Sanctions and Anti-Money Laundering Bill [Lords] (Sixth sitting)
(6 years, 9 months ago)
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The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Chair
Before we resume line-by-line consideration of the Bill, will everyone check that they have their electronic devices turned off or to silent mode? I remind Members of Mr Speaker’s rule that teas and coffees are not allowed during sittings.
New Clause 1
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 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 by 1 January 2020.
(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).”—(Helen Goodman.)
This new clause would require the Secretary of State to take steps to ensure the governments of specified British overseas territories introduce public registers of beneficial ownership of companies.
Brought up, read the First time, and motion made (this day), That the clause be read a Second time.
The Chair
I remind the Committee that with this we are considering new clause 8—Public registers of beneficial ownership of companies in the British Crown Dependencies—
“(1) For the purpose of preventing money laundering, the Secretary of State must consult with the authorities of governments in each Crown Dependency on establishing a publicly accessible register of the beneficial ownership of companies registered in their jurisdictions.
(2) Within 6 months of this Act being passed, and every 12 months thereafter, the Secretary of State must report to Parliament on progress within the Crown Dependencies on establishing registers as referred to in subsection (1).
(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).”
This new clause would require the Secretary of State to consult with the governments in each Crown Dependency about introducing public registers of beneficial ownership of companies in the Crown Dependencies, and to report to Parliament on the progress of establishing such registers.
Helen Goodman (Bishop Auckland) (Lab)
Before we broke for Justice questions, I was speculating about why David Cameron’s Administration were quite enthusiastic to make progress on this issue but the current Administration seem less enthusiastic. I had basically made my arguments and I was about to bring my speech to an end.
Luke Graham (Ochil and South Perthshire) (Con)
I say to the hon. Member for Bishop Auckland that there are Government Members who are in favour of public registers of beneficial ownership in British overseas territories. I studied international financial reporting standards extensively in my former life as an accountant—I draw Members’ attention to my entry in the Register of Members’ Financial Interests—and I am a member of the Public Accounts Committee. Having more transparency through country-by-country reporting and ensuring public oversight and increased transparency of a lot of our transactions will mean that we actually raise standards, not only in the UK mainland, where we have done so by introducing a public register, but in our overseas territories. Given the opportunity that Brexit provides us, in terms of having to reinvigorate our economy and our brand, it is important that we lead. Certainly, what is good enough for the mainland should be good enough for overseas territories.
I know from conversations with my right hon. Friend the Minister for Europe and the Americas that the Foreign and Commonwealth Office has concerns about whether it is right to impose measures on overseas territories. There is precedent for that, as the hon. Member for Bishop Auckland said, but there are concerns about whether it would be right to do so in this case. I do not believe in “devolve and forget”, although overseas territories have different constitutional arrangements. As MPs, we are responsible for taking a leading role. Westminster is here to lead, not to follow, and the United Kingdom should be a leading light when it comes to financial transactions and financial transparency, as it has been on so many global reporting standards.
Helen Goodman
The distinction that the hon. Gentleman makes suggests to me that, although he may hesitate to vote for new clause 1, he will agree to new clause 8, which merely calls for a consultation.
Luke Graham
Yes, exactly. I am conscious that we have discussed new clause 1 at length and that my right hon. Friend the Minister has listened to private petitions from me and other Members. I reiterate that I am sensitive to the different constitutional arrangements for each overseas territory, the way that local legislatures pass their laws and the reasons why they have interests in different areas of financial services, as the hon. Lady highlighted. However, the United Kingdom Parliament should be clear that, if we find a wrong, we should try to right it. I have received correspondence from overseas territories about the cost of implementing a public register and how that might negatively impact their economies. The United Kingdom Government should try to help them with any transition or implementation costs. In the longer term, if it means a shift in their economies and if implementing a public register creates a large gap, we should commit to helping their economies to transition. We must not just take away one aspect of their economies and leave them to fend for themselves.
I ask my right hon. Friend the Minister to commit to engaging with the overseas territories. We have already made a lot of progress. The United Kingdom mainland is the leading light on financial transparency, and we have led the way with the public register. We must engage with the overseas territories, take them on the journey with us and help them to overcome some of the challenges they will inevitably face in a positive and constructive way.
Alex Norris (Nottingham North) (Lab/Co-op)
It is a pleasure to follow the hon. Member for Ochil and South Perthshire. My hon. Friend the Member for Bishop Auckland probably shares quite a few of these views. She made a comprehensive and weighty case; I just want to build on a couple of elements of it. We have recognised on Second Reading and during this discussion that Britain and the British Parliament have a really good record in this area. We should be proud that we are world-leading, and we should continue to be so. As we debate this transition Bill, which is a Brexit Bill at its heart, we should ensure that we remain at the forefront.
We can have the best fence in the world, but there are limits to what we can do if this goes on to our neighbours’ properties. If we have a special relationship with our neighbour, perhaps there are better ways of doing it—I will not torture that metaphor further. At its root, this is clearly a problem that needs solving. The hon. Member for Ochil and South Perthshire characterised it as a wrong that needs righting. The Panama papers listed the British Virgin Islands as the No. 1 location for those issues. Similarly, as my hon. Friend the Member for Bishop Auckland said, Oxfam listed Bermuda as No. 1, and we have seen the briefing materials from Christian Aid. Just so this cannot be portrayed as an activist campaign—as though that could be a bad thing—HSBC and even BHP Billiton say that this is the sort of thing we need. BHP Billiton is the world’s biggest mining company, so it is not often that it and I are bedfellows, but it understands that unclear audit trails for money are bad for its business. They are bad for the communities from which the money comes, but also bad for BHP Billiton’s global finance enterprises, so it is urging us to take action.
This proposal is proportionate. We heard on Second Reading that, given that the overseas territories have had a difficult few months, time has been built into the proposal. There is recognition of how the Crown dependencies ought to be supported. Ministers have said throughout this Bill Committee that, when it comes to the overseas territories, we are responsible for foreign affairs and security. Absolutely—I could not agree more—and anti-money laundering and dirty money passing over borders in massive quantities are at the root of security and foreign affairs. Money laundering underpins global terror, and we ought to be squeezing it wherever we can, because that is one way of cutting off those networks. The combatants we engage with may seem like they are hidden in hills and hard to find, and are perhaps not like us, but from all we have been through over the past 20 years, we know that they have some very sophisticated cells, behind which is big money. This is a chance to clamp down on that.
