corruption Watch. It will be especially helpful to hear the Minister’s response given the terms of the EU’s current proposed money laundering directive, particularly Article 7, which covers a not dissimilar approach to questions of failures in the corporate sector.

Is it correct to assume the Government will adopt the proposed new EU directive? More generally, are the Government committed to maintaining regulatory alignment—to use a phrase—with the EU’s AML terrorist financing regime? Or do they envisage a different autonomous regime in due course? The autonomous regime approach has the potential to freeze the access of UK financial services to EU financial markets. I am not sure that I have detected thus far what the Minister’s response is to that particular concern.

The amendment standing in my name regarding consultation, to which the noble Baroness, Lady Bowles, kindly referred, resulted partly from the Government having opened a call for evidence in January this year on corporate liability for economic crime, which inevitably covers money laundering, but nothing appears to have emerged from the Ministry of Justice thus far.

True it is that the Government are reported to have proposed consultation for reform this year, but this year is running out. Amendment 69F seeks to create an obligation within a timeframe for consultation on corporate liability for money laundering, terrorist financing and other financially threatening offences. True it is that there has been a consultation process, a discussion of this area, for very many months, indeed years. As has been pointed out, perhaps we are getting to the point where action is required rather than further consultation. But consultation with a timeframe might at least assist the Government in moving forward even earlier. The fight against economic crime must have a real priority. Economic crime destabilises both fragile and developed economies, as my noble friend Lord Hain has pointed out so eloquently. Of course, one recognises that this Government sometimes seem to be having difficulty concentrating on any issue other than Brexit. This amendment will oblige the Secretary of State to give priority to corporate liability for economic crime.

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Bowles, for introducing this amendment; she brings her own expertise in this area from her role in the European Parliament. That was evident in the way she went through a very complex issue, and I will come to the response on that.

These amendments propose creating a new corporate criminal offence for the failure to prevent money laundering, and launching a public consultation within six months of this Bill receiving Royal Assent regarding possible further reform of the law relating to corporate liability for money laundering, terrorist financing and offences which pose a threat to the integrity of the international financial system.

I understand and sympathise with the need to ensure that policies are in place which effectively prevent money laundering. However, I hope that the Committee will agree that it is of paramount importance to consider the evidence and current context before creating a new corporate offence, as the noble and learned Lord, Lord Davidson, invited us to do before introducing this element. He referred to the Ministry of Justice call for evidence earlier this year on potential reforms of the law relating to corporate liability for economic crime. Indeed, one of the options considered within that call for evidence was the potential for creating a corporate criminal offence of failure to prevent economic crime. I am sure the Committee can see the overlap with the new offence proposed by Amendment 69B and the provisions of Amendment 69C. The Ministry of Justice is considering the responses to its call for evidence, and will publish a response in the new year.

I should say that the responses to these consultations are like buses: you wait for a few months and then three of them come along together. The other one is of course on our anti-corruption strategy, which the noble Lord, Lord Collins, referred to. I mention it in this context to say that my noble friend Lord Ahmad and I have just been discussing it, and we will seek to provide a substantive update on progress towards the strategy by Report in the new year. Of course, because some of the consultations are outstanding, some of the elements of that strategy may need to wait until they are clarified.

[Baroness Kramer]

Just for clarification, is the Minister saying that before Report he will be publishing the MoJ’s response to its consultation? He said it would be in the new year.

[Lord Bates]

I did say the new year, but I was talking about two different things. That is my fault. The MoJ consultation response will be published in the new year—that is what we have said. Earlier the noble Lord, Lord Collins, asked what had happened to the anti-corruption strategy, which is an overarching approach by the Government. I was saying that after discussing that with my noble friend Lord Ahmad, who leads on these matters—

[Baroness Kramer]

Can I clarify that the MoJ response to the consultation will not be available before the Bill has completed its process through this House?

[Lord Bates]

The new year is the new year. I do not want to prejudge when that response might be. I have said enough, basically; obviously we are trying to respond to noble Lords’ questions on these matters as fully as we can, but that is as far as I am able to go at this point. What I was saying about the anti-corruption strategy was that we will seek to provide a substantive update by Report.

I hope the Committee can agree that it would be precipitous to introduce a further “failure to prevent” offence before we properly review this evidence. Similarly, this call for evidence substantively overlaps with Amendment 69F, proposing a new consultation relating to corporate liability for offences of the type referred to in Clause 41. It is right that we wait for the Ministry of Justice to respond to this call for evidence before undertaking a further public consultation that covers the same ground.

Further, the Government introduced corporate criminal offences of failure to prevent bribery, which the noble Baroness, Lady Bowles, referred to, through the Bribery Act 2010, and failure to prevent the facilitation of UK and foreign tax evasion in September through the Criminal Finances Act 2017. Consideration of the introduction of future “failure to prevent” offences should be informed by how those policies operate in practice. While the Bribery Act 2010 has been in force for a number of years, the relevant provisions of the Criminal Finances Act 2017 were commenced only in September of this year, meaning that as yet there is little evidence on how the offences established through that legislation are operating in practice.

I further note that many instances of corporate failures related to anti-money laundering are already captured by existing anti-money laundering legislation. The 2017 money laundering regulations, for example, already impose requirements to prevent money laundering on companies in the regulated sector, such as banks, lawyers and accountancy firms. Breaches of any of those duties by the company are subject to civil or criminal penalties, including fines. For example, firms are required to put and keep in place specific policies, controls and procedures to manage and mitigate effectively the risks of money laundering to their business, including by their clients or customers.

Those regulations, the previous regulations and related rules are well enforced. For example, the Financial Conduct Authority fined Deutsche Bank £163 million in January this year for failing to maintain an adequate anti-money laundering framework, after its investigations revealed that a UK division of the bank had failed to take reasonable care to establish and maintain an effective anti-money laundering control framework. Further, in 2015 the Financial Conduct Authority fined Barclays Bank £72 million for similar failures in guarding against financial crime, noting that Barclays,

“did not exercise due skill, care and diligence”,

and,

“failed to assess, manage and monitor those risks appropriately”.

These financial penalties substantively demonstrate that effective and proportionate penalties are already applied to UK-regulated firms that fail to put in place proper systems and controls to prevent money laundering.

18:15

I will update that point in the light of the contribution of the noble Lord, Lord Hain. I have discussed with him in this Chamber the shocking revelations that he has brought to the House’s attention. I know that he wrote in some detail to the Chancellor of the Exchequer and that the Chancellor immediately forwarded that onto the relevant authorities. It is good to know that the Financial Conduct Authority—which, of course, is at arm’s length from the Government—is in contact with the noble Lord and that the evidence that he has presented to your Lordships’ House today has been handed to it.

However, we should also remind ourselves that between 2010 and 2014 more than 1,100 people were prosecuted for such money laundering offences in each year, and at least 400 people received a custodial sentence in each year. That includes offences in legislation other than the 2007 regulations in force at the time. Law enforcement agencies also believe that money laundering regulations have had a substantial deterrent effect.

One should also say, with regard to the reputation of the City of London, that the UK is proud to have a large and successful financial services industry that is highly regarded around the world because of its rules-based order, its regulation and its systems of governance. London has established a position as the world’s pre-eminent financial centre. Like the financial institutions that operate within it, of course, that is based on a reputation for trust and transparency. It is therefore beholden on us to protect that great part of the UK economy by ever seeking to improve and strengthen areas of transparency and anti-money laundering against those who would seek to undermine its credibility internationally.

I want to mention the important reference made by the noble Baroness, Lady Bowles, to senior managers and internal audit. She referenced a number of companies. The senior managers and certification regime already ensures individual accountability in financial services firms for money laundering. The regime requires senior managers of firms to take reasonable steps to monitor their staff’s conduct in relation to their area of responsibility, one of which is anti-money laundering. If the regulators can prove that they have not taken reasonable steps, they can take enforcement action, including fines and disbarment from undertaking regulated activities. This regime currently applies to senior managers in banks, building societies, credit unions, PRA-designated investment firms and UK branches of foreign banks. Given that the work in this space is already under way, and in order to allow that work time to be properly developed, I therefore ask the noble Baroness to withdraw the amendment at this stage.

[Lord Hain]

Perhaps I may press the Minister to respond to my request on red flag warnings to the British domestic banks. I am happy for him to write to me about it, but some government response on this matter is important to try to deal with this infection of our own banking system by a disease that is spreading throughout the South African economy.

[Lord Bates]

The noble Lord, as an experienced Member, will know that when there is an ongoing investigation, to which he referred, it is often dangerous for Ministers, who are supposed to be detached from the process, to comment. However, I recognise the seriousness of the allegations—as does the Chancellor—and they have been passed to the appropriate authorities. I am pleased that they are being investigated.

[Lord Hain]

I apologise to the Committee for probing this point. I am grateful for the Minister’s response but I have named other banks as well as those to which I previously referred—namely, HSBC, Standard Chartered and the Bank of Baroda. I hope that he or the Chancellor will send me a letter in the manner in which the Chancellor responded to my earlier request—even if the Minister cannot respond this evening, for reasons that I totally understand.

[Lord Bates]

I am happy to undertake to write to the noble Lord in response.

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister for his responses to the amendments in my name and that of my noble friend. I am conscious that there are issues of due process around consultation, but forgive me if I also think that there was a bit of fancy footwork going on with the alacrity with which a call for evidence went out during the progress of the Criminal Finances Bill, when some distinguished Members of the other place started to take a great deal of interest in including an offence of failure to prevent. It is the best part of nine months since then and probably three months since I was contacted and asked whether it was okay to publish my submission to the call for evidence. I said yes, but still nothing has been published. I do not know why we cannot see some of the responses separately from the response of the Ministry of Justice.

However, one thing that has been established is that we have a pretty rubbish criminal regime on corporate liability. Something has to be done. In that context, it would be good to know how long the Minister thinks it might take for the Government to analyse whether any good has been done by having a second failure-to-prevent offence on tax evasion. I gave an exposition of how good it is to have one, and it will not be shown to be any weaker vis-à-vis tax evasion than it is vis-à-vis bribery. Therefore, to require specific evidence within the economic crime sphere is probably overegging it.

The Minister referenced fines, and there will potentially be more fines under the money laundering regulations 2017. I accept that, as well as what he said about the senior managers regime—but ultimately you have to be able to bet to board level. It is, importantly, board members who ultimately control how much resource goes to internal audit. That is behind the director disqualification point. It is always somebody further down, not the people at the top—the people who are able to pass the buck to some junior person who may not necessarily have been given the resources. They are the ones who carry the can, mainly in the senior managers regime.

I therefore hope that the Minister will listen to and think about these points, and consider how much use the Secretary of State is making of the potential for director disqualification when it is discovered that procedures have not been in place in the regulatory environment. The Secretary of State could still say, “Right, I want investigations of whether the directors are fit and proper because they have allowed these things to go on within the companies for which they are ultimately responsible”.

[Lord Hain]

I would be grateful if the noble Baroness and my noble friend Lord Collins would consider putting this amendment to a vote on Report. I worry that the consultation will go on for so long that the Bill will have passed through this House—and possibly the Commons as well—before we have a chance to vote on this important failure to prevent offence.

[Baroness Bowles of Berkhamsted]

I thank the noble Lord, Lord Hain, for his support. It is certainly a matter to which we will return—not least because the other place has shown interest in this subject. There are problems with the timing; it may be on the never-never, as he suggests. But for now, I beg leave to withdraw the amendment.

Amendment 69B withdrawn.

Amendment 69C not moved.

Amendment 69D

Moved by

[Baroness Bowles of Berkhamsted]

69D: After Clause 41, insert the following new Clause—
“Money laundering: technical amendment
(1) Until two years after exit day, as defined by section 14 of the European Union (Withdrawal) Act 2017, an appropriate Minister may by regulations made by statutory instrument amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692) in order to—(a) replace references to EU directives and regulations with corresponding references to UK legislation;(b) transpose references to European Supervisory Authorities and any review, report, guideline or Regulatory Technical Standards requirements of the European Supervisory Authorities into corresponding requirements of UK supervisory bodies with any obligations to take account of international developments and to consult also being carried over;(c) transpose requirements for European Commission reports into report requirements from the Treasury and Home Office, including any obligation to take account of international developments;(d) transpose references to delegated acts into provisions for regulations made by the affirmative procedure;(e) update references relating to EEA passport rights or replace them with any corresponding or negotiated right; (f) amend definitions of credit institutions and financial institutions or any other definition lists to eliminate EU cross-references and establish corresponding entity lists;(g) convert any amount in euros to sterling;(h) modify or delete provisions relating to the EEA to retain reference as appropriate or combine with third country provisions;(j) replace reference to the identifying of high risk third countries by the Commission with corresponding UK procedure that takes account of international provisions.(2) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”

[Baroness Bowles of Berkhamsted]

My Lords, the amendment is a very probing amendment—a very “proby” probing amendment—and an illustration of what technical changes could look like, not just with the money laundering regulations but in financial services more generally. It is a vehicle to discuss further what transposition from an EU directive means. The interest is in the contrast between the sorts of things I am going to talk about and what happens through the withdrawal Bill. I drafted the amendment as an add-on to preserved money laundering regulations. While it could be what Schedule 2 could look like, it could be used in the context of the withdrawal Bill, which I understand has to be even more generic. However, it all looks rather “smoke and mirrors” and is not clear on the scope of what might be considered appropriate or redundant, or what might emerge from it. I confess that what I have produced was initially based on my own little check-list of what I might look for in the future, and I thought it would be useful to discuss it.

The amendment says that the Minister “may” make regulations, but some of the points are essential and here we should at some point say there “shall” be carry-over of the relevant policy elements. That is what I am driving at—that one should not lose the policy framework.

Paragraphs (a), (f) and (g) are simply terminology corrections: instead of defining financial institutions with reference to the EU capital requirements directive and markets in financial instruments directive, one just transposes that into a UK list of entities. That is doubtless the sort of thing the Government will be doing. I also suggest changing amounts in euros to sterling. In the context of the fifth money laundering directive, one should probably go further and also be able to change the amounts by regulation. I would have no problem with that.

However, paragraph (b) should perhaps contain “shall”. It provides that reports, reviews and guidelines that were previously to be done by European supervisory authorities be taken over and carried out by UK supervisors, and policy guidance be carried over,

“to take account of international developments”.

My fear here is that in eliminating what are regarded as superfluous EU references, we inadvertently end up disregarding the policy. As my noble friend pointed out, the Government have not addressed the loss of policy framework alongside putting in compensation for a loss of power framework. The Government have said repeatedly that they do not intend to change policy in making post-Brexit or ready-for-Brexit changes, but then you cannot leave behind some of the policy that came from the EU. On the money laundering directives, that would include provisions on proportionality.

18:30

The problem can be seen both within this Bill and in the European Union (Withdrawal) Bill: so much is left to what the Minister considers relevant and can be omitted at the slightest whiff of an EU mention, rather than being converted. The policy points are changed to power, but they lose that dimension.

The European supervisory authorities have to take account of quite a lot more within a directive—what is in the recitals, and the framework around delegated powers. None of that is ever transposed into our regulations. Further, when you cut off the cascade down, that input is not there. Paragraph (c) of the new clause states that the Commission’s reports and guidance should be put into a UK-equivalent setting, and paragraph (d) covers delegated legislation, which could come from the Commission or under the advice of European supervisory authorities.

I could be generous and say that the reason why none of that appears in the Bill or is carried over is that the UK, when focusing on transposing EU legislation, does only what is legally necessary and sometimes adds gold-plating that it can blame the EU for. It remains blind to any cascade effect, because that will come in through regulatory technical standards that will automatically have to be picked up by our supervisory authorities. It is a very specialist issue, but important to all financial services. If you do not provide for transposing the policy framework, you have lost something. Our supervisors will then not necessarily be taking into account the same things as the European supervisory authorities.

These are not big things but they are important safeguards for businesses, which have been told that they will have, more or less, a standstill arrangement, but there is no certainty. We know that businesses are trying to get some certainty about Brexit, but the Government cannot give it to them because the negotiations are ongoing. If businesses bothered to cast their minds over Bills such as this, they would suddenly say, “My goodness, there is no certainty here! Why do I want to spend my money on internal audit to ensure that all these checks and balances are continuing as now, when it might all be thrown out of the window and a completely different regime might come in?”. These policy points have practical application, and I would certainly be prepared to have conversations about how they could be incorporated.

Returning to the amendments, paragraphs (e) and (h) cover things that might need to be done with regard to the EEA such as passporting references. Again, these things will be done anyhow, but we have to make decisions: will the EEA be the same as a third country or will it have special status? There are probably more things that we will need to look at in the payment part of the directive, but I do not want to keep your Lordships here all night. I just want to reinforce that if you promise no change of policy—that is what the White Paper said about the withdrawal Bill, and it is therefore probably meant to be carried over into this Bill—and if the Government want to depart substantially from that, it is not part of the Brexit adjustment and should be done on a consultation and evidence basis. There is no indication that that will happen. The legislation is therefore ephemeral.

I drafted the amendments to show what a slightly more predictable outcome might look like in conjunction with the money laundering regulations. I beg to move.

[Lord Patten (Con)]

My Lords, rising for the second time during Committee, I remind the Committee, as on the previous occasion, that I have interests in the financial services world. Having declared that, I must also declare that I love the new concept that the noble Baroness, Lady Bowles, has introduced of not a probing amendment but a “probing probing amendment”, which is exactly what Hansard will, now that I have repeated it, have to record tomorrow for posterity. This will go down over the centuries and may be multiplied in many more ways.

I am fascinated by the point that she made about the read across from EU directives, but I rise to make a “probing speech”—I am more modest—about whether we need to take account in our discussion in Committee today of the announcement that the EU made only yesterday, 5 December, when the Economics Commissioner for the first time blacklisted 17 countries for money laundering. This is the first time that the EU has ever done this. It included Barbados and Grenada. It also grey listed—that is, put on watch—a whole load more, including British territories such as the Isle of Man, Jersey, Guernsey, Bermuda and the Cayman Islands, for possible money laundering. Do we need to consider this? It is a listing, not a directive, but it is linked to what the EU specifically called “aggressive tax avoidance”, which is what we are very concerned about and do not want to see.

This is the first time that the European Union has gone into this issue. Commissioner Moscovici has urged all members to continue to agree on “dissuasive national sanctions”—believe me, Hansard, those are the words he used: “dissuasive national sanctions”. I thought that we had long ago done just this, in this country and in other international fora, when we produced endless lists of countries that should or should not be under the cosh of being blacklisted or grey listed. Do we need any more of this? Were we involved with the EU in discussing whether there should be blacklisting or “grey” listing of the countries? Did we try to dissuade it from going around the same old course again and making it very much more complicated in this first, highly immature step into such listings?

My probing question is: do we approve of what the EU has done? My second probing question is: does it relate to the Bill in any way, and should we be concerned with it, because I strongly support the Bill?

[Baroness Kramer]

My Lords, the noble Lord, Lord Patten, may be very interested in the next group of amendments, given the theme that he has just raised. He may have raised it because he cannot remain for that group, but if he has the opportunity, he will get a thorough response to the questions that he has just raised—possibly not from the Government, but certainly from other Benches.

I rise to explain the origin of this particular amendment. This came as a consequence again from the meetings that the Minister very kindly was able to offer to discuss the content of the Bill. The Minister will be aware of how strongly I feel about the importance of keeping the democratic process embedded in creating anti-money laundering legislation by essentially taking those powers that are undertaken by the European Parliament and the Council and transferring them to this Parliament, rather than to government Ministers and executive control. That is the underlying issue that essentially faces this Bill, and we discussed some of that earlier.

When we were in that discussion and proposed something very simple—the text of Amendment 68A, which took the existing 2017 regulations, put them on to the face of the Bill and then said they could be amended only by primary legislation in order to make sure that that democratic process continued—two primary issues were raised with us. First, it was said that sometimes action would need to be fast-tracked. We took care of that, as your Lordships who were here will remember, under Amendment 69A, which provided a fast-track mechanism for those moments of emergency. However, I notice from the Delegated Powers and Regulatory Reform Committee report that, when it probed to try to find examples of those emergencies, the FCO could not come up with a single one, which the committee was not very impressed by. But let us accept that there are times when there are emergencies—and there certainly is a role that FATF plays—so we made a carve-out for that.

The second issue that was raised with us was that it would be impossible to change in the Bill the language of regulations tied to the European Union and convert it over to a UK equivalent—that was almost too impossible for anybody who was sitting there drafting the Bill even to contemplate. The noble Baroness, Lady Bowles, who is a fearsome drafter, very rapidly took pen to paper and drafted an amendment which pretty much does that. She accepts that the amendment may not be absolutely perfect, but she does not have the resources or legal staff that the department has available to do the checks and complete conversions. I believe that this particular transposition took about an hour, and I think that anybody on the government Benches would agree that, in terms of making that shift, the amendment probably does 98% to 99% of what is necessary and is in need of only a little refinement.

The amendment makes it clear to the Government, since such a challenge was thrown down, that there is a very simple way—it is a relatively short new clause—to cover what, apparently, was one of the primary obstacles or difficulties for moving through the primary legislation route. This would leave the policy framework and principles in place as part of a democratic process, rather than requiring that all of those be abandoned and we just go to a regulation process on these very fundamental issues.

As my noble friend has said, these provisions can place great burdens on business and—we will come on to this later—can lead to the creation of criminal offences, with imprisonment for up to two years; can define the defences available against prosecution; can put in place new supervisors and change the powers of those supervisors; and can redefine every other piece of legislation that uses the phrase “terrorist financing”, using sweeping wide powers.

I understand the Government would have loved to have been able to do that in primary legislation but could not see a way through and was therefore forced to try and do this through a regulatory mechanism. This amendment is just one of those examples that makes it clear that it can be done, and I hope the Government will take it seriously.

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Bowles, for doing this. I have to say that I am growing in awe of the noble Baroness and her drafting skills. Should there be any vacancy among the clerks in the Public Bill Office, they will be quite impressed by the notion that the noble Baroness can draw up this technical amendment in one hour—it is very impressive indeed.

My noble friend Lord Patten perhaps did the noble Baroness a disservice by saying that it was a “probing probing amendment”; I think it was a “very probing probing amendment”, which the record should capture. Having read through her handiwork in the drafting, I think she did not do herself justice. The amendment certainly provides a welcome opportunity—which is, I know, its purpose—for us to put on the record some further remarks about how we see this particular issue being addressed.

18:45

Amendment 69D recognises that powers of the type contained in the European Union (Withdrawal) Bill are required to ensure that the money laundering regulations 2017 operate properly after the UK has left the EU. Noble Lords will be aware that Clause 7 of the European Union (Withdrawal) Bill, as introduced, provides the Government with the powers to make regulations that the relevant Minister,

“considers appropriate to prevent, remedy or mitigate”,

deficiencies in the retained EU law arising from the UK ceasing to be a member of the EU. This power, taken with the fact that the European Union (Withdrawal) Bill will preserve EU law as in force directly before the UK ceases to be a member of the European Union, will ensure the functioning of the UK statute book immediately after the UK leaves the EU. I do not see any reason why the powers proposed through Amendment 69D should sit in this Bill rather than in their natural home, which is Clause 7 of the European Union (Withdrawal) Bill.

Additionally, although this amendment contains reference to the majority of the deficiencies that have been identified within the money laundering regulations 2017 as a result of the UK’s future withdrawal from the European Union, it does not contain reference to all such deficiencies. I am sure that this was not the intention of the noble Baronesses, Lady Bowles and Lady Kramer, in drafting the amendment, but the amendment would nevertheless limit the ability of the Government to ensure the continued effective operation of the money laundering regulations 2017 after the UK ceases to be a member of the EU. Accordingly, I do not agree at this stage with Amendment 69D—which will not come as a surprise to the noble Baroness, as I do not think that she intended it for that purpose.

However, let me address some of the points which were raised during the course of this short debate. First, my noble friend Lord Patten referred to the blacklisting decision taken by the European Commission yesterday. All jurisdictions have committed to reforms and have until the end of 2018 at the latest to implement these in terms of the EU blacklist, and it is important that they do so. It will be for the EU Code of Conduct Group to monitor the commitments taken by jurisdictions and to consider whether these are being fulfilled. The list will be updated to reflect this, as agreed by all member states, and we are fully supportive of this process.

In terms of the grey list mentioned by my noble friend, there is no grey list. The Council conclusions from yesterday’s meeting set out those jurisdictions that are being cleared, have made commitments and have been deemed by the EU Code of Conduct Group to be co-operative jurisdictions. This is not a grey list as such, but a demonstration of the positive commitments that over 30 jurisdictions have taken to address the concerns of the EU Code of Conduct Group. The commitments made by these jurisdictions will benefit all member states in helping to protect our tax bases and being able better to tackle tax evasion.

[Lord Naseby (Con)]

My noble friend Lord Patten said that there was a black list and a grey list, but the Minister is now saying that there is no such thing as a grey list. That is quite an important clarification, because either the overseas territories are on the black list or they are fully co-operating and on the non-existent grey list. So there is a degree of clarity required about an important matter such as this one.

[Lord Bates]

My noble friend is right, and I am sorry if I have not been very clear on this. The key point was that the stylistic terms “grey list” and “blacklist”, which may be for general convenience, were not reflected in what we were saying—rather, it is a demonstration of commitments by the 30 jurisdictions named to address the concerns of the EU Code of Conduct Group. So we are more discussing the semantics of the terms that might be used to describe a jurisdiction which is complying or not complying, or progressing or not progressing, towards addressing concerns of the Code of Conduct Group.

[Lord Patten]

It is extremely important that we have the terminology right. If I have got it wrong, I apologise to the territories involved. I think—I ask my noble friend to reflect on this—that it is perfectly daft to put a British Overseas Territory such as Bermuda on a list of whatever shade of grey, because I believe that it is a very upright outfit and a suitable, well-run territory for financial services, and I do not believe that it is involved in money laundering. But it has been fingered in reports, and Commissioner Moscovici said yesterday that it was on some sort of grey list. We need a certain amount of clarity, because it is damaging to those people who do business with Bermuda. So I agree with my noble friend.

[Lord Bates]

That is a good point.

[Baroness Kramer]

Can I just be helpful? I am sure that there will be a better note from the Box, but is the correct phrase “on notice” for the group that falls within the terminology of the grey list? Is that the correct terminology?

[Lord Bates]

That may indeed be a very helpful intervention from the noble Baroness, Lady Kramer. However, for the record, because this is a serious point, the note that I read out may not fully reflect the announcement to which my noble friend has referred. To make sure, I shall seek some additional clarification. The next group is very germane to the issue that he raises in relation to overseas territories. Therefore, perhaps without presuming on my noble friend too much, we may have some further information that will better answer that particular point.

In fact, a note has arrived, and I can say that the list published yesterday relates to tax. The EU maintains a separate list of countries which represent a high risk of money laundering and terrorist financing, to which UK firms must have regard. That may be part of the answer; more will come in the next group, if my noble friend can bear with us.

On the EU withdrawal Bill, which the noble Baronesses, Lady Bowles and Lady Kramer, asked about, Clause 7 is very clear—it is a power to remedy deficiencies in law that arise as a result of the UK leaving the EU, no more and no less. That is a level of certainty which I hope will offer some reassurance to the noble Baroness. We do not intend to make changes to the 2017 regulations other than to make those fixes. The 2017 regulations refer to guidelines issued by the European supervisory authorities. Amendment 69D enables those references to be removed only if they are replaced by references to those issued by the UK supervisory authorities. Those would cause additional work and a risk of duplication with other guidance. So, in response to that, and after what I am sure has been a very helpful debate, if not fully illuminating at this stage, I invite the noble Baroness to withdraw her amendment.

[Baroness Bowles of Berkhamsted]

I thank the Minister for his response. As he perhaps imagines, we will return to the issue again. I take his assurance about the withdrawal Bill not being to make changes of policy, but we still have the problem of what this Bill will be doing. It opens the door to very substantial changes of policy and principle, and that is the problem—nowhere does it have such reassurance that that is not going to happen. I think that the Minister has understood that there are things, especially in financial services regulation, where there is a policy framework, as we have tended to refer to it. Without duplication, you make sure that it is within scope of what the UK supervisory authorities would do—or there are provisions that there should be reviews, which have been put into European legislation for good and proper reason. I probably put a lot of them there myself, and I was probably cheered on by people in the Treasury for doing so. It would be quite appropriate to have something that says that we will continue in the same vein.

I thank the Minister for his comments about my drafting skills. As he probably knows, this involves about 100 directives and I remain available to assist if somebody does not know why they are there, because I probably do. At this point, I beg leave to withdraw the amendment.

Amendment 69D withdrawn.

Amendments 69E and 69F not moved.

Amendment 69G

Moved by

[Baroness Stern]

69G: After Clause 41, insert the following new Clause—
“Public registers of beneficial ownership of companies in the British overseas territories
(1) For the purpose of preventing money-laundering, the Secretary of State must provide all reasonable assistance to the governments of—(a) Anguilla;(b) Bermuda;(c) the British Virgin Islands;(d) the Cayman Islands;(e) Montserrat; and(f) the Turks and Caicos Islands,to enable each of those governments to establish a publicly accessible register of the beneficial ownership of companies registered in that government’s jurisdiction.(2) No later than 1 January 2019 the Secretary of State must prepare an Order in Council, and take all reasonable steps to ensure its implementation, in respect of any British overseas territories listed in subsection (1) that have not by that date introduced a publicly accessible register of the beneficial ownership of companies within their jurisdiction, requiring them to adopt such a register.(3) In this section a “publicly accessible register of beneficial ownership of companies” means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006 (information about people with significant control).”

[Baroness Stern (CB)]

My Lords, I rise to speak to Amendment 69G in my name and those of the noble Baroness, Lady Kramer, and the noble Lords, Lord Collins and Lord Kirkhope, who regrets very much that he cannot be here. The amendment continues the debates that began in what is now the Criminal Finances Act 2017. It reflects the widespread and continuing concern about how the lack of transparency in the offshore financial centres of the British Overseas Territories—that is, Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos—enables the corrupt and criminal to find a haven for their ill-gotten wealth.

The publication of the Panama papers in April 2016 revealed information about thousands of questionable financial transactions. Half of the companies disclosed by the Panama papers—around 140,000—were registered in the British Virgin Islands, which we have heard mentioned a number of times today in relation to property transactions. Those revelations brought home to many the highly damaging effects of the lack of transparency in those overseas territories. During the proceedings of the Criminal Finances Bill, a similar amendment to this was debated, which would have required the Government to help the British Overseas Territories to produce publicly accessible registers of beneficial ownership by the end of 2018. Should any of the territories fail to produce such a register, the Government would require them to do so through an Order in Council no later than the end of 2019.