This will say a lot about us as we go into the brave new post-Brexit world. We have heard the phrase “brand Britain”—the hon. Member for Ochil and South Perthshire talked about our brand—and who we are and where we place ourselves in the world will be very important to it. On the one hand, our Ministers are going round the world saying that we have a great approach to money laundering, but on the other, these are British overseas territories—the Minister referred to them as overseas territories, but they are British overseas territories, and our name is attached to them.
Jo Stevens (Cardiff Central) (Lab)
Does my hon. Friend agree that, although there are some very good things in the Bill, not dealing with secrecy in relation to the overseas territories will damage the credibility of the rest of the Bill and will put it in danger?
Alex Norris
I thank my hon. Friend for that useful intervention. I absolutely agree. We should not see the Paradise papers and the Panama papers as the past, and assume that we will not see anything about this issue again. We are likely to see such things periodically on different programmes and in different newspapers. Every time that happens, people will ask, “What did you do about it? When you heard about it last time, how did you act?” If we say, “Well, we have this brilliant law, which we consider world-leading, but we stopped short of doing this,” people will wonder why we did that, and that will damage our brand.
This is not just about the British overseas territories—people will say, “Hang on a minute. They are British. What are you doing in your engagement with them?”—but about the Crown dependencies. The Crown will, dare I say, be a very important part of brand Britain, and people will draw a very straight line. Even if we feel that we should not be able to act in this area, people will expect that we can, so we ought to have a pretty clear picture on it. What is being asked for in the two new clauses is proportionate and sensible, and hopefully something that we can all support.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I do not want to speak for very long, or repeat what colleagues have said. I very much agree with the comments made by my hon. Friends the Members for Nottingham North and for Bishop Auckland. However, there are a couple of aspects that I would like to emphasise, and provide the Committee with a bit more information on.
First, it is the friends of the overseas territories and Crown dependencies who are deeply concerned about the lack of action in this area. I have had many meetings with representatives from both groups of jurisdictions over the years, both as an MP and as a Member of the European Parliament before that, when I sat on tax committees and the Panama papers committees in the European Parliament. I have had many discussions on these topics. I acknowledge that there is currently some resistance, but there is also an awareness of the reputational damage that is being done to their jurisdictions, as my hon. Friend the Member for Nottingham North mentioned.
There is also concern about having the resource necessary to implement more transparency. I strongly agree with what the hon. Member for Ochil and South Perthshire said in that regard. That is why our new clause calls for support for the overseas territories to implement the changes. We do not want to end up in a situation similar to what happened in the Turks and Caicos Islands, where there were repeated warnings that there were problems but nothing was done until it got to such a height that there had to be what some would say was a very draconian response. We do not want to get to that situation; we want to see change. I will go on to explain what happened in the Turks and Caicos Islands in a moment, because colleagues need to know about that. We have not yet talked about the instances where Britain has exercised its relationships and the levers it possesses.
It is also important that we acknowledge that for many of the overseas territories and Crown dependencies there has been positive legislative change, particularly around 2013 and 2014. However, that has died off a bit recently. One thing that worried me was the fact that the British Virgin Islands have passed new laws against whistleblowers. That has caused a lot of concern, and appears to suggest a shift in the wrong direction. The US State Department, for example, has commented on the fact that low numbers of prosecutions are coming from some of the jurisdictions. Frankly, it is a bit of an embarrassment that the US State Department has commented on that, and we have not seen the necessary action.
It is also a major concern for our country. Others have commented on this, but we have not yet quoted from the National Crime Agency’s “National Strategic Assessment of Serious and Organised Crime 2016”. That report spelled out the problem with having our open register of beneficial ownership without having commensurate obligations in our associated jurisdictions—not to mention the register’s own problems, which we will come on to. The report said:
“When legislation to report beneficial ownership begins to be fully enforced…the UK will be less vulnerable to shell companies formed by professional enablers and others within the UK for the purposes of enabling bribery, corruption and money laundering. The UK will remain at risk from company formation in overseas jurisdictions where similar legislation is not in place.”
It is a direct concern for Britain that we have this leaky fence, to stretch again the metaphor of my hon. Friend the Member for Nottingham North.
It is particularly worrying that the British Government’s position seems to have shifted backwards. Other colleagues have mentioned that, and I wanted to draw attention to the precise language that is now being used by the Government. David Cameron gave us a commitment to beneficial ownership registers—not to public ones. We wanted him to go further, but he committed to getting registers that could at least be used by law enforcement agencies.
As of the debate on the Bill in the other place, we have a new formulation of words, talking instead about either registers, or similarly effective mechanisms to beneficial ownership registers. It would be helpful to hear from the Minister exactly how they are similarly effective. I asked a parliamentary question about this issue and I was told that, for example, electronic search platforms are a technical solution designed to achieve precisely the same result. Well, they do not achieve the same result if it takes longer for law enforcement agencies to get the information they need to root out crooks and prosecute them.
The Minister for Europe and the Americas (Sir Alan Duncan)
Unfortunately for the hon. Lady, she seems unaware that I was the Minister responsible for Turks and Caicos, as a Minister in the Department for International Development at the time. The reasons she cited for our intervention are completely inaccurate. There was a growing financial deficit of £30 million, forecast to be £60 million and then £90 million—it would have been half a billion pounds within a very short time. On that basis, we stepped in and parachuted in a chief financial officer to get the public finances back into shape. It was a great success and is a good example of us intervening in a perfectly proper way in co-operation with the Governor and the Government there.
Anneliese Dodds
I am grateful to the Minister for those comments; I might agree with the second half of them. I wonder whether his remembering of the time is the same as that of the relevant FCO Minister. I am terribly sorry; I do not know who the individuals were, but I was not in the House at the time. He or she commented:
“These are some of the worst allegations that I have ever seen about sitting politicians”
and
“when things go badly wrong…we need to act”.
I suspect that they were not talking simply about a budget deficit at that stage; they may have been talking about other matters.
Sir Alan Duncan
The hon. Lady is conflating two separate issues. There was a parallel legal issue over the plight and fleeing of Mr Misick, but that was not the basis on which we intervened.
Anneliese Dodds
Whether the intervention was due to alleged corruption in the activities of the former leader or budgetary matters, the arguments point in the same direction. When the British Government saw there was a problem, they decided it was appropriate to take action. We are lucky to have the Minister here. We are grateful to hear of his experience, and I hope he will inform us of how, in that regard, we can use that experience, in a consensual, respectful manner, to deal with our associated territories in relation to ownership registers.
Sir Alan Duncan
This has been a lively and interesting debate on an issue that we all agree is of importance. It boils down to how we think it appropriate for the Government to act. I am grateful to hon. Members for tabling new clauses, and I appreciate the desire for the overseas territories and Crown dependencies to adopt public registers. However, we should acknowledge the significant steps already taken by those jurisdictions in this area and continue to build on that progress.
While we continue to push for public registers to become the global standard, we should recognise that the arrangements that the territories and dependencies have concluded with the UK exceed the international standards set by the Financial Action Task Force, which do not require private registers, let alone public registers. Nevertheless, should public registers become the global standard, we would expect the overseas territories and Crown dependencies to meet that standard.
As the Committee knows, the overseas territories and Crown dependencies are separate jurisdictions with their own democratically elected Governments. We have therefore legislated for them without their consent only in exceptional circumstances—for example, to decriminalise homosexuality in certain territories, to ensure they were compliant with international human rights obligations. By contrast, financial services are an area of domestic responsibility for territory and dependency Governments.
Legislating for those jurisdictions without their consent effectively disenfranchises their elected representatives and risks harming our overall relationship with them. It also risks leading to a flight of business to other, less regulated jurisdictions, with the undesirable consequence that our law enforcement authorities would not have the same level of access to beneficial ownership information as under the existing bilateral arrangements. Imposing public registers of company beneficial ownership on the overseas territories would carry with it the risk that the territories would be less willing to work with us on this important issue.
[Dame Cheryl Gillan in the Chair]
I would like to draw parallels with the devolved Administrations and the Sewel convention. The hon. Member for Glasgow Central addressed the point on Second Reading:
“Much as I do not wish the House to legislate on Scottish matters, I do not want us to legislate for overseas territories or Crown dependencies without consent.”—[Official Report, 20 February 2018; Vol. 636, c. 92.]
I agree with her that that is the right approach.
The overseas territories and Crown dependencies have already made significant progress on beneficial ownership. Since we concluded our exchanges of notes with them in 2016, they have passed new primary legislation and delivered technological improvements to comply with the terms of the arrangements. They have committed to provide UK law enforcement authorities with automatic access to beneficial ownership information within 24 hours of a request being made, or within one hour in urgent cases. Those arrangements strengthen our law enforcement authorities’ ability to investigate serious organised crime, including money laundering and tax evasion.
The hon. Member for Oxford East asked about what are termed similarly effective systems. Some jurisdictions have opted under the bilateral arrangements concluded with the UK to establish an electronic search platform, allowing them to gain access to beneficial ownership information held by their authorities or by corporate service providers.
The exchanges of notes permit such similarly effective arrangements, provided that the following criteria are met. Law enforcement authorities can obtain beneficial ownership information without restrictions, and that information is available for use in both civil and criminal proceedings. Law enforcement authorities can also quickly identify all corporate and legal entities connected to a beneficial owner, without needing to submit multiple and repeated requests. Corporate and legal entities, or those to whom the beneficial ownership information relates, are not to be alerted to the fact that a request has been made or that an investigation is under way. We will monitor that arrangement to ensure that it does indeed provide the same results.
I hope that hon. Members agree that the overseas territories, in some cases in the most challenging circumstances, and the Crown dependencies have made significant efforts to move forward on this agenda. The effective implementation of the exchanges of notes will put them ahead of many G20 countries and many individual states of the USA, and demonstrates what can be achieved through working co-operatively.
Alex Chalk (Cheltenham) (Con)
Does my right hon. Friend agree that, as a result of the steps that have been taken in the Crown dependencies, there is a far greater degree of transparency in Jersey and Guernsey than in Delaware in the United States, for example?
Sir Alan Duncan
My hon. Friend is absolutely right. It is exactly that comparison that we need to see in the round, in order to understand that there could be unforeseen detrimental consequences of any kind of imposition proposed for the overseas territories.
Luke Graham
I understand the Minister’s point about overseas territories and the challenges faced by other jurisdictions such as the United States. Britain leads in a number of global reporting initiatives. Without compelling overseas territories to change their ways, we could still lead the conversation with the United States and the overseas territories in the round, to ensure that we progress this reporting and show the benefits that we have already recognised on the mainland. I urge my right hon. Friend not to draw parallels between the devolved settlement in the UK because we have Scottish MPs in this House, and they are there making laws in Scotland, whereas the overseas territories do not have MPs in this House.
The Chair
May I remind the hon. Gentleman that interventions should be shorter than that?
Sir Alan Duncan
You have been transformed, Dame Cheryl. The second point is within the constitutional settlement with the devolved Assemblies that has been reached in the United Kingdom. On the first point, I would have no objection to any hon. or right hon. Member urging the Government to take a lead in such areas. I hope that, at least by example and in international forums such as the UN, we do just that. I hope the UK’s leadership role will continue.
Hannah Bardell (Livingston) (SNP)
I am a little perplexed by what the Minister said. It seems that he conflated the comments of my hon. Friend the Member for Glasgow Central with the intent of the amendment, which is to encourage—not to compel—Governments in overseas territories to do that. Perhaps I am mistaken and he can clarify that, but it seems that there is a misrepresentation.
Sir Alan Duncan
The hon. Lady is not being unreasonable; there are some arguments where some people say compel, and others say urge and consult. My argument would be that we are consulting—we do it all the time. We have a regular dialogue, and in that, we are urging them in the right direction. Anything that smacks of us in any way telling them what to do is counterproductive, because rather than imposing new requirements on these jurisdictions, it is better that to continue to focus our efforts on the consolidation of the existing arrangements.
The exchange of notes provide for the operation of these arrangements to be reviewed six months after they come into force. We are working very closely with the territories and dependencies on this review, and plan to conclude it by the end of March. That is a very good example of the sort of consultation we are engaging in on a regular basis.