The amendment became victim to the wash-up before the general election, and an alternative government amendment became part of the Act. This requires the Government to,

“prepare a report about the arrangements in place between … (a) the government of the United Kingdom, and (b) the government of each relevant territory, for the sharing of beneficial ownership information … The report … must be prepared before 1 July 2019, and … must relate to the arrangements in place during the period of 18 months from 1 July 2017 to 31 December 2018 … The relevant Minister must … publish the report, and … lay a copy of it before Parliament”.

Considering the impending dissolution of Parliament and the lack of time, the government amendment was very welcome.

19:00

The move towards establishing registers of beneficial ownership to be commenced by 1 July 2017 and accessible to British law enforcement was a step on the right path. However, it did not go far enough in moving towards greater transparency and, since then, the demand for public registers has continued and has been fanned by the publication of the Paradise papers, which once again revealed information about secret transactions—on this occasion concentrating on tax avoidance. That is the background to Amendment 69G, which is indeed a probing amendment aiming to establish what progress has been made and how the Government now see the importance of transparency in the light of recent developments on money laundering.

The Overseas Territories Joint Ministerial Council met last week. We are truly fortunate that the noble Lord, Lord Ahmad, is, among his many other responsibilities, the Minister for the Overseas Territories. Following the meeting of the Joint Ministerial Council, can the noble Lord when he replies—if he intends to reply on this occasion—tell the Committee exactly what progress has been made in the British Overseas Territories with preparing registers and in sharing information? Do all the British Overseas Territories have accessible registers covering all the companies in their jurisdiction? On how many occasions have British law enforcement agencies sought access to the registers and have these arrangements for access proved satisfactory? Can the Minister confirm that a progress report is due in January 2018 and also explain how the progress report will be compiled and how it will be published? In answering these questions, it is clear that the Minister will have to take into account the huge damage caused by the recent severe hurricanes on the British Virgin Islands, Anguilla and the Turks and Caicos.

Another of the noble Lord’s responsibilities is for human rights. This is not only a financial issue, it is fundamentally a human rights issue. If there is no transparency, it is too easy for those who siphon off from impoverished countries the revenue, say, from natural resources, such as oil or diamonds, that should be allocated to meet the needs of the people, to hide this money in shell companies in offshore jurisdictions. The consequences are that, for many millions of people—women, children and men—their right to health, their right to education and, in many cases, their right to life itself is jeopardised.

Transparency is not the only solution to preventing the laundering of stolen money, but transparency led to the UK’s Panama papers task force, which is pursuing 74 individuals and 26 companies and has made links to eight Serious Fraud Office investigations. Transparency has also led to the resignation of politicians—last year, the Prime Minister of Iceland and, this year, the Prime Minister of Pakistan. Former Prime Minister David Cameron has been quoted by a number of noble Lords and I will do the same. At the Anti-Corruption Summit 2016, he said with admirable simplicity:

“If you don’t know who owns what, you can’t stop people stealing from poor countries and hiding that stolen wealth in rich ones”.

I beg to move.

[Baroness Kramer]

My Lords, it is a privilege to support this amendment. I, too, participated in the passage of the Criminal Finances Act, and I can say with complete confidence that, had it not been for wash-up, the amendment proposed by the noble Baroness, Lady Stern, would undoubtedly have passed this House, and I think it was evident to everybody, including the Government, that it would not have been opposed in the other place either. It would now have been in place in law, which would have been a very good result both for this country and for those who suffer from this combination of kleptocracy, terrorism and industrial-scale criminal behaviour.

I think we agreed in the House then that those activities, which are so distasteful to everybody here, can survive only because there are portals that enable that black money to be converted to white. We have a responsibility to close down each and every one of those portals; it cannot be done in one fell swoop, but we need to do as much as we can as rapidly as we can. Indeed, when we look at much of the instability and much of the suffering across the globe, if we cannot make it financially disadvantageous for those who carry out so much of this rotten and corrupt behaviour, we will have very little ability to make fundamental change.

This amendment has long and far-reaching consequences because it takes such a significant step in continuing the British leadership role in closing down those portals. This is one reason why I am speaking here today. Another reason is to raise the EU question—yet again. The noble Lord, Lord Patten, inadvertently brought the issue forward in the previous group, I think possibly because he had to leave—he is not in his place at this moment—and he thought it important to raise it. The UK in its role has, in a sense, almost worked in two ways. It has worked to put pressure on the overseas territories and Crown dependencies to move to central registers, which I applaud. That process is under way and, for some countries such as Bermuda, has been in place for many generations. Getting to central registers is a very important step in the process of trying to counter tax haven abuse and money laundering. I recognise all that and, in fact, it would be interesting if the Minister could update us on the point that that progress has reached.

The benefits of that process rely on those central registers then being accessible to enforcement agencies in this country and other locations. If they identify a potential criminal, they can then try to chase down whether they have assets hidden in various locations—in this case, particularly in the overseas territories and Crown dependencies. That is an important step, but I am conscious—as is everybody in this Chamber, I suspect—that our law enforcement authorities have very limited resources. An issue, a name, a crime has to come to their attention; there has to be something that indicates to them where assets related to that may be located and they then have to pursue that process. They may get responses very quickly but, if I were a kleptocrat or a criminal, I would reckon the odds were so much in my favour that no enforcement agency would ever find my name and be able to identify the information that was necessary to enable it to pursue me. The odds are overwhelmingly in favour of those who continue to abuse this and to hide their assets.

That is why a public register is so crucial. We as a country have recognised that ourselves. We have made our own register of companies public and transparent. That is a huge and important achievement. We did not do it lightly; we did it because fundamentally, we felt that it was absolutely necessary, and that simply saying that enforcement officials could seek information from the register was insufficient.

Initially, Prime Minister David Cameron intended that the overseas territories and Crown dependencies would follow very much in that direction. But since then there has been new resistance in many, though not in every one, of those locations. Their argument is that they dare not move any faster than the pace of overall international change in increasing transparency. We all recognise very long grass when we see it. Our contribution must be to use the powers that we possess, and the relationships that we have with our overseas territories—it is much more difficult with the Crown dependencies—to achieve that transparency and those public registers.

An additional, much smaller but not irrelevant, issue faces us now if we go through the process of Brexit. As my noble friend said earlier, the EU has become much more aggressive in trying to tackle issues around tax havens and money laundering. An article in the Observer on Sunday—I am sure the Minister read it—contained a fair amount of evidence that the British Government have used their influence to try to protect the overseas territories and Crown dependencies from appearing on the blacklist being developed, and even not to have them on the “on notice” list. In the end, on the “on notice” list are Guernsey, Jersey, the Isle of Man, Bermuda and the Cayman Islands: that is not the complete set of overseas territories and Crown dependencies, but many of them are on the list.

There is a general perception that some of those places might have made it on to the blacklist had there not been protection from the British Government. I do not mean that in a corrupt way, but there is a sort of—how shall we say?—professional courtesy that one member of the European Union offers to another in understanding its particular issues and concerns, and in holding back its hand. If we leave the European Union that will no longer be there. If those countries turn up on the blacklist, the consequences for them will be severe, and the consequences for us—as, in a sense, the overarching authority—will also be severe. If we leave we will be in the position of trying to negotiate a continued relationship in financial services that lets us sell those services across the European Union and keeps us, in a sense, as the primary centre for financial services for the EU and the continent of Europe. That will not be facilitated if we are seen as standing in the way of action that could bring about the transparency that is necessary.

I fully understand that we have often been ahead of the curve, and that is brilliant—but I am talking realpolitik here. With the EU catching up on the positions that we have taken, and looking at the crucial decisions that could be made if we were to Brexit, it becomes additionally important that we tackle this issue now. This is our only opportunity to do that in a timely way. So I hope very much that the Minister will look at this issue and all its complexities.

The noble Lord, Lord Hain, made a passionate speech earlier, and we were all shocked by the exposé that he brought so significantly to our attention. That simply underpins the fact that the amount of money involved, and the extent and dimensions of abuse in the world of finance—whether by kleptocrats, terrorist organisations or criminals—are enormous, and reach into every aspect of life. This is an issue that we have to take seriously: this is our chance to take another step forward in tackling it, and I hope that the Government will seize it.

19:15

[The Earl of Kinnoull (CB)]

My Lords, it is always a pleasure to follow the noble Baroness. I am grateful to her for having responded with such grace and clarity to a point I made six months ago in a similar debate. I should begin by declaring my interests and saying that I am in the curious position of deeply respecting the people who have signed the amendment, and usually agreeing with everything they say, but of disagreeing with what they say tonight. I will explain why.

If we in this Chamber sought to legislate for Scotland in a matter of devolved competence, and we did so without the consent of the Scottish Parliament, we can imagine what a hell of a hullaballoo would be raised immediately. We would be reading about it in every newspaper and the media would be full of it. Indeed, the media are fairly full of warnings from the Scottish Government every day that we must not do that. As a resident of Scotland—not so far from Glen Clova, in fact—I can tell the House that there are deep feelings in Scotland about someone coming into our competence. I know that that will be the same in Wales. I was with the EU Select Committee when we visited the Welsh Parliament, and in the course of a day that point was made to me probably half a dozen times by different Welsh politicians, from every different denomination and party within Wales.

Indeed, as a Parliament we developed the Sewel convention to cope with this situation, and it has been put into the memorandum of understanding. The October 2013 version says that,

“the UK Government will proceed in accordance with the convention that the UK Parliament would not normally legislate with regard to devolved matters except with the agreement of the devolved legislature”.

Indeed, we put that into statute—certainly in the Scotland Act 2016, and I think in the equivalent Wales and Northern Ireland legislation. It has, of course, been litigated.

I have here the Miller judgment, and in his outstanding judgment—from which I shall quote shortly—the noble and learned Lord, Lord Neuberger, rather elegantly reminds us, in paragraph 144, that the Sewel convention was not invented at that time, but that its substance was actually in effect between the UK and Southern Rhodesia, because the leading case in the Privy Council from 1969 discussed that. The Sewel convention represents something that this Parliament has had for a long time, and it stretches out to our Commonwealth as well as to our devolved Administrations here.

In the final paragraph of the five pages considering the convention, the noble and learned Lord says:

“In reaching this conclusion we do not underestimate the importance of constitutional conventions, some of which play a fundamental role in the operation of our constitution. The Sewel convention has an important role in facilitating harmonious relationships between the UK Parliament and the devolved legislatures”.


I repeat all that, and make a meal of it, because I have to say that the countries concerned and named in the amendment—I use the word “countries”, having lived in Bermuda for a number of years—are very proud and sophisticated places. Bermuda is incredibly sophisticated: its GDP per head is much bigger than that of the UK; its reinsurance industry overtook the UK’s in size in 2004, and is much bigger and very sophisticated. It would hate any infection of the sort of corrupt and criminal behaviour that has been elegantly referred to by the noble Baroness, Lady Stern. Everyone working on Bermuda feels—as I and every Member of this House does—that chasing down these corrupt and criminal individuals and their money is very important.

Therefore, we should not legislate without at least consulting these Parliaments, and getting their agreement to do so. It would be deeply wrong and very counter- productive not to do that. If one were to think of legislating, one should do so under the Sewel convention if there is strong evidence that something very bad is going on, and there is no ability to address that. However, I have to say that the evidence is the other way. I looked again at the Wikipedia article on the Panama papers. About half way down that article, there is a rather good league table of the banks that had been involved in that affair. Four of the top 10 banks listed in the league table were based in Luxembourg. None of the top 10 banks was based in any of the countries listed in this amendment. Therefore, we are getting slightly ahead of ourselves. Certainly, there appears to be a bit of work to do at home in the EU before it starts trying to do a lot of work outside.

When responding on the then Criminal Finances Bill, the noble Baroness, Lady Williams—I am sorry not to be able to read out the relevant bits—said that the Government and the overseas territories discussed these issues round the table almost as if they were members of a family, and that there were a lot of subtle ways in which the British Government could try to make sure that there was continual progress on this very important issue. She assured the House that such measures produced continual progress. In my experience, I think they do as well. The thinking behind this amendment is admirable. I hate all this disgusting stuff perpetrated by corrupt and criminal people as much as anyone, but I do not think that the amendment pushes the ball further up the pitch. It would be very damaging constitutionally to our relationships with our loyal overseas territories. We should continue to take the road we have taken so far, which is to push the ball gradually up the pitch, as and when our Government meet representatives of our overseas territories and discuss issues such as that which came out of the EU yesterday.

[Lord Naseby]

My Lords, I declare an interest as vice-chairman of the All-Party Parliamentary Group for the Cayman Islands. In addition, a member of my family lives in the Cayman Islands. I very much support what the noble Earl, Lord Kinnoull, has just said.

We have come a long way in the best part of 18 months from a situation in which there was no statutory methodology whereby United Kingdom law enforcement agencies could get information from any of the overseas territories in a reasonable length of time and know that it had been properly produced. Speaking only from my knowledge of the Cayman Islands, that information is now available 24 hours a day, 365 days a year. That is rather better than Her Majesty’s Companies House is capable of doing. I think that is a great advance.

I deeply regret what the noble Baroness, Lady Kramer, said: namely, that when Cayman Islands representatives went over to Brussels recently, they were protected by Her Majesty’s Government. They went on their own, put their material before the authorities there, and, quite rightly, the authorities listened properly and recognised the progress that had been made. That is why the Cayman Islands are not on the blacklist. Of course, the volume of financial operations in Bermuda and the Cayman Islands is extensive—so, understandably, anybody who is concerned about financial transactions will keep a watch on what is happening. That is absolutely right and justified.

The noble Earl, Lord Kinnoull, rightly referred to Luxembourg. Top four—not the bottom four. What about other parts of the world? The USA is probably in the clear, as I am sure that the central government of the USA is in the clear. However, it is totally incapable of controlling Delaware, Nevada and half a dozen other states. We are supposed to have a special relationship with the United States. That is not much good if we accept an amendment such as this and find that all the people in our overseas territories are thrown out of business as their legitimate business is undercut totally by Delaware and Nevada—particularly Delaware.

Therefore, I say to your Lordships, “Tread carefully. Recognise that huge progress has been made in the last 18 months and that we now have a situation where our authorities can get concrete evidence when it is required”. We are not getting that out of the present system of control in the United Kingdom. We can go out of this Chamber tonight, go through the smart parts of central London and see how many of those houses are unlit. Do none of us wonder who owns those houses? Do we think the British own them? We all know in our heart of hearts that they are not owned by British people, and almost certainly not by continentals. That money has come from somewhere. It seems to me pretty likely that it is hot money. So I ask noble Lords to think long and hard before they start to destroy these overseas territories.

I was sorry that the noble Baroness who introduced this amendment brought in human rights. I have had the privilege of working and living in Pakistan, India and Sri Lanka and I know that part of the world extremely well. Legitimate British companies working there are not exploiting people. They have brought employment there, better living conditions and all the rest. The noble Baroness is quite wrong to suggest that every company operating there—or the vast majority—is exploiting these poorer countries. I ask the noble Baroness and others to find some real, concrete examples rather than generic ones. That is why I will resist the idea of a public register until such time as we have given the existing one time to work, and until such time as the EU and the United Kingdom persuade the United States to join in with producing uniform reporting. I say to my noble friend on the Front Bench that I hope Her Majesty’s Government will tread carefully and recognise the work that has been achieved so far in a pretty short measure of time.