Anneliese Dodds
When the Minister those letters are exchanged, will it include the logistics of this operation? I am trying to get my head round how we can genuinely say that contacting potentially myriad trust and company service providers and getting information from them is equivalent to having access to a register. How are the Government truly going to assess that in this exchange of letters? Will it be a question of time? We could be talking about hundreds of TCSPs.
Sir Alan Duncan
I am not directly involved in this, but as I have said frequently, I am very happy to offer the expertise of officials to the hon. Lady so that she can fully get to grips with the intricate detail of the question she has asked.
Hon. Members will recall that the Criminal Finances Act 2017 provides for a review of the effectiveness of the bilateral arrangements. That report must be prepared before 1 July 2019, and it will then be published and laid before Parliament. The reviews will provide a clear understanding of how the jurisdictions are meeting their commitments. At that point, we will be in a better position to consider what more might need to be done. I stress once again that we will engage with the overseas territories and dependencies; we do so already and we will continue to do so on a regular basis, with the clear objectives in mind of wanting consistent and constant improvements in the way in which their finances are organised.
A key feature of the Government’s approach has been to maintain a level playing field between all the overseas territories with financial centres and the Crown dependencies. As I have described, we have robust review processes regarding the implementation of these arrangements. If these reviews demonstrate that the full implementation of the exchanges of notes is not taking place in any individual jurisdiction, it would be right for hon. Members to consider this issue further. For the time being, however, we should continue to focus on the full implementation of the existing bilateral arrangements. We are on a good and solid track; therefore, I urge hon. Members to withdraw the new clause.
Helen Goodman
It is nice to see you in the Chair, Dame Cheryl. I wish to remind members of the Committee of two things: first, the Government’s own statement in 2012 that, as a matter of constitutional law, the British Parliament can legislate for Crown dependencies and overseas territories. Secondly, the current approach, where the authorities in London have to ask individual questions, is not as effective in tracking down and deterring illegality as having a transparent approach. That was demonstrated by the fact that, when the Panama and Paradise papers were leaked, they were able to initiate more inquiries and take more action against people because, as I was trying to explain this morning, they were able to see the overall pattern.
I am disappointed in the Minister’s response—not surprised, but disappointed—because he has not shown any flexibility at all. However, I do not wish to put the hon. Member for Ochil and South Perthshire on the spot. I think we will come back to this on Report, so I do not wish to put the motion to a vote. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 2
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.”.—(Helen Goodman.)
This new clause would require the Secretary of State to 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, within 12 months.
Brought up, and read the First time.
Helen Goodman
I beg to move, That the clause be read a Second time.
In 2015, David Cameron said:
“London is not a place to stash your dodgy cash.”
That is why he wanted to set up a register of the real owners of UK property owned by companies registered overseas. Unfortunately, the timetable for that has slipped. Following his announcement in 2015, the Government made an announcement shortly before Christmas saying that they now expected to set up the register in 2021. That is six years. In the other place, it was Tory peers who pressed for this to be speeded up. Our new clause does precisely the same thing.
Last week, the right hon. Member for Newbury mentioned unexplained wealth orders. Indeed, the Security Minister got an excellent splash on the implantation of this part of David Cameron’s package on 3 February. It was headed:
“Russians in Britain told to reveal their riches. McMafia-style crackdown on ‘corrupt’ oligarchs.”
It said:
“The government estimates that about £90 billion of illegal cash is laundered in Britain every year.”
The Minister said:
“McMafia is one of those things where you realise that fact is ahead of fiction…It’s a really good portrayal of sharp-suited wealthy individuals, but follow the money and it ends up with a young girl getting trafficked for sex.
What we know from the Laundromat exposé is that certainly there have been links to the [Russian] state. The government’s view is that we know what they are up to and we are not going to let it happen any more.”
He then explained that unexplained wealth orders were coming into effect.
I cannot understand why, given that those orders are coming into effect, a start has not been made on one with the purchase from the Ministry of Defence of Brompton Road tube station by a Ukrainian gas magnate. For colleagues who have not been following this long-running issue, Dmytro Firtash is a friend of ex-President Yanukovych and an associate of both President Putin and Paul Manafort. He was arrested in Vienna on corruption charges at the request of the FBI. Latterly, attempts have been made to extradite him to the United States, first on Magnitsky charges and later in relation to his alleged role in masterminding an international racket that aimed to sell titanium to Boeing.
Like all rich people, he operates indirectly. For example, his foundation, New Century Media, paid for the £800 ticket to a summer ball for the Minister here today—the right hon. Member for Rutland and Melton—according to the Minister’s entry in the Register of Members’ Financial Interests from 2010. He also gave £85,000 to the Conservative party centrally. I would have thought that he was a prime candidate to receive an unexplained wealth order, and I hope that Ministers will see if that can be pursued.
Sir Alan Duncan
Is the hon. Lady saying that New Century Media is owned by Mr Firtash?
Helen Goodman
I think Mr Burnside is employed by Mr Firtash. That is the issue. These things are not exactly transparent.
Let us return to the question of whether the current state of the law is adequate. The Times also had a leading article which said:
“Three difficulties may blunt the effectiveness of the wealth orders. First, all the agencies involved in investigating and prosecuting those suspected of laundering dirty money in Britain are already over-stretched. They need experienced staff used to digging through multiple layers of shell companies and intricate business transactions, and they do not have enough of them.
Second, the orders frieze assets for an interim period and are only one early step in the process of bringing oligarchs to heel. The government has to be braced for legal marathons contested by the rich and corrupt. That requires political will.
Above all, the red carpet for crooks has to be rolled up. Too many people in the City of London, in the divorce and libel courts, in the art world and in high-end estate agencies have failed to look closely at the cash coming their way. An overdue step would be a public register revealing the true owners of overseas companies that own property in Britain.”
Until we have the public register, it is not going to be possible to identify who owns the properties and whether or not the wealth invested in them has been gained legitimately or illegitimately. In other words, are the wealth orders explained or unexplained? I am not quoting the Morning Star or the Daily Mirror—I am quoting The Times.
We think that this is all taking too long; it is a problem that it is taking too long. It is a problem because of its size, which I will describe. It is also a problem because Ministers are giving time to people to rearrange their affairs and to reorganise them in order to avoid the measures which are in train. A concrete example of that would be the use of trusts. That is why further we have tabled a new clause on trusts.
Global Witness and Transparency International believe that 86,397 properties in England and Wales are owned by companies registered in offshore secrecy jurisdictions; 87% of companies owned by foreign company owners in secret jurisdictions. Half of them are in London and half are in other parts of the country. The 10 most expensive properties owned by companies in tax havens are worth £1.5 billion. Furthermore, Transparency International believes that there are suspicions about £4.4 billion-worth of UK properties, over half of which—£2.36 billion—belongs to companies registered in the British Virgin Islands. They also say that these properties in secret jurisdictions account for 75% of all UK properties under investigation for corruption. If hon. Members or members of the public are interested in seeing what is going on, I recommend going to the Global Witness website where they can type in their postcode and see how many of those secretly owned properties with overseas owners are located on a map.
The Economic Secretary to the Treasury (John Glen)
May I say what a pleasure it is to serve under your chairmanship once again, Dame Cheryl? I acknowledge that the amendment seeks to set in legislation an obligation on the Government to implement, within 12 months of Royal Assent, our commitment to establish a public register of company beneficial ownership information for foreign companies that already own or buy property in the UK or who bid on UK central Government contracts. It puts an accelerated timetable on something that the Government are doing anyway. In the next few minutes, I will remind the Committee of the timetable to which the Government are committed for delivery of this policy. I will set out the challenges and complexities of the policy and demonstrate why setting an early and artificial deadline for implementation would inadvertently undermine its aims. I know that these are supported across the House, so it is important to ensure that we get the detail of the policy right.
In listening to the remarks made by the hon. Member for Bishop Auckland, I acknowledge the frustration around this; but this Government are committed to continue to lead by example and improve corporate transparency. Over the past five years, the reforms delivered by the Department for Business, Energy and Industrial Strategy have made the UK a global leader on corporate transparency issues. We were the first country in the G20 to establish a fully and publicly accessible company beneficial ownership register and, across the world, non-governmental organisations lobby their Governments to follow the UK example. There is a reason we have that world-leading reputation: it is because of the quality of the measures we have passed and it is a reputation we would lose if this measure were accepted. A 12-month timetable to draft and pass primary and secondary legislation, empower the responsible agencies and commence the obligations is not realistic. The rush to meet such an unrealistic deadline would inevitably lead to loopholes that would be readily exploited by those seeking to evade the new requirements.
Alex Norris
We are not just talking about a 12-month timetable; this was first announced by a Conservative Prime Minister in 2015. What have Ministers been doing since then?
John Glen
I will come on to explain the history of this and why we are where we are. I am happy for the hon. Gentleman to intervene if he does not feel satisfied at the end of that.
Mindful that the eyes of the world are on us, hon. Members should recognise that this legislation would be a world first. Successful delivery raises significant challenges and it is right that the Government achieve the right balance in an effective regime with robust enforcement that does not have a negative impact on land registration processes across the UK. I acknowledge that some have accused the Government—and we have also been accused this afternoon—of not acting swiftly enough to implement this policy. Let me address those concerns.
We have committed to publishing a draft Bill before the summer to introduce the Bill early in the second Session and for the register to be operational in 2021. Publishing a Bill in draft is the right approach. As I said before, this register will be the first of its kind in the world, it will affect people’s property rights, including not just new purchasers but existing owners. This is a sensitive and delicate area. Getting it wrong would have significant adverse consequences.
Anneliese Dodds
The Minister is being generous. He has kindly set out for us a three-year timetable, adding on a couple of years before that when Government committed to this. Is he aware of the Private Eye map, which has been in existence for some time? Through civil society and journalistic activity, Land Registry and Companies House data were put together and a map produced. That appears to have been done quite quickly.
John Glen
I am not familiar with that particular map but I would be very happy to examine it. For clarity, and addressing the hon. Lady’s previous point, the register will capture the details of beneficial owners of all non-UK companies—including those in the overseas territories—that own UK property. This will be a world first, so we are moving as fast as possible, ensuring that the register is as comprehensive as possible.
As the Government set out in last year’s call for evidence, for the register to be effective the sanctions to be applied for non-compliance must be a meaningful deterrent. Enforcement must be energetic. Simple criminal sanctions may not be sufficient in isolation. The draft Bill will include enforcement through land registration law. Where an overseas entity buys property, it will never be able to obtain legal title to that property without having complied with the register’s requirements. Similarly, a restriction on the title register for property owned by an overseas entity will signal to third parties that the overseas entity must comply with the regime before selling the property, creating a long lease or legal charge. Those are significant steps on which it is right to consult.
Hon. Members will recognise that there are separate Land Registries in Scotland and Northern Ireland, as well as the Land Registry for England and Wales. The approaches taken to land registration and overseas entities by each of those Land Registries have been different until now. That too will need be streamlined. Delivery of an holistic outcome that complements all three land registration regimes is an exercise touching multiple teams across Government and the Land Registries. Put simply, it is an exercise that will take time to get right and a further demonstration of why publishing the legislation in draft is the appropriate next step if we are to get it right. Although I appreciate that the motive underlying the new clause supports the policy as a whole and demonstrates a desire for early delivery and implementation, it does not take account of the complexities that I have set out or the challenges of delivery and implementation.
The register will further demonstrate the Government’s commitment to combating money laundering through the property market. Hon. Members will have seen recent press reports—the hon. Member for Bishop Auckland drew our attention to the splash on 3 February—that two unexplained wealth orders have been obtained by the National Crime Agency in connection with two properties worth £22 million.
Those are the first orders obtained under the relevant powers conferred by the Criminal Finances Act 2017, which commenced at the end of January. They were obtained only a few days after it came into effect. As the Minister for Security and Economic Crime has said, the orders are an important addition to the UK’s ability to tackle illicit finance, and it is great to see them already in use.
The Government will continue to take action. BEIS’s response to last year’s call for evidence will be published shortly, and it will set out the Government’s approach to areas of particular complexity. BEIS has already made significant progress in preparing draft legislation; the work with the office of the parliamentary counsel to draft the Bill is under way.