[Lord Collins of Highbury]

My Lords, I thank all noble Lords who have contributed to this debate. I very much appreciate the comments that the noble Baroness, Lady Stern, made in moving this amendment. She is probing at this stage. We want to find out exactly what has happened—because, unlike the noble Lord, Lord Naseby, I do not think that progress has been made quickly. We have been making demands on these issues since 2013.

When we are talking about cost, it is not just criminal activity that we are talking about but tax evasion. Sometimes it is called tax avoidance but the cost of tax evasion to developing countries runs to billions of pounds. Again, I come back to the vital point that those who can least afford it are suffering the most from the activities of territories that hide people’s activity. We should not be racing to the bottom. Transparency is about good business and doing good business. That is what this amendment is about. It is not about trying to punish territories or communities that have been trying to develop or extend their economy.

19:30

I have represented workers in the Gibraltar and the Isle of Man; I have been a trade unionist in those places. I understand the importance of the financial sector and I would not want to undermine it. But building a sustainable financial sector is the key to the territories’ growth, not relying on dodgy money. That is the key to this amendment. I accept the point that this is not a matter simply for the overseas territories. Certainly, the European Union has to get its own act together. If we were to apply its own criteria to member states, four EU countries would be blacklisted—so we are not just picking on British Overseas Territories.

I return to the point that we have a moral responsibility—this is not domestic policy. The noble Lord, Lord Ahmad, on a previous Committee day, made the point that overseas territories will have to comply. The first half of this Act will apply to overseas territories. There is an international law obligation, but there is also a moral obligation to ensure that our territories are not involved in hiding money from the poorest countries in the world.

It is also about giving notice. We have been arguing since 2013 that we need to address this issue, so let us use the Bill to give notice to the overseas territories that, if they do not get their act together and if more rapid progress is not made, we will have to ensure—in terms of global economic activity and our reputation—that we stand by these changes.

I hope the Minister will be able to give a concrete progress report. He had to dash away from the last Committee session to meet members of the overseas territories on the joint ministerial committee. Let us hear his assessment. But I give notice from the Opposition—and I know this has cross-party support—that we will be returning to this matter and we will push it strongly, because everyone wants to see firm action and we do not want to wait another seven years.

[The Earl of Kinnoull]

Before the noble Lord sits down, could he give some comment on the Sewel convention-type points that I made? I was making a constitutional point and it would be very helpful to understand the Opposition’s view.

[Lord Collins of Highbury]

The Opposition’s view, in terms of global economic theft, for want of a better word—the noble Baroness, Lady Kramer, raised this point—is that we are not talking about domestic industries or domestic activities. We are talking about transactions that are going global in terms of what I would call international crime. Not only the Panama papers but also the Paradise papers are showing that these activities are causing far more damage.

I believe that the overseas territories have an obligation to comply with international agreements, certainly regarding our UN obligations on sanctions. If we sanction a country for corrupt activities, the overseas territories have to comply. If it is good enough for sanctions, it is important that we consider it important enough for some of the crimes we have heard described this afternoon.

[Lord Ahmad of Wimbledon]

My Lords, I thank all noble Lords who have taken part in this debate. In particular I thank the noble Baroness, Lady Stern, for tabling this amendment. It would require the Secretary of State to provide all reasonable assistance to the Governments of certain of the British Overseas Territories with significant financial centres to enable each of those named overseas territories to establish a public register of company beneficial ownership. It further provides that if, by 1 January 2019, such overseas territories have not established such a register, the Secretary of State should take all reasonable steps to ensure that the Privy Council legislates to require each relevant overseas territory to do so. With your Lordships’ indulgence, I shall refer to the overseas territories as the OTs to save a degree of time.

I also appreciate that, as the noble Baroness articulated in moving the amendment, it was a probing amendment. That allows me to outline what steps have been taken. The OTs, as you know, are separate jurisdictions with their own democratically elected governments. They are not represented in this Parliament and so it has only been in exceptional circumstances that we have legislated for the OTs without their consent.

Financial services are the domestic responsibility of territory Governments. This creates an entirely different relationship from examples where we have had to legislate. For example, we have acted over international human rights obligations and, indeed, on decriminalising homosexuality. On the governance structures in which these territories work, as the noble Earl and my noble friend Lord Naseby have indicated, and as the territories and the House will recognise, legislating for the OTs without their consent would effectively disfranchise their own elected representatives. It would create considerable ill-feeling, which the Government do not wish to do.

Legislating to require certain OTs to establish public registers of company beneficial ownership when they do not wish to do so of their own volition would also mean that the territories would be less keen to maintain their current level of co-operation. This would jeopardise the progress—which I shall come to in a moment—that has already been made in this area and the spirit of working in partnership that we have fostered with them. The noble Lord, Lord Collins, said that I was running off to the joint ministerial council—I think I ran from it. We covered this subject; indeed, it was also covered by my right honourable friend the Prime Minister in her meeting with the overseas territories. Jeopardising progress in this respect is not something any of us want to do. Given the necessary lead-in period for establishing any new register of beneficial ownership, this would set back UK law enforcement’s ability to access information relating to the beneficial ownership of companies in the OTs.

Let me assure noble Lords that this does not mean we are content for no action to be taken in this space. It simply means that we wish to take action within the existing framework of friendly co-operation, building on the progress already made. The noble Baroness, Lady Stern, made the point that I am the Minister for Overseas Territories. I have been dealing quite extensively with them, as noble Lords will understand, particularly certain territories, because of the tragic hurricanes that struck. We raised these issues directly, and we have seen good progress.

As noble Lords will know, the UK is a global leader in the cause of corporate transparency. We are the only country among the G20 to have a fully established public register of company beneficial ownership, and we continue to push for this to become a global standard. The international standards set by the Financial Action Task Force do not require it, however, reflecting the lack of international consensus in this area. These standards require only that:

“Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities”.


Nevertheless, should public registers become the global standard, we would expect the OTs to meet it. The UK is far ahead of other countries in this area. The current EU framework does not require all member states to establish public registers of company beneficial ownership, so many have chosen not to do so. There is already progress in this area and we need to build on it within the existing framework of friendly co-operation, to which I have alluded. Under the arrangements that we concluded with the OTs in 2016, overseas territories with significant financial centres committed to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with automatic access to such information within 24 hours of a request being made, or within one hour in urgent cases.

These arrangements—also known as the “exchange of notes”—came into effect on 30 June this year and are in the process of being fully implemented by the OTs. An important point is that effective implementation of these arrangements will put the OTs ahead of many G20 members and many individual states of the United States—a point made well by my noble friend Lord Naseby.

I am pleased to report that Bermuda, the British Virgin Islands, the Cayman Islands and Gibraltar have central registers of beneficial ownership information or similarly effective systems in place, and they are taking forward population of their systems with beneficial ownership data.

We are also providing support to the Government of Anguilla to establish an electronic search platform providing access to beneficial ownership information, as well as support in drafting underpinning legislation. We are now working with Anguilla to finalise a memorandum of understanding on the terms for provision of our support, and we expect its beneficial ownership system to be established in the spring of 2018, notwithstanding the current rebuilding challenges it is facing following the hurricane. Work on establishing a central register in the Turks and Caicos Islands has been delayed owing to the impact of Hurricane Irma, but we expect this to be in place soon.

We did not seek a bilateral arrangement with Montserrat, as we had with the other OTs with financial centres, because Montserrat had already committed in November 2015 to include beneficial ownership information in its existing public companies register. A Bill requiring the inclusion of beneficial ownership information in the existing register will be introduced to Montserrat’s Legislative Assembly this month. The target date for the addition of that information to the register is 1 April 2018.

Having heard that detail, I hope your Lordships will agree that it demonstrates what can be achieved by working consensually with the OTs. It is right, therefore, that we focus on the implementation of the existing arrangements and that future work in this area be carried out within the existing framework of friendly co-operation, rather than generating ill will by imposing upon the OTs without their consent.

We are committed to following up on these arrangements to ensure that they deliver in practice, are implemented effectively and meet our law enforcement objectives. There is explicit provision in the exchange of notes for the operation of the arrangements to be reviewed six months after they came into force—that is, at the end of this year—and subsequently on an annual basis. These formal review processes are in addition to ongoing monitoring of the practical application of the exchange of notes by the UK and each relevant OT.

In addition, noble Lords will recall that Section 9 of the Criminal Finances Act 2017 amended Part 11 of the Proceeds of Crime Act 2002 to establish a statutory review process for the implementation of the exchange of notes. This report must be prepared before 1 July 2019 and relate to the implementation of the exchange of notes from 1 July 2017 to the end of December 2018. Once prepared, it will be published and laid before Parliament. The Government are clear that OTs with significant financial centres must fully implement the exchange of notes to which they have each agreed. The noble Baroness, among others, asked whether this matter had been raised. I have already said that it was raised at the JMC, and the Prime Minister reiterated this at her meeting with the leaders of the OTs last week. These arrangements have been made and must be honoured.

A key feature of the Government’s approach has been to maintain a level playing field between the OTs with financial centres and the Crown dependencies. As I am sure noble Lords reflecting on my contribution will see, we have robust review processes for the implementation of these arrangements, both on an ongoing basis with the Crown dependencies and the OTs and through the Criminal Finances Act. If these review processes demonstrated that full implementation of the exchange of notes was not taking place in any individual jurisdiction, it would be right for us to consider the issue further.

My noble friend Lord Patten, who I see in his place, raised the EU blacklist. Perhaps I may, first, give some factual information. I will check Hansard but I believe that he mentioned that Bermuda was on the blacklist. Bermuda is not on it; nor are the Cayman Islands or the Crown dependencies. Bermuda, the Cayman Islands and the Crown dependencies are on a separate list—I am quoting here—of co-operative jurisdictions which have been assessed by the EU as being unsuitable for the blacklist. They have also further committed to address any remaining concerns by the end of 2018. I can be quite specific in saying that this is not a grey list; on the contrary, it is a demonstration of the progress and positive commitments that have been made and are being achieved.

19:45

The noble Baroness, Lady Stern, asked about the progress report on our Crown dependencies which is due in January following the initial six-month review. We are currently completing the data collection exercise in this respect. The review may not be completed by the end of January but I have certainly set a target that it will be done by the end of March 2018.

Finally, the noble Baroness, Lady Kramer, mentioned an Observer article and other press reports. I know the noble Baroness well and can say to her, “Don’t believe all you read in the press”. The OTs are not included on the list because they have been deemed by the EU Code of Conduct Group to be co-operative jurisdictions. For jurisdictions affected by the hurricane season, the EU listing process has been put on hold. All our overseas territories with financial centres are already committed to global tax transparency standards, and the commitments they have made go beyond these. It is important to acknowledge that.

I hope that, with that rather detailed response, the noble Baroness, Lady Stern, will be satisfied that we are making good progress. We are raising this matter at the highest level. Indeed, the intervention of my right honourable friend the Prime Minister underlines how important she considers this issue to be, as did the previous Prime Minister.

[Baroness Stern]

I thank all those who have spoken in support of the amendment and those who have spoken strongly against it. A debate is always very good for the brain. I thank the Minister very much for the information he has given us, for the hard work he has done at the joint ministerial council and for the progress that is being made. It is likely that this matter will be returned to on Report but, for now, I beg leave to withdraw the amendment.

Amendment 69G withdrawn.

House resumed. Committee to begin again not before 8.32 pm.

Social Security (Restrictions on Amounts for Children and Qualifying Young Persons) (Amendment) Regulations (Northern Ireland) 2017

Wednesday 6th December 2017 Lords Chamber

Motion to Regret

19:48

Moved by

[Lord McAvoy]

That this House regrets that Her Majesty’s Government has introduced the Social Security (Restrictions on Amounts for Children and Qualifying Young Persons) (Amendment) Regulations (Northern Ireland) 2017 without proper consideration of the impact of the disclosure requirements in section 5 of the Criminal Law Act (Northern Ireland) 1967, and the effect this policy will have on women in Northern Ireland who are in a position to disclose personal information and third parties who may facilitate a disclosure; and notes, with concern, that the regulations have been introduced at a time when a serving Northern Ireland Executive has not been established (SR 2017/79). 1st Report from the Secondary Legislation Scrutiny Committee

[Lord McAvoy (Lab)]

My Lords, I am moving this Motion to express the loyal Opposition’s regret that the Government have pushed through an ill-thought-through and detrimental policy without proper consideration of the specific context of law in Northern Ireland or of the women and professionals who will be affected by this policy.

The regulations provide for exemptions to be introduced in Northern Ireland to the Government’s two-child limit on the child element of universal credit—previously child tax credits. These exemptions match those introduced across the UK and include an exemption for “non-consensual conception”—that is, where a woman has conceived a third child as a result of rape. The Government’s policy provides for women who are entitled to access this exemption to make a disclosure to an appropriate third-party professional, including, for example, midwives, social workers and designated third sector professionals.

The Labour Party has put on record its opposition to the two-child limit being introduced across the UK, expressing concern about its consequences. However, there are, as the Secondary Legislation Scrutiny Committee has reported, additional concerns regarding the legal situation in Northern Ireland. Section 5 of the Criminal Law Act (Northern Ireland) 1967 provides a legal duty on an individual who knows or believes a serious crime has been committed to report it to the police. To withhold information regarding a serious crime is in itself an offence. In the case of a disclosure by a woman to an assessor regarding the exemption for rape, this duty under Section 5 will apply to both the victim, who is disclosing a crime, and the professional to whom the disclosure is made.

The Government’s response to those who have raised this issue has so far, regretfully, been unclear and unsatisfactory. The Government have advised that a woman will not be expected to name the person who committed the offence and that professional assessors will not be expected to seek any further evidence following the disclosure. However, the form that must be completed to allow the exemption will explicitly include a warning regarding the Section 5 duty.

In a letter to my honourable friend Owen Smith, the shadow Secretary of State for Northern Ireland, the Minister for Employment explained that details of the Section 5 duty are included on the form to ensure that,

“both the claimant and the third party professional are clear on the legal position before a claimant choses to disclose”.

Can the Minister explain this legal position to the House? Does a Section 5 duty apply to a disclosure made under the non-consensual conception exemption in this order? If a victim discloses a rape but not the name of the perpetrator, does that in legal terms have any impact on whether the duty applies?

It is well known that the Director of Public Prosecutions for Northern Ireland, Barra McGrory QC, has given a clear answer in respect of criminal law in Northern Ireland. In a letter in response to my honourable friend the shadow Secretary of State for Northern Ireland, Mr McGrory wrote that it is,

“a potential offence to withhold information regarding an act of rape. The legislation does not distinguish between a victim and third parties to whom a disclosure is made; each is potentially liable for prosecution”.

I am sure the Minister will refer to the fact, also referred to in the letter from Mr McGrory, that no prosecution has ever been brought against a victim of rape who has delayed making a report. This is an appropriate fact for the DPP to bring to our attention as background to this issue. It is not, however, a satisfactory defence for the Government to use for the situation they have created.