Separately, BEIS is working to quantify the impact of the legislation on the UK. The impact assessment will quantify the register’s potential impact on the property market and investment flows, around which foreign direct investment is very specific, to pick up on the point made by the hon. Member for Bishop Auckland. The register will rightly make the UK more hostile to illicit flows of money, but we must understand the potential impact of legitimate inward investment.
All those issues were considered in last year’s call for evidence. Scrutiny of the draft Bill will further stress-test whether it will be effective. I hope that that process demonstrates the Government’s continued commitment to enact the policy, and our commitment to get it right. For those reasons, I hope that the hon. Lady will withdraw the new clause.
Sir Alan Duncan
On a point of order, the hon. Member for Bishop Auckland earlier asserted that New Century Media is owned by a disreputable Ukrainian oligarch called Dmytro Firtash. That is completely untrue. New Century Media is owned by a former Member of this House, Mr David Burnside, whose reputation she has inadvertently maligned. I ask her to withdraw her comment immediately, or to say the same thing outside the House and take the full legal consequences of doing so.
The Chair
That is not really a point of order for the Chair, but the Minister has made his point of order and put it on record.
The Chair
Unless any other Member wants to rise on a point of order, we will move on. If the hon. Lady wishes to respond, she may.
Helen Goodman
My understanding is—and this has been in the public domain and stated outside this House—that Mr Burnside was the executive chair, but that New Century Media represented the personal foundation of Dmytro Firtash.
The Chair
The hon. Lady has made a response, but it is really not a point of order for the Chair. Members have managed to put it on record, and we will move on. I apologise to Mr Norris, who did not catch my eye before I called the Minister. I call him now.
Alex Norris
You are very kind, Dame Cheryl. I am not a very good bobber—I find myself inadvertently bobbing in the wrong place or staying in my seat. My wife is currently doing the 100 squat challenge, and I wonder whether an afternoon of questions on a particularly good statement is a good way to make a down-payment on that. That is not the point I rise to make, however—proud of her though I am.
The new clause comes back to our place in the world after Brexit. There are very legitimate anxieties across the House, which are often played out in the Chamber, that post-Brexit, Britain will become the low standards capital of Europe: people will have all the benefits of being in Europe, but will not have to put up with those pesky regulations. We have what we consider to be very legitimate concerns about workers’ rights, product regulations and environmental standards that we raise frequently, and we hear back from Ministers—to their credit, we always hear back—“No, that is not our plan post-Brexit. That is not the Britain we want to live in.” We say that we will hold them to that, as we will.
The Ministers are exceptionally lucky that this is a good opportunity to raise that flag and demonstrate that. The Bill will send a strong signal about what Britain will be like and about our role in the world. The Ministers have said that it will be the first of its kind, which is a good thing. We should seek to lead on such important issues. We have a chance to lead and show that Britain is a high-standards, high-quality economy to occupy and if people come to Britain, they should expect to have the relevant level of scrutiny if there are questions over the assets that they bring or purchase. So it is time: that is what campaigners tell us and what we feel too. We are not asking for this to be done overnight. This is something that Ministers have had since 2015 and that will still have another year after this legislation passes, which is some way away. It is time.
Richard Benyon (Newbury) (Con)
I think it is worth saying for the record that there is a chill wind blowing through the financial lives of some of the people who have used our economy, particularly our property sector, for nefarious purposes and money laundering. From my conversations with a current Security Minister, and from what I know the Government are doing to implement the asset freeze legislation, I have no doubt that that is being taken forward aggressively and in a determined way. That is being recognised abroad; it is certainly being recognised by some of those people who have used the ability of our economy, through good title deeds, to make property a means by which to bury nefarious funds.
We are talking about legislation to hold future Governments to account. I entirely accept my hon. Friend the Economic Secretary’s assertion that this a complex situation to get right. I would like a little more clarification, and I am prepared to cut him some slack on this because if this is not done properly, it will be exploited and people will be able to move wealth in a globalised economy in a much freer way. It should be tied down in a way that encourages people still to invest in this country. I welcome the fact that people want to invest in our property, whether commercial or residential, but not, as the hon. Member Bishop Auckland says, just to leave homes empty. I recognise that that is a real issue, but there is the sheer importance of making sure that all of the provisions are correct. I know it has been complicated: in the asset freeze legislation, there was institutional resistance to what are called Magnitsky-lite measures that were introduced. In a classic piece of good ministerial play, the Government faced down those institutional problems that existed in parts of the civil service and elsewhere and took that forward. To their credit, they are now implementing the measures. I would just like some more assurance from my hon. Friend that this complexity will be tackled with urgency.
John Glen
I am grateful to my right hon. Friend the Member for Newbury and to the Member for Nottingham North for their further observations. I understand the sentiments of frustration and impatience with the Government on this matter. I hope I have spelled out in some detail—in the areas of land registration; alignment around the different parts of the United Kingdom; and making sure that the penalties are appropriate and that the enforcement measures are set to meet the challenge—that the Government have bold ambitions to get this right and to be a world leader in this area. I acknowledge that this has taken rather longer than it would have done in ideal circumstances, but I can confirm and reiterate to my right hon. Friend that the Government are fully committed to delivering this as soon as possible, and that there is a commitment across multiple Departments and the ministerial team to ensure that this reflects the bold aspirations that we have as a nation. I hope that that would be sufficient for us to move on.
Helen Goodman
Ministers have heard that this is an issue of significant concern, and interest in making speedy progress has been expressed on both sides. We will return to this on Report and, that being the case, I do not intend to press it to a vote. I beg to move that the clause be withdrawn.
Clause, by leave, withdrawn.
New Clause 6
Alignment of sanctions
(1) It shall be a negotiating objective of Her Majesty’s Government in negotiations on the matters specified in subsection (2) to continue the United Kingdom’s participation in the Political and Security Committee of the European Union in order to align sanctions policy with the European Union.
(2) Those matters are—
(a) the United Kingdom’s withdrawal from the European Union, and
(b) a permanent agreement with the European Union for a period subsequent to the transitional period after the United Kingdom’s withdrawal from the European Union.
(3) It shall be the duty of the Secretary of State to lay a report before both Houses of Parliament in accordance with either subsection (4) or subsection (5).
(4) A report under this subsection shall be to the effect that the negotiating objective specified in subsection (1) has been achieved.
(5) A report under this subsection shall be to the effect that the negotiating objective specified in subsection (1) has not been achieved.