The result of this policy operating in Northern Ireland is that victims risk being criminalised, and professionals are put in a position of choosing purposefully to ignore the law in order to carry out their duties. We have not had a situation before in which victims are required to disclose a rape in order to claim social security. Victims and professionals are being asked to make decisions based on faith that although they are liable to be prosecuted for committing an offence, it is unlikely to happen. This is not a sound legal position for the Government to adopt.

The Director of Public Prosecutions has said explicitly that a guarantee cannot be given that prosecutions will not be brought because a criminal offence does exist. Serious concerns over the impact of this policy on victims and professionals in Northern Ireland have been raised by Women’s Aid, the Royal College of Midwives, the Northern Irish Association of Social Workers and many more organisations.

We regret that the Government failed to include proper and detailed consideration of Northern Ireland and the specific context of Northern Ireland criminal law in their policy design and implementation. We ask that they now act to respond with legal clarity on this issue. If they intend to go ahead with this policy in Northern Ireland, the Government must provide a guarantee that victims and assessors will not be prosecuted.

I must follow this with a further regret before I close. It was agreed in the fresh start agreement that the UK Government would legislate for key welfare reforms. It was also, however, part of the agreement that it was for the Northern Ireland Executive to bring forward payments, as they felt appropriate, to mitigate the effects of welfare provisions on communities in Northern Ireland, as was done for the bedroom tax.

The Government have chosen to implement this policy in Northern Ireland at a time when a sitting Northern Ireland Assembly and power-sharing Executive are not in place. The Minister will be aware that all of the political parties in Northern Ireland have explicitly expressed their opposition to the two-child limit—and the non-consensual conception exemption that is a result of it—and the impact it will have on their constituents. It is deeply regrettable that the Government would seek to implement a policy that is inappropriate for Northern Ireland, at a time when Northern Ireland is not able to scrutinise and mitigate its effects.

Your Lordships’ House is aware that the Opposition believe there are a great many reasons why the Government should do the responsible thing and pause and fix the rollout of universal credit. Serious consideration should be given to pausing the rollout in Northern Ireland until there is basic clarity on the legal impact of these proposals and a functioning devolved Executive is in place to consider the impact of this policy for women and organisations in Northern Ireland.

It is the Opposition’s view that the Government owe the people of Northern Ireland clarity. We still have not heard why this was not taken into account. If it is shoddy government, the responsibility lies with the Government and they should try to do something about it. I beg to move.

[Lord Patten (Con)]

My Lords, it is a tragedy that the voice of the people of Northern Ireland is presently not being heard on this issue. While it is very good of the noble Lord to have raised this issue in this House—and I respect everything that he has said—because of the self-imposed suspension of the Assembly and thus the Executive, it has not been examined by the people who should be examining it. We can have cross-party agreement on that, I hope. The absence of an Assembly at the moment is a big risk for the people of Northern Ireland on everything from this order to Brexit and back. The better and quicker they come back to the Assembly the better.

That said, I am a believer in the parity principle in the application of legislation in the United Kingdom, for Northern Ireland, Wales, Scotland and England. Of course, the parity principle in considering this order is a good starting point. For example, Northern Irish voters pay the same rates of income tax and national insurance contributions as people across the rest of the United Kingdom. This parity principle was maintained by the November 2015 fresh start agreement that was agreed by all political parties.

This instrument exactly mirrors the mainland regulations. The principles are the same. The issue that arises—the noble Lord, Lord McAvoy, has pointed the attention of the House to this—is the interaction with Section 5 of the Criminal Law Act (Northern Ireland) 1967. This is not one of the problems with having devolved legislation; this stuff is bound to happen when you have devolved legislation. Her Majesty’s Government really have no role at all in determining whether the 1967 Act should be used here or there, or is appropriate under this or that circumstance. That is for Northern Irish law as passed.

While I appreciate the noble Lord’s genuine concern, it is important to remind your Lordships that there has been no use of the Section 5 powers for the whole half century since they were first enacted. They have laid dormant on the statute book. Under present circumstances, no official of Her Majesty’s Government could cross-question or have any link at all with any claimant, and nor indeed could any member of the Northern Ireland Civil Service. As a quick aside, I hope all of us can agree that we should be very grateful to the Northern Ireland Civil Service for doing what it can in a thoroughly bipartisan way to keep stuff rolling on under the present difficult circumstances.

Having examined the issue in front of us, although I am not a lawyer, it seems that there is protection for claimants inherently under this provision, including for their confidential data, as the only role of third-party professionals involved is to attest by certification—as I have seen—that a claimant has made a proper declaration consistent with the criteria for claiming the non-consensual exception for their child—or children if a multiple birth has occurred, which is always possible. So I fully support the statement of the Government so far on this issue. I believe in the parity principle and I support the Minister.

20:00

[Baroness Suttie (LD)]

My Lords, I thank the noble Lord, Lord McAvoy, for bringing this regret Motion before your Lordships’ House this evening, and I echo many of the points that he raised. On these Benches, we deeply regret that the Government brought forward these caps on child tax credits. We do, however, acknowledge the establishment of certain exemptions to the cap for those who do not have the same control as others in choosing the number of children in their family—for example, in the specific circumstances of multiple births, adoption and following rape.

The Liberal Democrats would abolish the two-child limit because we believe that there is no way to enforce a two-child policy without something like a “rape clause”, which can be both degrading and humiliating for the women concerned, and because we believe that the policy can lead to an increase in child poverty, as families are punished for their decisions, which are often outside of their control. As the noble Lord, Lord McAvoy, has already said, there are several very specific circumstances surrounding current legislation in Northern Ireland that make the situation there even more unacceptable, and at times personally tragic, for many women and families.

The combination of the existing abortion laws in Northern Ireland, which mean that abortion is in effect illegal in the majority of cases, and Section 5 of the Criminal Law Act (Northern Ireland) 1967, which requires a person who becomes aware of a crime to disclose it to the police, both have a direct impact on the women concerned as well as the healthcare professionals and legal professionals who try to assist them. This is particularly relevant to these regulations due to their provisions regarding rape. Not only is abortion outlawed in Northern Ireland, including in the case of rape, but impartial advice on the subject for the victim following a rape is significantly restricted.

Women in Northern Ireland who have been raped will have access to neither abortion advice nor services. If they have a child as a result of rape, they will then have to face reliving their experience in order to access benefits for the child. Furthermore, it is still to be seen whether healthcare professionals will receive the necessary training or support when assessing victims of rape for universal credit. My colleagues in the Alliance Party in Northern Ireland have spoken to the Royal College of GPs, the Royal College of Nursing, the Northern Ireland Association of Social Workers, the British Medical Association and the Royal College of Midwives. None of those organisations has reported receiving training or support. Does the Minister agree that this is a situation which needs to be urgently rectified?

One of the most significant failings in these regulations, as the noble Lord, Lord McAvoy, has already said, is the lack of thought given by the Government to the impact of how the separate Northern Ireland legislation under Section 5 of the Criminal Law Act (Northern Ireland) 1967 would impact on victims of rape. As a result of this legislation, both the rape victim disclosing information to gain universal credit for their child, and the person they are disclosing this information to, could be open to prosecution for not reporting the crime to the police. Surely that is a totally unacceptable situation in the 21st century. The Liberal Democrats voted against the two-child limit which has caused the need for this degrading process for the victims of rape, and we continue to believe strongly that this policy should be reversed.

[Baroness Lister of Burtersett (Lab)]

My Lords, in a recent blog to mark the 50th anniversary of the Social Policy Association—I declare an interest as its honorary president—the internationally respected Professor Emeritus of Social Policy, Jonathan Bradshaw, asked:

“What is the worst social security policy ever?”.


The answer was the two-child policy. He described it as discriminatory and morally odious and noted that the exceptions would be “unpleasant to operate”. It is these exceptions that the regulations enact, but they cannot be understood or debated separately from the policy they mitigate, as the noble Baroness has explained, because they do so at potentially considerable human cost, particularly in Northern Ireland.

Analysis by the Child Poverty Action Group—again, I declare an interest as honorary president—and the Institute for Public Policy Research indicates that once universal credit is fully rolled out, the policy will result in an additional 200,000 children and 100,000 adults in poverty. It will also mean many larger families who are already in poverty—and remember that larger families are already at greater risk of poverty—will be pushed further below the poverty line, leading to greater hardship and deprivation.

Like the benefit cap, the two-child limit breaks the link between children’s needs and the support that Parliament has deemed necessary to meet those needs. Third and subsequent children are deemed less worthy of that support on totally spurious grounds. A number of organisations have argued that the policy and hence regulations contravene our international human rights obligations by in effect restricting women’s reproductive rights and discriminating against those with a faith-based objection to contraception or abortion, which is especially likely in Northern Ireland.

Will the Minister explain how the policy gives primary consideration to the best interests of those children with the misfortune of being born after two siblings? The UN Committee on Economic, Social and Cultural Rights has already expressed concern and I am pleased to say that the CPAG has been given leave to seek a judicial review of the limit on human rights grounds.

As human rights arguments do not appear to concern the Government, perhaps the likely unintended consequences will do so—that it could lead to families splitting up or lone parents being reluctant to repartner with someone who already has a child.

We are still awaiting a proper family impact statement of the policy. Earlier this year the Prime Minister answered a question on what has come to be known as the “rape clause” by invoking the “principle of fairness”, which she asserted underpinned the two-child limit because,

“people who are on benefits should have to decide whether they can afford more children, just as people in work have to make such a decision”.—[Official Report, Commons, 26/4/17; col. 1107.]

Leaving aside the erroneous assumption that these are two distinct groups and the fact that the majority of those affected will be parents in paid work because of the interaction with the benefit cap, where is the fairness in a policy that penalises families retrospectively for a decision to have another child which may have been made in more propitious economic circumstances? At least the full impact of its retrospective application will not be felt until after January 2019, when new claims from larger families will no longer be routed back to tax credits.

Where is the fairness in regulations which say that adoptive parents or kinship carers are exempt if they adopt or take on a third or subsequent child but are not exempt if they want to have a child of their own and this takes them over the limit because of the presence of an adopted or looked-after child? This was one of the issues raised by the Secondary Legislation Committee. Where is the fairness in a policy that faces a woman who is, say, pregnant because of contraception failure, with the choice between deeper poverty and an abortion; or which condemns her to greater poverty because she was unable to get an abortion due to the lack of specialist doctors—a problem highlighted recently by the president of the Royal College of Obstetricians and Gynaecologists? While the extension to Northern Irish women of the right to an NHS-funded abortion in England is welcome, exercising that right will not necessarily be easy, especially for women with limited resources or who want to keep their abortion secret for whatever reason, and we should remember that many live in small and/or rural communities. That is one reason why this policy and these regulations are particularly unfair and pernicious in a Northern Irish context.

The noble Lord, Lord Patten, referred to the parity principle, but surely parity does not mean that local circumstances cannot be taken into account. In its report on the earlier regulations, the Secondary Legislation Scrutiny Committee warned:

“The practicalities of applying these requirements in Northern Ireland will need to be fully thought through before the equivalent regulations are brought forward”.


That is some hope. Instead, as the committee notes in its latest report, they,

“exactly mirror the mainland Regulations, with the exception of the start date”.

The committee concedes that the Explanatory Memorandum “nods to the concerns” it had expressed, but observes that it is not “entirely clear”. What is clear is that the further clarification provided by the Government has not allayed concerns.

Those concerns have been clearly articulated by the Women’s Aid Federation Northern Ireland; I am grateful to Louise Kennedy for her briefing. They relate to the notorious “rape clause” exemption that we have already heard about, which now also includes a conception in the context of a controlling or coercive relationship—a rare and welcome example of the Government taking the overwhelmingly critical responses to the consultation exercise on board. However, I am advised that there is no coercive control law in Northern Ireland, nor sufficient public or professional understanding of the concept for it to provide an effective exemption there.

As the regret Motion states, and the Secondary Legislation Scrutiny Committee drew attention to, there is deep concern in Northern Ireland, as we have heard, about the interaction between the legislation and the criminal law, which could lead to the criminalisation of a woman who has been raped, or a third-party assessor where the rape is not reported to the police. Many women do not want to engage with the criminal justice system and should not be put in the position of having to make such an invidious choice. Likewise, it raises serious ethical questions for social workers and voluntary organisations accredited as third-party assessors. I believe that some are refusing to carry out such assessments, or at the very least are supporting any individual member who refuses to do so on ethical grounds.

I am aware that the Government have given assurances that no one has ever been prosecuted for not reporting a rape, and that the rape clause assessment is effectively a tick-box exercise that does not require probative questioning. Yet, as my noble friend said, Northern Ireland’s Director of Public Prosecutions has confirmed that both victims and third parties are potentially liable to prosecution. If it is just a tick-box exercise, why can the woman not simply tick the box herself without being interviewed by a third-party assessor?

The Secondary Legislation Scrutiny Committee warns that the potential threat of police involvement,

“must make it likely that some women will not claim the benefit”,

to avoid that risk. It states:

“As a result they will lose the additional funds to which they would otherwise be entitled and the policy will therefore not operate as intended”.


Other concerns raised by Northern Ireland Women’s Aid apply more widely. It argues that forcing rape victims to disclose their ordeal before they are ready can retraumatise them and exacerbate mental health issues arising from sexual assault. It states that it is,

“contrary to all good practice relating to victims of sexual abuse and is clinically unsafe”.

The BMA has condemned the policy as “fundamentally damaging to women”.

Women’s Aid also questions the requirement that the woman is no longer living with her rapist. They point out that much sexual violence and rape occurs within the context of domestic violence and is more difficult to disclose, and that leaving such a relationship is a time of particular danger. A similar concern was raised in submissions to the Secondary Legislation Scrutiny Committee, which underlined that it shared this concern. The Explanatory Memorandum acknowledges that,

“not all victims will feel able to leave the perpetrator”,

but justifies the policy on the grounds that otherwise, the alleged perpetrator could benefit financially from the abuse because of joint payment of universal credit. Surely a split payment could be made to avoid this? It seems a flimsy argument, especially given the growing difficulty that women have in accessing refuges, which is likely to be exacerbated if the threatened change to the funding regime goes ahead.

In conclusion, needless to say, I strongly support my noble friend’s regret Motion, but I regret even more the unfair and, to quote Professor Bradshaw once more, “morally odious” policy from which these regulations derive. The sooner this policy is ended, the better.

20:15

[Lord Empey (UUP)]

My Lords, I start by apologising to the House and to the noble Lord for my late arrival.

The noble Lord, Lord Patten, is correct that Northern Ireland has followed a policy of parity for decades. That ceased a couple of years ago, when spare room subsidy legislation came in—colloquially known as the “bedroom tax”. Many of us in Northern Ireland were opposed to that because, for instance, by ensuring that landlords received money rather than money going to the individual, those individuals were less likely to be exploited by gangsters and money lenders and all sorts of people who would pounce on them as soon as the money came in. Moreover, because of the structure of the population, that would cause huge disruption.

Breaking the parity principle is a serious matter because of the sums of money involved. Social security has been a devolved matter in Northern Ireland all along; it was devolved there even though it was not devolved in Scotland or the other regions. Over the decades, as the noble Lord, Lord Patten, said, we followed slavishly whatever regulations were delivered here, because the sums of money involved were so enormous that it was not feasible to do anything else. However, when these measures came out, the Assembly and the Executive decided that they would make things different, but they accepted the Treasury rules—that they would effectively have to take that money out of the block grant. Therefore, they decided to use money for social security, which had always been devolved, instead of implementing the national policy that was introduced here; they recognised that they would have to pay that out of the block grant. That was the proposal on the spare room subsidy and other related matters.

We are having this debate tonight because of the impasse, because there is no Assembly in place to deal with the issue. All of these matters—abortion and so on—are exceptionally personal matters. I know that the process surrounding abortion was significantly reviewed about five years ago, and a lot of work went into that. Guidelines that were initially issued to professionals were withdrawn and had to be redone. Nevertheless, a lot of professionals still feel that the law is unclear and that they are vulnerable, as professionals. One understands that social security is not open-ended, with an infinite amount of money. I also know that we have seen Daily Mail examples of a relatively small number of individuals who have grossly abused the system. We must accept that.

However, there are a number of issues that I want to raise. It has not been mentioned that, as far as I am aware, neither the Northern Ireland Office nor the Department for Communities in Northern Ireland—responsible for the Social Security Agency—has conducted a Section 75 equality screening process. All legislation in Northern Ireland must be screened and measured against its Section 75 obligations; that process has not occurred. Although I accept that and would be interested to hear what the Minister has to say, concerning paragraph 7(20) of the Explanatory Memorandum, the Department for Communities nevertheless states that,

“if the third party knows or believes that a relevant offence (such as rape) has been committed, the third party will normally have a duty to inform the police of any information that is likely to secure, or to be of material assistance in securing the apprehension, prosecution or conviction of someone for that offence”.

As it stands, the law clearly places the burden on assessors to report rape disclosures to the police, with or without the consent of the applicant. If anybody thinks that if they report a rape, it will be a totally private and confidential matter, that will not be the position because a number of professionals will feel that they are under an obligation. I accept that, so far, there is no case law and we have no examples, but we are looking at the potential, and that is significant.

I suggest to the Minister that, sadly, we are in this position because of the impasse at Stormont and that these responsibilities should be taken by local representatives in Belfast. It is a shame and a disgrace that they are not there to do this job. Noble Lords may have seen the figures that were released last week on health. I think the noble Lord, Lord Patten, was responsible for a number of Northern Ireland issues over the years. There are 272,000 people on waiting lists and 78,000 of them have been waiting for more than a year to see a consultant. That figure has risen from 64,000 last year, and anybody who knows anything about health knows that if you are in that position, it is a life-threatening situation, yet the whole political apparatus is paralysed and is not paying any attention to these matters.

The question that arises here is on abortion. The law allows abortion in limited cases, but the professionals do not consider the guidance they have to be adequate. As the noble Baroness, Lady Suttie, said, they have had no current training because there is nobody there to initiate it. They feel that the current law is unclear about where the lines are to be drawn. We can have an argument about the two-child cap, and I accept that it is a perfectly valid argument, but we are into the nitty-gritty of very specific cases here. Northern Ireland is a small place and I do not believe for one minute that women will have confidentiality guaranteed. I do not believe it, first, because of the relatively close-knit nature of the community and, secondly, because there is an unknown hanging over them: whether somebody somewhere will feel obliged to operate the law as they see it. In those circumstances, it would be opening a Pandora’s box.

These are decisions that should be taken in Stormont by the representatives of the people of Northern Ireland. That is what they are there for, and that is what they are paid to do. I accept that the Minister is in a difficult position because he is obliged to govern, but since this proposal has come forward I have looked into it more closely and, although I am no expert in these matters, I have become progressively concerned. A revitalised Stormont could revise any of these matters because they are devolved, so far as I know, but there is very great concern. It spans all the parties, and they accept that if they do not like some of these social security measures, they are going to have to pay for them, but that is a choice to be made by the local community after consultation with local bodies and organisations, both professional and from the third sector. I hope the time arrives when they will be in a position to do their duty.

[The Parliamentary Under-Secretary of State, Northern Ireland Office and Scotland Office (Lord Duncan of Springbank) (Con)]

My Lords, I thank noble Lords for their contributions this evening, and I thank the noble Lord, Lord McAvoy, for bringing this Motion before the House. I will attempt to address each of the points that has been raised as best I can, but I will make a few general points to begin.

As part of the fresh start agreement, the two main parties in Northern Ireland agreed that the UK Government would legislate for a number of welfare reforms. As my noble friend Lord Patten reminded us, the ambition was to restore parity with the rest of the United Kingdom. That was agreed by the Northern Ireland Assembly, and that is why we are here today. Social security is a devolved matter, so the implementation of universal credit is being led by the Northern Ireland Civil Service. It is important to stress that, as my noble friend Lord Patten said, the Northern Ireland Civil Service has had a great deal of challenge placed on its shoulders in the past few months. It is important to recognise the work it is doing in the absence of an Executive.

I shall say a little bit about universal credit. I know it has been much discussed in this House and in the other place. At heart, it is, as the noble Baroness, Lady Lister, would have invoked, an attempt to restore a sense of fairness between claimants and those who support themselves solely through work. It is recognised that there are consequences which must be taken into account as families are grown, and that applies to both groups. The other underlying principle is that all those who are entitled to support are able to secure it. It is important to stress that.

The key issue that has come up today differentiates the discussion in Northern Ireland from the situation in the rest of the United Kingdom. The noble Lord, Lord McAvoy, put his finger on it at the beginning of this debate. It concerns Section 5 of the Criminal Law Act (Northern Ireland) 1967 and the requirement it imposes upon individuals in Northern Ireland to disclose information about any offences which they know or believe have been committed unless they have a reasonable excuse for not doing so. I want to say a few things that I hope noble Lords will understand. There has been much talk about the fact that over the past 50 years there have been no prosecutions of victims of rape. We cannot deal with this by precedent in Northern Ireland’s criminal law. I shall go further than that: I assure noble Lords that I will bring the remarks made in this debate to the attention of the Northern Ireland Civil Service in order that it may reflect upon the concerns raised. Given the prominence of this debate in recent months, I assure the House that I will bring these remarks to the attention of a restored Northern Ireland Executive, which I hope is not too far from returning.

I think all noble Lords will agree that these are matters which are best addressed by the Northern Ireland Executive, and we are doing all we can to facilitate their restoration. There are a number of issues which are best addressed by those who are most affected by them. We will do all we can to bring that about. We are also preparing for every eventuality should that not be the case. I stress that just as I hope to draw these remarks to the attention of a restored Executive, should that Executive not be restored, I will be very cognisant of the remarks that were made this evening.

I shall address some of the other points that have been raised as best I can. The two-child approach tries to ensure that those who are entitled to benefits are able to secure them. That is why we have not relied solely on the criminal justice system as a means of securing any sense of progress on any of these matters. That is why a means was sought to secure a method whereby those who have been the victims of particular crimes and have suffered as a consequence are able to find third parties to take that matter forward.

20:30

The noble Baroness, Lady Suttie, referred to training, which is of course an aspect of this. I do not believe this can ever be described as a tick-box exercise, but at the same time the action should be simple and clear, and should involve no challenges whatever. That is why, again, I stress that the important thing here is that those third parties are not just able to provide the necessary involvement in so far as this must progress, but are by their nature qualified to offer that additional support. We can be under no illusion. Anyone moving forward and seeking this as an outcome must receive all possible support, and third-party professionals are the best qualified, by their nature, to offer that support.

I am aware of the remarks of the Director of Public Prosecutions; in legal terms it is right to say that there can be no 100% guarantee. I made my earlier remarks because this needs to be considered as we move forward. I am aware that we will need to look at this again in the future, but I hope that that will not be here but instead in the restored Assembly, which is the right place for it. My noble friend Lord Patten is right that a number of the powers within the 1967 Act are dormant, and dormancy is a challenge, because this is something Stormont can of course awaken. That is why I refer to my earlier remarks.

The issue of fairness must affect us all, which is why the most important thing we can do is to raise people out of poverty in every possible way. That has been this Government’s ambition, and one of the reasons why we have sought to look at the living wage, as well as at tax credits and tax breaks. On each occasion we have sought to achieve that. Whether we have succeeded will be a matter for a debate, but I believe we have enough of an ambition to continue on that journey, because we are not yet finished.

I note also the remarks of the noble Lord, Lord Empey. He knows the Province well and will understand better than me some of the challenges of how these issues are understood in what are no doubt close-knit communities. I can offer little comment on that except to say that all the powers we can use to ensure confidentiality will be involved and we will do all we can to ensure that that is the case.

The noble Baroness, Lady Lister, is right to note that Northern Ireland is, in many ways, a delightfully different part of the United Kingdom and has its particular challenges. I am assured that this area has been considered as the policy has moved forward in order to try to recognise those differences. I am of course aware that when we look at the details of the policy, we need to recognise that the purpose behind it is to ensure that all those who are entitled to support are able to secure it.

I will make one final point, which I hope will secure some support. I am clear there is more work to be done in restoring the Executive. This policy will go forward, and the Northern Ireland Civil Service will do all it can to implement it as best it can. But they are civil servants, and we need an Executive to address the policy as it arrives in Belfast, who will be able to scrutinise the policy as it moves forward. Each of these elements depends on the restoration of that Executive. If that does not happen, then we have a greater problem, of which this will be but one chapter. I make that point very clearly now. I am aware there are other issues which I have perhaps not been able to do justice to tonight, but I hope your Lordships will understand the key point of what I have said and recognise the spirit in which it was made.

[Lord McAvoy]

My Lords, I thank the Minister for the many positive strands in his response and beg leave to withdraw the Motion.

Motion withdrawn.

Sanctions and Anti-Money Laundering Bill [HL]

Committee: 3rd sitting (Hansard - continued): House of Lords
Wednesday 6th December 2017 Lords Chamber

Committee (3rd Day) (Continued)

20:35

Amendment 69H

Moved by

[Baroness Kramer]

69H: After Clause 41, insert the following new Clause—
“Trust or company service providers
(1) A trust or company service provider that does not carry on business in the UK may not incorporate UK companies without oversight from an anti-money laundering supervisor.(2) In this section—“anti-money laundering supervisor” has the same meaning as “supervisory authority” in Schedule 2;“trust or company service provider” has the same meaning as in regulation 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017);“carry on business in the UK” has the same meaning as in regulation 9 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017).”

[Baroness Kramer (LD)]

My Lords, Amendments 69H, 69J and 69L in this group are in my name and that of my noble friend Lady Bowles, but the group also encompasses Amendment 69K in the name of the noble Lord, Lord Naseby. This cluster of four amendments work extremely well together, and we are very grateful to the noble Lord for bringing in a piece which strengthens this cluster.

Even the unobservant will have noticed that, in a sense, this is about starting to close loopholes. We had a very interesting comment, I think from the noble Lord, Lord Naseby, earlier—he can tell me if I am wrong—talking about the reputation and the failures of the UK to manage money laundering that involves the overseas ownership of property in London. The noble Lord, Lord Naseby, may not have had the opportunity to be here earlier, but we did have Amendment 69 in the name of the noble Lords, Lord Faulks, Lord Rooker and Lord Collins, and the noble Baroness, Lady Bowles, which directly addressed the public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK, in an attempt to speed up the whole process of getting a public register of beneficial ownership.

[Lord Naseby (Con)]

I sat through the whole debate on Amendment 69, which took a fair amount of time.

[Baroness Kramer]

I do apologise, but the noble Lord will know then that that issue was addressed at that point in time. The Government gave us an update on the progress they are making towards what we hope will be such a public register. Indeed, I believe the Minister said it was not a question of whether but how there would be a public register. In a sense, that is one of the criticisms of London that hopefully will be closed within a reasonable period of time. We are still waiting on the timetable, but that is indeed what we hope.

However, the noble Lord is absolutely right that whenever issues are raised, particularly when the UK talks of issues around tax havens in other countries, or we on these various Benches talk about trying to get public registers in the overseas territories and Crown dependencies, the answer nearly always comes back, “Clean up your own house first”. Indeed, that is one of the reasons why I and so many in this House support that public register of beneficial ownership of property.

These amendments that I now address follow on that same theme. I remember the noble Lord, Lord Eatwell, in particular in the debates on the Criminal Finances Bill, being highly critical, comparing London very badly with Jersey. Although we have a public register for companies, it is not one that has any verification system, and he saw that as a very fundamental flaw in the UK system. That accusation comes again and again, whenever we look at trying to do anything with the overseas territories. Whenever we look at any kind of more global activity, the answer that always comes back is: “You say that you’re well in advance of other countries, but look at your own house—you’ve plenty there to get in order”. I would agree that we have plenty to get in order, so let us do it.

The three amendments that I have tabled with the noble Baroness, Lady Bowles, deal with various aspects of this. Amendment 69H deals with an issue that has generally been overlooked. I am very grateful to the noble Baroness, Lady Bowles, for identifying it—as noble Lords can probably tell, she is the expert hand in these amendments and has drafted all three. Amendment 69H proposes that trust or company service providers that do not carry on business in the UK and ensures that they may not incorporate UK companies without oversight from an anti-money laundering supervisor. I will not go through the details of each of its provisions, but essentially it makes sure that anti-money laundering authorities can get a grip on a series of organisations—trust or company service providers—that may have escaped notice up to this point in time. It is one loophole closed.

Amendment 69J takes another tack to close loopholes. It recognises that a company can be tracked if it has a UK bank account, but if the company does not, it is much harder to identify that particular company and make sure that the money laundering authorities can give it due and appropriate attention. In the proposed new clause, if an entity falling under the Companies Act 2006 does not have a UK bank account, it will have to provide a fee. The reason it should provide a fee is that it means that the cost of doing due diligence falls not on the UK taxpayer but on the company. That provides every incentive and every opportunity for the various authorities to pay due attention to that company. That is another loophole closed.

That fits brilliantly with the new clause proposed by the noble Lord, Lord Naseby. I will let him explain that because he will understand it far better than me, but again it highlights the importance of due diligence which flows through the first two amendments that I have described. Due diligence is vital to make sure that those entities that are active in the UK have very limited opportunity—or, preferably, no opportunity—to engage in nefarious activity.

Finally, Amendment 69L directly addresses that issue that was raised by the noble Lord, Lord Eatwell, and others. As noble Lords know, we have a public register of companies here in the UK, but the Government have never used a verification procedure. I understand why they have not. When a register is public, it is transparent. Journalists, NGOs, and members of the public have the opportunity to trawl that database, and that provides for many additional eyes to look through the material. That is exceedingly important, but perhaps it is not sufficient. At this point in time, issues of tax avoidance, tax evasion and money laundering have become far more significant—and on a far more significant scale. This is the time to turn to the supervisory authorities and give them the power and the wherewithal —the wherewithal probably being the critical element—to do verification and proper due diligence on that register.

That is the purpose of the three new clauses proposed in my name and that of the noble Baroness, Lady Bowles. They are to close the kinds of loopholes which leave the UK open to regular criticism that we talk about cleaning other people’s houses but we have not done what is necessary to clean our own. Read those together with Amendment 69 and you have a package that makes a very fundamental difference—one I am sure ought to be acceptable to the Government. I beg to move.

20:45

[Lord Naseby]

My Lords, I shall speak to Amendment 69K, which contains a new clause that I believe would meet a need arising from an apparent money laundering loophole to do with Companies House. Before I get on to it, I thank the Minister and particularly his staff for the consultation periods that were made available to Members of your Lordships’ House; they were extremely well run. I have also had correspondence with his office and I found it extremely helpful, so I put on record my personal thanks.