(6) This Act shall not come into force until a report under either subsection (4) or (5) has been approved via resolution of the House of Commons and considered by the House of Lords.—(Helen Goodman.)
This new clause would require the UK Government to seek continued participation in the Political and Security Committee so as to allow alignment on international sanctions.
Helen Goodman
I beg to move, That the clause be read a Second time.
We now move to a slightly different aspect of the Bill—how decisions will be taken once we leave the European Union. The new clause would require that in negotiations with our European partners, we seek to maintain participation in the Political and Security Committee of the European Union, to align sanctions policy with the European Union, and would require the Government to report on those negotiations and on how they are going. As with the commencement plan, which I felt the Minister was vague and unclear about, so with this. How are we going to co-ordinate in the new world? How is this going to operate?
Sanctions will work if we co-operate and collaborate with other countries. We are all agreed that that is when they are most effective. They are effective in terms of putting pressure on those that are sanctioned, upholding the rule of international law and protecting national security. It is necessary for us to work with our European partners to make our international sanctions regime as effective as possible. One of the issues previously discussed —which Ministers bump up against all the time—is the difficulty of getting agreements in the UN Security Council. Obviously the sanctions that we had on Russia over the annexation of Crimea could not be agreed in the UN Security Council, and that stands to reason. We have been able to get effective sanctions at European level, however, and our security interests are obviously aligned with those of the European Union, objectively speaking, and therefore we are going to take a similar view. We propose that we need to carry on working through the Political and Security Committee. The withdrawal agreement produced by the Commission said some interesting things about decision making. On the subject of administrative co-operation in article 30, it says that,
“as of the date of entry into force of this Agreement, the United Kingdom shall have the status of observer in the Administrative Commission. It may, where the items on the agenda concern the United Kingdom, send a representative, to be present in an advisory capacity, to the meetings of the Administrative Commission and to the meetings of the Technical Commission”.
The section on institutions includes proposals on representatives of member states and the United Kingdom taking part in the work of the Union’s institutions. Chapter 4, article 104 states:
“Article 10…shall apply in the United Kingdom in respect of representatives of Member States and of the United Kingdom taking part in the work of the institutions, agencies, offices and bodies of the Union”
in so far as their participation in that work took place before the end of the transition period.
There is then a section on how the transition period should work, and that is in part 4 of the document produced by the European Commission.
Paragraph 2 of article 122 states:
“Should an agreement between the Union and the United Kingdom governing their future relationship in the area of the Common Foreign and Security Policy and the Common Security and Defence Policy become applicable during the transition period, Chapter 2 of Title V of the”
treaty on European Union
“and the acts adopted on the basis of those provisions shall cease to apply”.
We then have the UK’s obligations with respect to financing defence and security operations, and finally, in article 157 under “Institutional provisions,” it is proposed that, on the date that the withdrawal agreement comes into force:
“A joint committee is hereby established”.
I am not saying that what the Commission proposes is the right way to go, but we are concerned that we have no sense of what the Government think we should do. That is why we tabled the new clause, which suggests that, with respect to sanctions policy, we should retain our membership of the Political and Security Committee of the European Union.
Sir Alan Duncan
The new clause would require the Government to commit to negotiating the UK’s continued participation in the EU’s Political and Security Committee after Brexit and delay the commencement of the Bill until a report had been laid before Parliament setting out whether that had been achieved.
The first point I make is that the Bill is about powers, not policy. The UK’s legal powers to implement sanctions flow largely from the European Communities Act 1972. The Bill will replace those powers and, as is recognised on both sides of the House, is necessary to enable the UK to impose sanctions. We are, of course, looking at our sanctions policy and have described our desired future relationship with the EU in a range of places, but it is not appropriate to place that in the Bill.
Secondly, as we have set out, the Government have an unconditional commitment to European security, and we continue to share common threats, interests and values with our European partners. That makes close co-operation, including on sanctions, in both our interests. The exact nature of the UK’s future relationship with the EU on sanctions still needs to be determined, but the UK will remain a critical player in both the European context and the global context.
The UK’s influence on sanctions derives in part from our membership of the EU, but it is not dependent on continued participation in EU bodies. A lot of it derives from the pre-eminence of the City of London in controlling so many flows of money. Our influence also comes from our status as a permanent member of the UN Security Council and our membership of bodies such as the G7. That influence is underpinned by our strong economy and financial sector, and both public and private sanctions expertise. That makes the UK a key sanctions partner.
As the Prime Minister made clear at the Munich security conference a couple of weeks ago, our partnership with the EU should offer us the means and the choice to combine our efforts to the greatest effect where that is in our shared interest. That includes working closely with the EU on sanctions. My right hon. Friend the Foreign Secretary was clear on Second Reading that he hopes
“we can act in tandem”
with the EU on sanctions because we
“will always confront the same threats and defend the same values.”—[Official Report, 20 February 2018; Vol. 636, c. 78.]
That demonstrates our commitment to close co-operation with the EU and other international partners regardless of the institutional framework.
Finally, we do not seek to attend EU meetings on the same basis as EU members. It is worth noting that the PSC is not the primary body that deals with sanctions. Sanctions pass through a range of EU institutions before adoption, from working groups to Council meetings. Committing the Government to seek to join the PSC for sanctions would not make sense from a sanctions policy perspective, and does not make sense in relation to our broader approach to negotiations with the EU. Although the details are a matter for negotiation, in the area of foreign policy as a whole we envisage both formal and informal mechanisms to allow regular dialogue, co-operation and close co-ordination.
To tie our objectives to one model would be counterproductive and would remove the freedom to explore new and better ways of working together with the EU on sanctions once we have left the European Union. However, we do not need text in the Bill to underline our commitment to working closely with international partners on sanctions, because that is what we will do. Given that, I respectfully ask the hon. Lady to withdraw the motion.
Helen Goodman
The question of how we will co-operate with our European partners on sanctions was debated last July in a general debate on sanctions. I am glad that the Minister now acknowledges that we need to do this, and I am glad that he said that we need formal and informal contacts. Given that he says that this is not the only piece of institutional architecture used at the moment, I will not press the motion to a vote. However, a slightly clearer view from Ministers on how they propose to handle this would be extremely helpful to the House at some point in the future. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Helen Goodman
I would like to put new clause 5 and new clause 7 to a vote. Have I missed the opportunity to vote on new clause 5?