There are two ways of registering a company in this country, either directly through Companies House or via a company formation agent. Currently, 40% of all companies are incorporated through Companies House. As we probably all know, in July this year the fourth EU anti-money laundering directive came into force. It required considerable change for company formation agents in that they now had to take out enhanced due diligence checks when registering a company. Obviously this increased their workload and indeed the cost considerably, but nevertheless it was to the credit of the industry that it welcomed the changes that came with the directive.

However, under current provisions, fraudsters can still register a business direct with Companies House, either on paper or via the GOV.UK website, and, through that, avoid all the checks now required when company formation agents carry out exactly the same process. My understanding of the rationale behind this is that Companies House is not a business provider, but instead is fulfilling a statutory duty just to register businesses and issue incorporation certificates. Legally, Companies House has to accept in good faith all documents sent to it, and has no statutory power whatever to verify or validate the information contained in them. It can act only within the parameters of the Companies Act, and it has no investigatory powers under that legislation.

In reality, that means that for just £12 someone can set up a company using entirely false details without having to go through any verification checks on beneficial ownership, and with limited checks on registered directors. Individuals who have been involved in money laundering, who have convictions or who have been disbarred as owners in other jurisdictions can therefore gain access to UK companies through Companies House. This loophole cannot be justified; by incorporating at Companies House, fraudsters are able to create the illusion of their company being financially secure and sustainable. That leaves British business, consumers and taxpayers open to abuse through fraud or money laundering.

The organisation Transparency International reports that in the UK last year 251,628 UK companies were created with no checks being made on the person setting up the company or their source of wealth. A further TI report found that there were hundreds of British shell companies implicated, in its judgment, in nearly £80 billion of money laundering. The report goes on to say:

“The fact that a large proportion of firms are incorporated directly through Companies House and undergo no due diligence checks creates a significant money laundering risk to the UK framework”.


That lack of checks and balances harms Britain’s reputation as a leading place to do business, and in my judgment it is essential that that reputation is protected in the lead-up to Brexit. To protect businesses, taxpayers, and the UK’s reputation, it is essential that this loophole is closed.

I do not necessarily expect the Minister to take the precise wording in my amendment. It was written largely by myself with the help of the Public Bill Office, so in a sense it is a probing amendment, but I believe it is one with such depth of information that I would be enormously surprised if Her Majesty’s Government did not respond to it and come back with something similar on Report.

[Lord Davidson of Glen Clova (Lab)]

My Lords, the Opposition are sympathetic to many of the points that have been made, and I single out Amendment 69H. The capacity to carry out UK company formation from outside the UK is a real lacuna in the current money laundering regime. Monitoring within the UK is difficult enough, as is evidenced by the use of, for example, Scottish limited partnerships in Russian and former eastern-bloc bank fraud and money laundering of gigantic proportions. This vulnerability is of course magnified when the company information provider eludes the UK’s money laundering oversight.

Amendment 69J provides, we respectfully suggest, a useful additional hurdle for any prospective money launderer to negotiate. While the provision of the requisite materials for opening a bank account no doubt seems irksome to many, it none the less provides an additional external check on the background of those seeking to operate via a UK company.

The amendment of the noble Lord, Lord Naseby, offers a clear and useful mechanism for combating money laundering and I share his observation that it would be surprising if the Government did not support this measure with considerable force.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, there are two issues here. The first is to make sure that money laundering checks are carried out somewhere in the chain. There could be various mechanisms to do so, some of which are suggested in the amendments. Then there is the issue of how Companies House itself will get the money to conduct the checks. That is the point of the provision in Amendment 69L for a mechanism to levy a fee. Obviously, there could be other mechanisms. As to Amendment 69J, if there is no bank account, the fee could be levied at that point. Ways in which to tighten up and get the money are the objectives of this family of amendments.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I thank the noble Baroness, Lady Kramer, for leading a short but interesting debate on these matters. I shall put some remarks on the record to see whether they satisfy her and my noble friend.

Amendments 69H and 69J would prohibit trust or company service providers, known as TCSPs, that do not carry on business in the UK from incorporating UK companies, unless overseen by a UK anti-money laundering supervisor. The amendments would also require UK companies to establish a UK bank account and evidence this to Companies House. The money laundering regulations 2017 require TCSPs carrying on business in the UK to be fit and proper. We will also shortly formally establish the office for professional body anti-money laundering supervision, or OPBAS, which will work to ensure consistently high standards of anti-money laundering supervision by professional bodies, including TCSPs.

If there are factors that make it unclear whether a trust or company service provider could be regarded as acting by way of business in the UK—in which case it would fall within the jurisdiction of a UK anti-money laundering supervisor—HMRC considers on a case-by-case basis whether registration for supervision is necessary in order to combat attempted evasion of supervisory requirements. I therefore agree with the intention behind the amendment. However, given the pending establishment of the office for professional body anti-money laundering supervision, it is right that we establish this body first and then take proper account of its conclusions around TCSP supervision before taking further action in this space.

Additionally, the problem that the noble Baroness, Lady Kramer, and my noble friend Lord Naseby correctly identified ultimately results from trust or company service providers exploiting the comparative weakness of anti-money laundering supervision in certain overseas jurisdictions. In order to comprehensively address this, our emphasis should not be solely on expanding the scope of our anti-money laundering regime, particularly given the practical difficulties that would arise from UK supervisors seeking to exercise effective oversight over trust or company service providers established outside the UK and with no physical presence within the UK.

Such circumstances would present significant challenges for effective supervision, which typically includes measures such as on-site visits to firms that present higher risks of money laundering. The most effective way of addressing the problem which the proposers of the amendment have highlighted is through effective international co-ordination to drive up standards of supervision in jurisdictions with weaker anti-money laundering regimes than we have here in the UK. This is the agenda which we promote with international partners through the Financial Action Task Force, and it is this agenda which will offer a durable, long-term solution to the problem of weak overseas supervision of trust or company service providers.

Amendment 69J would amend the Companies Act 2006 to require UK companies to establish a UK bank account and evidence this to Companies House on an annual basis, or otherwise pay a fee or financial penalty. The wider purpose behind this part of the Companies Act is to provide a simple mechanism for companies to confirm that corporate information registered with Companies House as required under other obligations is accurate and up to date. The amendment would significantly change the purpose of the annual confirmation statement. As drafted, it would additionally require all UK companies to demonstrate annually that they hold a UK bank account; otherwise, they would have to pay a financial penalty. This would mark a significant increase in the reporting burden on the 3.9 million entities registered with Companies House, the majority of which are small, local businesses which would have to provide evidence of a UK bank account every year.

Amendment 69K would require company formation agents—defined for these purposes as including the UK registrar of companies at Companies House—to conduct customer due diligence. I appreciate my noble friend’s remarks about the consultation which has taken place, led by my noble friend Lord Ahmad, with colleagues and officials. I understand and sympathise with my noble friend’s intention; it is quite correct that we should take steps to avoid corporate vehicles being used for money laundering. However, I hope I can convince him that his amendment is not the best way to do that—although he prefaced his remarks by saying that it was a probing amendment. He will probably want to reflect on my remarks in response to it.

The amendment would represent a fundamental change in the principles under which the UK’s company law system has long operated. The UK registrar of companies has a statutory duty to incorporate and dissolve limited companies. This is carried out by Companies House, which registers company information and makes it available to the public. Companies House is not—unlike trust or company service providers, which are already supervised for anti-money laundering purposes under the money laundering regulations—a private-sector profit-making business. The registrar has no discretion in law to refuse or decline a request to incorporate a company. Companies House therefore cannot decline to establish a business relationship in the way that firms regulated for anti-money laundering purposes must when they cannot discharge their customer due diligence obligations. Because of the registrar’s statutory obligations, Companies House is not considered to be a company formation agent. If approved, the amendment would require further substantial revision to UK company law to allow Companies House to operate in the same fashion as company formation agents.

Approximately 600,000 new companies are registered each year at Companies House. The customer due diligence measures required under the money laundering regulations are significant, and are required to be applied by regulated firms on an ongoing, risk-sensitive basis to prevent illicit actors making use of the financial system. They are not intended—either by international standards, EU law or UK law—to be applied by a public body to all companies that are incorporated within the UK. Were these measures to be adopted, they would be a significant, unfunded burden upon Companies House and would fundamentally alter its relationship with the company formation process. They would also unnecessarily delay the process of company formation. The overwhelming majority of UK companies are set up for legitimate commercial purposes. Applying this amendment as drafted would not address or identify higher risks of money laundering or terrorist financing, but would instead impose an across-the-board administrative burden on Companies House and individual companies.

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As drafted, the amendment would also require that due diligence be carried out in accordance with any of the customer due diligence measures specified in the money laundering regulations, the fourth EU money laundering directive or regulations made under Clause 41 of the Bill. This approach would unfortunately create uncertainty for firms and for Companies House as to which set of due diligence obligations they should comply with, and how they should do so.

Amendment 69L raises similar issues, so I will be brief. It seeks to amend the Companies Act 2006 to require the Secretary of State to impose a duty on Companies House to carry out customer due diligence measures in accordance with the money laundering regulations on persons wishing to register a company in the UK. The international standards set by the Financial Action Task Force, EU and UK law all envisage that customer due diligence measures should be applied by a limited number of regulated firms. These entities are the gatekeepers to the financial system and are therefore the proper entities to carry out due diligence for anti-money laundering purposes. Given the scale of Companies House’s activities, it would only be possible to require it to conduct such due diligence at disproportionate cost. This would further penalise legitimate businesses while not adding significant new obstacles to money laundering and terrorist financing.

The amendment tabled by the noble Baroness, Lady Bowles, would effectively establish an additional levy on legitimate businesses: to duplicate due diligence checks that are already being conducted by regulated firms such as banks and lawyers, which such businesses already have commercial relationships with. Were these measures to be adopted, they would unnecessarily delay the process of company formation from the same day—in its most accelerated form—to an average of weeks, not days. This would additionally result in a significant increase in the cost of incorporation at Companies House. Also, any such obligations would only duplicate those already carried out by financial institutions and other firms that are already regulated in the UK. Any entity with a UK bank account is already required to go through customer due diligence. It would be neither effective nor proportionate to compel Companies House to duplicate these requirements.

For these reasons, I therefore ask the noble Baronesses, Lady Bowles and Lady Kramer, and my noble friend Lord Naseby, to withdraw or not press their amendments.

[Lord Naseby]

My Lords, I am grateful to the Minister, but he is just repeating the problem. I understand what he is saying about the EU directive, although I am not skilled in that area and would not claim to be. However, I am quite skilled in the practicalities of life, and if a quarter of a million companies are being registered and nobody is checking them, that is a huge loophole, and Her Majesty’s Government have to find a way around that. The commercial sector is doing its proper due diligence—yes, it does it for a fee—but the Government have to say, “Right, it shall all be done by the private sector and Companies House will carry on doing the little bit of work it does for £12”, or develop a section at Companies House to do it. I accept that more work may well need to be done, but we cannot have such a situation in this country.

I can even give the Minister a small case history of what could happen. Somebody goes to Companies House, pays their £12 and registers. It is then reported to HMRC that they have registered. They then write in four months later to say that they have ceased trading. That is a wonderful vehicle for money laundering: they are a registered company, and HMRC has forgotten about them because they have told it that they are not trading. If a quarter of a million of them are doing this—I am not saying there are quite as many as that—it is a huge loophole and Her Majesty’s Government have to figure out how to deal with that section of companies that are currently being registered fully through Companies House.

[Lord Bates]

I do not accept that all we are doing is describing a problem. We are of course doing that, but we are also highlighting that we are about to formally establish the office for professional body anti-money laundering supervision, which will be responsible for supervising the very professional body of trust companies to which my noble friend was referring. We will have to keep an eye on and watch out for this issue, but we are certainly not complacent about it; we are aware of it and watching it carefully.

[Baroness Kramer]

My Lords, perhaps I heard the same speech that the noble Lord, Lord Naseby, heard, because it seemed to me a speech in which basically all the loopholes were recognised. The argument was that we cannot do anything much about it. We have to co-operate with international regulators regarding companies based overseas with no UK presence that take advantage of Companies House; and regarding companies that go directly to Companies House, never get noticed again but, under the radar, can behave inappropriately. Some of them are entirely legitimate, I am sure, but within that pool there are bound to be some that are behaving very inappropriately.

Having recognised that there is a loophole, I am not vested in one set of answers to how we close it, but it needs to be closed. If the Minister has problems with the drafting or the way various phrases have been laid out, or if there are various other issues, surely all of those can be overcome once there is a decision in principle that this is a loophole and we ought to close it. I hope there is an opportunity for a conversation before Report, because I suspect that this House would be rather uncomfortable with walking away from a Bill like this and leaving a large and acknowledged loophole on the books and in the system. I beg leave to withdraw the amendment.

Amendment 69H withdrawn.

Amendments 69J to 69L not moved.

Schedule 2: Money laundering and terrorist financing etc

Amendments 70 and 71 not moved.

Debate on whether Schedule 2 should be agreed.

[Baroness Bowles of Berkhamsted]

My Lords, my noble friend Lady Kramer and I gave notice that this schedule should not stand part of the Bill. I would like noble Lords to take a few moments in private to give the schedule the “read it out aloud” test. Let us try one bit of it now. Paragraph 4 says:

“Require prescribed persons to take prescribed measures in relation to their customers in prescribed circumstances”.


All the prescribing is yet to be defined. I am sorry to appear light-hearted, but I can imagine that coming out of the mouths of comedians. Truly, I do not know whether the schedule is sinister or whether it just fails to understand how the money laundering regulations 2017 work. It is sinister if you look at the scope of the powers, which gives opportunity for boundless increase in who can be covered and ignores any proportionality or safeguards that are included in the current law.

It is no use pointing to the reference to the current regulations, which appears in paragraph 20, because that is basically there only to give power for them all to be rewritten, amended or revoked—so there are no guarantees for anything. It is worth having a quick look at paragraph 20, which starts:

“Without prejudice to anything in section 41, paragraphs 1 to 19 or section 44(2), regulations under section 41 may”.


We have to remember that Schedule 2 starts:

“Without prejudice to the generality of section 41”.


So we have a paragraph that starts with three mentions of “without prejudice”, reinforcing that a whole lot of other stuff is expected to be going on. Paragraph 20 then says:

“(a) subject to any modifications the appropriate Minister making the regulations considers appropriate, make provision corresponding or similar to any provision of the Money Laundering Regulations 2017, as those Regulations have effect immediately before they are saved by section 2 of the European Union (Withdrawal) Act 2017; (b) amend or revoke the Money Laundering Regulations 2017”.

It says that you can make provisions corresponding or similar to, or revoke. If that, together with the three references to “without prejudice” is not giving notice that you intend to completely rewrite them, then I really do not know what is. This is, as I have said before, a big part of the problem. It is sinister when looked at that way.

There is also a failure to understand, or at least to commit to, how the money laundering regulations 2017 work. That misunderstanding or failure to acknowledge is there by virtue of the very structure of Schedule 2. It is upside down, starting with the person, moving on to supervisors and leaving out duties of government. It does not seem to appreciate the cascade of risk assessment that drives automatic updating of the nature of risks from the Treasury and Home Office, to supervisors and then on to the persons. The list of powers seems to have been composed by lifting a short part-sentence here and there from individual sub-regulations, ignoring any safeguards including, as I said, the surrounding cascade methodology. The part-sentences are then turned into a list of naked powers that have already received criticism from the Delegated Powers Committee in paragraph 36 of its report. I commend reading that paragraph to noble Lords; it highlights and criticises the unrestricted power over persons, the powers to create supervisors with investigatory powers, the powers to prohibit the carrying on of business and power to impose unlimited fines and criminal offences—all without limit save for the sentencing limits.

It would stretch your Lordships’ patience, especially at this hour, if I went through each paragraph to show its origins and what is missing—although I could do that, if noble Lords wanted. I will just illustrate the pattern with one paragraph but, as I have said, it is a repeating pattern. Paragraph 2(1) requires “prescribed persons”—the yet to be defined prescribed persons—

“to identify and assess risks relating to money laundering, terrorist financing and other threats to the integrity of the international financial system”.

That actually sounds like a pretty good definition of what the Financial Action Task Force was set up to do. The Minister can by regulation make anyone—some small accountant, lawyer or bookkeeper, you, me, the doorkeeper, a schoolteacher—do it all, not forgetting unlimited fines for getting it wrong. Am I being ridiculous? Well, no, because there is no mention of the category of person or it being about their own or a relevant business. Where does this wording come from? Let us look at Regulation 18(1) of the 2017 regulations, entitled:

“Risk assessment by relevant persons”.


It starts:

“A relevant person must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its business is subject”.


Spot the missing bits. It has to be “appropriate steps” relating to its own business. The “relevant person” is not open-ended either, because there is a list of relevant persons in Regulation 8.

21:15

What else is missing? Rather a lot; that is why the 2017 regulations are 118 pages long—and yes, there are flags in my copy, because I kind of know what is in there. What else is missing? Even within that same Regulation 18, paragraph (2)(a) says:

“In carrying out the risk assessment … a relevant person must take into account … information made available to them … under regulations 17 … and 47”.

Regulation 17 is about the supervisor’s risk assessment. Regulation 47 gives supervisors an obligation to provide information to those they supervise. I think that is a pretty good thing for them to do. Going back to Regulation 18, paragraph (2)(b) gives a non-exhaustive list of risk factors to include, such as customers, countries of operation, products and services, transactions and delivery channels. Paragraph (3) states:

“In deciding what steps are appropriate … the relevant person must take into account the size and nature of its business.”

If we zoom out to other parts of the 2017 regulations, noble Lords will find that the “relevant person” in Regulation 18 does not have to work out the risk factors and proportionality all by themselves. There is guidance from their supervisors in the cascade. In fact, the cascade under the 2017 regulations starts with the Government making risk assessments, which feed in to supervisors, who refine or add their own sectoral information and then provide, under a duty, guidance to the entities they regulate. None of that is anywhere near being included in Schedule 2.

For the self-regulating sectors, the professional bodies that act as supervisors—there is a list of 22 of them in Schedule 1 to the 2017 regulations—can get the guidance they are going to give to the entities they supervise signed off by the Treasury. That is another safeguard, especially when we consider that at the end of all this lie unlimited fines and potentially criminal offences.

The cascade, the duty to inform and proportionality are all essential elements. It is simply not good enough to give them no status. Also, the cascade already gives massive scope for update because of the ongoing requirement in the 2017 regulations for the Treasury and Home Office to,

“identify, assess, understand and mitigate the risks of money laundering and terrorist financing”.

That is the start of Regulation 16, and at the end of that regulation, in paragraph (9), it says that the risk assessment is to be kept up to date. That, indeed, is also the first requirement of FATF recommendations.

To recap, under Regulation 16 there is government risk assessment, under Regulation 17 supervisors do follow-on assessments for their sector, and under Regulation 18 the relevant person does their risk assessment. So the mechanism is already there for top-down automatic updating, and it includes essential safeguards like proportionality and provision for how procedures can be approved. That is essential to try to get businesses on board and—I say it again—to make sure that they get their internal audit procedures functioning in a way that everybody agrees is right.

In contrast, instead of better referencing to this sequence and context, Schedule 2 to the Bill provides a bottom-up list of powers to make anyone responsible for anything, with the creation of supervisors, oversight and inspection disembodied from who it might be for. It leaves out provision for government duties, proportionality, and, again, the cascade.

So what does Schedule 2 intend to achieve that might be necessary and is not already achievable? It is not new risks because they are in the risk assessment cascade. The Government can put in anything they identify as well as mitigation requirements. It can only be to widen the scope to more business categories that do not already fall within the list of relevant persons in Regulation 8, and the supervisors of those businesses. Therefore, will the Minister advise what businesses those might be other than virtual currencies and wallet providers already included in the ongoing update in the fifth money laundering directive, and for which I understand the Government also have their own plans?

Can the Minister also advise whether the UK would go it alone to designate additional business categories without international agreements? What kind of businesses might those be? Is he able to advise whether change is envisaged—for example, to supervision of self-regulated professions—and, if it were, whether that is a matter to slip through in a regulation? Self-regulated professions are a very strong thread in the United Kingdom. I ask this as there is a lot of supervisor creation power going on in Schedule 2.

Why are the Government paving the way potentially to do away with the backbone of the cascade and proportionality, because, as I read out, there can be no mistaking that paragraph 20 is about the serious business of rewriting everything that is there, leading to massive uncertainty for business? That is the only reasonable interpretation to put on the continual reiteration of all those powers.

On any reasonable assessment of Schedule 2 as updating who can be included, it is a sledge-hammer to crack a nut, but with sinister consequences. Surely, all that is necessary is a modest provision to update the 2017 regulations in accordance with international recommendations, including power to add new business categories and their existing supervisors into the framework that already exists. Even if the framework were more narrowly described, it is not that difficult; I think that I could write it. I have broadly suggested this kind of approach in other amendments, but there will be other ways to achieve it. If a major rewrite is really wanted, or the nature of additional businesses that it is wished to cover are currently structured without any, or any appropriate, supervisors, and the Government are going it alone separate from international consensus, those are the kinds of things that are getting into the territory that belongs in primary legislation.

Thus, Schedule 2 is neither needed in its current scope nor appropriate and, as has been debated already, it further expands the basis to make unlimited new criminal offences without any reference to safeguards or basis. In this context, as I have said before, the criminal offences that were introduced by regulation mirror some that are already in other Acts of Parliament concerned with money laundering, such as the Proceeds of Crime Act, so they are not completely off the wall. In Schedule 2, you can now have them completely off the wall with no antecedent anywhere else in any primary legislation.

Finally, as I think the Minister has said previously, the fifth money laundering directive is expected to be finished and transposed before Brexit, and, I now understand, will be transposed by virtue of this Bill, when it becomes an Act, rather than through the European Communities Act. There are potentially more intrusive provisions within that fifth money laundering directive, which bear on individuals. Currently, they are bounded by the European Charter of Fundamental Rights. When I last looked, that was one of the conditions that the Council was writing into its version, which is in trilogue. How will this be taken into account when we have abolished the Charter of Fundamental Rights? I understand there are things in it, especially those impacting on immigration and so forth, that the Government do not like—although we on these Benches think the whole charter is a jolly good thing—but are we really saying those aspects that bear on Treasury implications and how you deal with out-and-out civil liberties will all be gone?

This is yet another reason why having such an extensive ability to rewrite, such naked powers to introduce things without safeguards, is unacceptable. A little more homework needs to be done so that this remains properly framed, whatever rewrites may or may not go on.

Finally, I ask the Minister to make sure that, when regulations on money laundering come around again, Parliament is not given only a matter of days to scrutinise them.

[The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)]

My Lords, we are coming to the end—this is the last group. The noble Baroness has given a detailed exposition of the reasons behind the proposed amendments. I can say quite clearly that the Government do not agree with her position. She used phrases such as “the Government going it alone”. Throughout the Committee stage—and today with my noble friend—I have articulated the fact that with the FATF we have led the way. These are areas where Britain is ahead of the curve, not behind it. Perhaps I can answer some of her questions directly, and I will also look carefully at her contribution in Hansard.

Schedule 2 provides further detail on the scope of the anti-money laundering and counterterrorist financing regulations that can be made under Clause 41. Paragraphs 1 to 17 of this schedule confirm that regulations made under Clause 41 can cover the topics already addressed in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

The noble Baroness quoted a few paragraphs. I will quote a few in return. For example, paragraph 4 confirms that regulations made under Clause 41, which she referred to, can require prescribed persons to take specified actions in relation to customers in prescribed circumstances.

The money laundering regulations 2017 currently give effect to the international standards set by the Financial Action Task Force and EU law, by including provisions of this type which require regulated firms to conduct varying levels of due diligence on their customers on a risk-sensitive basis. Further, and for example, paragraph 7, which I think the noble Baroness also mentioned, confirms that regulations under Clause 41 can confer supervisory functions—and corresponding powers—on supervisory authorities, such as the FCA. Other paragraphs within the schedule similarly clarify or supplement other aspects of regulations under Clause 41. For example, paragraph 18 provides that regulations made under Clause 41 cannot provide for criminal sentences that exceed the statutory maximums already established through the money laundering regulations 2017. Section 7 of the Proceeds of Crime Act 2002 provides for longer prison sentences of up to 14 years; these provisions should be seen in that wider context.

Finally, the noble Baroness mentioned paragraph 20 on a few occasions. This paragraph confirms that regulations made under Clause 41 may make provision corresponding or similar to the money laundering regulations. Sub-paragraph (2) also confirms that regulations made under Clause 41 can be used to amend or revoke the money laundering regulations. Indeed, this is exactly what was done when the money laundering regulations came in to replace the 2007 regulations. This is not something new that has been created.

[Baroness Kramer]

When the money laundering directive came in, there was, through the cascade mechanism, a framework within which the regulations sat. Will the Minister at least acknowledge that that framework is the missing piece here? Does he acknowledge that the cascade structure, which was a backbone to make sure that the framework and the principles were translated down through the system, is also missing here? Amendment and revocation had to be within that context, with those constraints and principles. The new amendment that he quoted has no such constraint or principle sitting around it. That is the whole point that everyone is attempting to make in this discussion. He needs to tell us why the Government have chosen that route, where those frameworks, principles and backbones are eliminated.

21:30

[Lord Ahmad of Wimbledon]

The noble Baroness says “everyone”. I know that she and the noble Baroness, Lady Bowles, made that point but I do not agree. She has made her point and I have listened; perhaps she should listen to the point that I am making in response.

As the noble Baroness says, Schedule 2 ignores the cascade of information. The power in Clause 41 will enable us to update and amend existing legislation that does this, as we did when the regulations were replaced this year, as I have already mentioned. This should not be viewed in isolation, which I fear is what the noble Baroness is doing. When new categories of risk manifest—the noble Baroness, Lady Bowles, talked about virtual currency exchanges—new legislation will be needed, and this power helps to fill that gap.

In sum, Schedule 2 sets out examples of the scope of the anti-money laundering and counterterrorist financing power contained in Clause 41, and it defines the limits of this power in relation to criminal penalties. The noble Baroness, Lady Bowles, ignores proportionality. However, this issue must be looked at in the wider context, not in isolation. Ministers are bound to use these powers proportionately, taking account of people’s human rights, and they are bound by Section 6 of the Human Rights Act 1998. I therefore contend that Schedule 2 should stand part of the Bill.

Perhaps I may briefly mention Amendment 71A, which I understand is related to the opposition of the noble Baronesses, Lady Kramer and Lady Bowles, to Schedule 2. To give an example, the reference in paragraph 2 of Schedule 2 to regulations, mentioned by the noble Baroness, being capable of requiring,

“prescribed persons to identify and assess risks relating to money laundering, terrorist financing and other threats to the integrity of the international financial system”,

corresponds with regulations 16 to 18 of the money laundering regulations 2017. These require the Government, supervisors and regulated firms to assess the risks of money laundering and terrorist financing at a national, sectoral and business level as appropriate so as to inform the nature and extent of any due diligence measures applied by regulated firms.

Perhaps I may give a further example. The reference to “prescribed persons” in paragraph 4 of Schedule 2, which again the noble Baroness quoted, corresponds to Part 3 of the money laundering regulations 2017. This establishes a framework giving effect to the standards of the Financial Action Task Force relating to simplified and enhanced customer due diligence, which I am sure we all welcome. Again, this is not about the UK going it alone; it is about how we are part and parcel of the FATF.

Therefore, the amendment would not remove the Government’s ability to designate categories of business as regulated for anti-money laundering purposes, or designate supervisors. These purposes are already permitted under Clause 41 and are referred to in Schedule 2.

There may also be a number of areas where we want to confer functions upon persons to assist with the implementation and enforcement of sanctions. I think that the noble Baroness, Lady Bowles, startled the doorkeepers when she quoted various examples. Captains of ships and harbour masters, for example, might need to exercise functions in order to comply with shipping sanctions. We might also need to confer functions to help enforce sanctions on border officials, agents of Her Majesty’s Revenue and Customs, or law enforcement agencies, such as the National Crime Agency.

I know the noble Baroness. She is well versed in the money laundering issue, and I respect that. That is why I said at the outset that I will listen again, or read, I should say—listening to Hansard may be stretching it a bit—her contribution very carefully and see if there are aspects that need further amplification and explanation from the Government. I hope that through my practical examples I have addressed some, if not all, of her concerns and that at this point, she will be minded to withdraw her amendment.

[Baroness Bowles of Berkhamsted]

I thank the Minister for his reply. I fear that a large part of it merely proved my point that small extracts have been turned into powers. I maintain that without the surrounding framework to give proportionality, you do not need everything that is in there. It is difficult—

[Lord Ahmad of Wimbledon]

I was merely giving a few illustrative examples. Like the noble Baroness mentioned, I think she and I would be the only ones here if we carried on in this respect. What I was doing was merely illustrating, but it is dealt with comprehensively.

[Baroness Bowles of Berkhamsted]

That is the point. It is converted into a power very comprehensively but it just takes the first section. For instance the one I quoted does not even point out that they are responsible only for what goes on in their own business. That makes it very difficult. A lot of this could be dealt with by putting in those proportionality statements and a few more things.

The other source from which this list of powers has been obtained—which I think the Minister was referring to—is the FATF recommendations. However, you have to bear in mind that the FATF is an organisation meant to look at risks to the financial system, terrorist financing and those kinds of things. It is not set up with a branch to deal with civil liberties or even human rights. It leaves that to the nation states which are then going to implement. I could probably find it in the FATF but it is too late in the evening to do that. You cannot just put the list of powers or of things that the FATF wants you to do into powers without acknowledging that there has to be a framework.

Yes, there may be human rights elements that we have not abolished, nevertheless there are more things—

[Lord Ahmad of Wimbledon]

To clarify, I said that we need to look at this in the wider context. That is why I referred to the obligations that Ministers are bound by in the Human Rights Act. That is part of our statute, so we are obliged to follow that.

[Baroness Bowles of Berkhamsted]

Unfortunately, it seems that that ends up in the courts from time to time, which is very difficult for the sorts of people that might find themselves entangled in this. My plea is really that we just make an effort to get this a little bit more right. In that spirit, I will not be pressing Amendment 71A, which was linked to the creation of supervisory powers, which was why it was in the same group. This issue is one that we will wish to return to in general on Report.

Schedule 2 agreed.

Clauses 42 and 43 agreed.

Clause 44: Regulations: general

Amendments 71A to 72A not moved.

Clause 44 agreed.

House resumed.

House adjourned at 9.39 pm.