Helen Goodman
Yes, I do.
New Clause 7
Parliamentary committee to scrutinise regulations
(1) A Minister may not lay before Parliament a statutory instrument under section 48(5) unless a committee of the House of Commons charged with scrutinising statutory instruments made under this Act has recommended that the instrument be laid.
(2) The committee of the House of Commons so charged under subsection (1) may scrutinise any reviews carried out under section 27 of this Act.—(Helen Goodman.)
This new clause would require a specialised House of Commons Committee to approve all statutory instruments laid under the affirmative procedure under this Act. The Committee would also scrutinise the Government’s reviews of sanctions regulations.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss new clause 15—Disqualification—
In the event that adequate procedures under subsection (3) of section [Failure to prevent money laundering] are found not to be in place, the Secretary of State must refer to the court a disqualification order under section 8 of the Company Directors Disqualification Act 1986 (disqualification of director on finding of unfitness).”.
This new clause would require the Minister to ask the courts to investigate whether directors of a company are fit and proper, if it was found that proper procedures against money laundering were not in place.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It is a pleasure to serve under your chairmanship, Dame Cheryl, and in rather warmer circumstances than the last time. New clause 9 seeks to create an offence if a relevant body failed to put in place adequate procedures to prevent a person associated with it from carrying out a money laundering facilitation offence. New clause 15 creates a process for disqualification for those at the top level who have failed to prevent money laundering.
I will deal with each new clause in turn and then speak briefly about the overall regulatory context, which creates a necessity for these new approaches. First, on new clause 9 and the failure to prevent the facilitation of money laundering, there are many problems with the existing system. The FCA has found weaknesses in governance and long-standing and significant under-investment in resourcing for control systems, even in the sector that is actually regulated for money laundering. I will talk about some of the problems there later on.
Many of those who investigate in this area find that rules are intermittently enforced, penalties are low and senior executives face few personal, financial or reputational consequences. It is constructive to compare some of the penalties that have been levied in the UK with those levied in the US. As I understand, the largest fine levied in the UK for anti-money laundering or sanctions offences—the Minister may contradict me if I am wrong—was levied against Coutts & Co for £8.75 million. That is six hundred times less than the penalty that was levied by the United States on BNP Paribas for sanctions-related offences.
Anneliese Dodds
It would be helpful to know under which pieces of legislation those fines were levied, because I am uncertain whether they were directly under money laundering legislation. I will come back to that, particularly in relation to some of the outcomes of some parliamentary questions that I have asked to try to dig into this and find out what prosecutions have been enabled by existing legislation.
I am grateful for the information that the Economic Secretary has provided; however, there is still a lot of concern about banks’ and others’ ability to root out money laundering and the facilitating of money laundering. The FCA found—admittedly, in 2014—that there was
“significant and widespread weaknesses in most banks’ anti-money laundering systems and controls”.
That is revealed in the case of HSBC. Many members of the Committee will know that it was involved in a money laundering scandal that led to the US fining it £1.2 billion. There was a large investigation into that matter in the United States Senate, where it was said that our UK-based bank had been a conduit for
“drug kingpins and rogue nations”,
including Mexican drug cartels and North Korea. In fact, that case has been referred to already in this Committee.
Particularly worryingly, a congressional report found that George Osborne and the Financial Services Authority—now the FCA—corresponded on numerous occasions with their US counterparts about the case; in fact, they urged a less aggressive judicial approach on the US side. Apparently, the congressional report said that the UK interventions played a significant role in ultimately persuading the US Department of Justice not to prosecute HSBC. I find it quite concerning that the UK actually argued against measures being taken by other countries to try to deal with this problem.
We were hoping to have some change; the Serious Fraud Office has called for the broadening of existing economic offences to cover a kind of umbrella approach, also to cover failure to prevent. It thinks that that would be helpful to hold large companies to account criminally across the board. At the moment, we have the ability to prosecute the failure to prevent bribery and corruption, but those activities are rarely committed in isolation from instances of money laundering by corporate entities. Therefore, it seems to make sense to try to extend corporate liability to money laundering. That would push in the same direction as existing pieces of legislation. Of course, the Bribery Act 2010 created a new offence of corporate failure to prevent. I believe that Act was put in place because of the same kind of repeated criticism of the UK regime that we have seen in relation to money laundering. We also now have the offence of failure to prevent criminal tax evasion in the Criminal Finances Act 2017. Surely there is now a strong case for an explicit reference to failure to prevent money laundering.
Many of us thought that we were not going to have to push for a separate offence of money laundering because we were to have an umbrella approach. In May 2016, the Government committed to consult on a broad offence of failure to prevent economic crime, which would cover fraud, false accounting and money laundering. In January 2017, the Government downgraded that commitment and instead published a call for evidence on whether there was a case for economic crime corporate liability law reform.
As I understand it, the call for evidence closed in March 2017. I have not yet seen the results of that call for evidence. It would be helpful for the Minister to let us know the outcome of that call for evidence, the main findings and how the Government have decided to act on them. Will they introduce the umbrella offence or create a discrete offence, as we are asking for? Because we think we need action now. That is new clause 19.
Anneliese Dodds
I beg your pardon. I am getting over-excited and trying to hurtle towards the end of the programme. I am sorry, Dame Cheryl.
Anneliese Dodds
No; we are very keen to have a thorough discussion on every one of our new clauses.
New clause 15 focuses on disqualification. The purpose is to ensure that directors specifically take responsibility for their organisation’s mistakes, and to ensure that the Secretary of State may hold them to account for a failure to prevent money laundering, in the instance where procedures have not been put correctly in place.
Many colleagues might have served as directors and will know the rules on being a director—that directors can already be disqualified if they display unfit conduct. Unfit conduct is defined as including allowing a company to continue trading when it cannot pay its debts, not keeping proper company accounts and so on.
With the new clause, we wish to extend that to include a commitment for every director to ensure that they are not ignoring money laundering concerns. We want to mirror what happens under competition law in Britain, where a director’s role is looked at in the event of a breach of the law. That is necessary because of the situation we find ourselves in today.
I am sure many colleagues will have talked to professionals on the frontline of anti-money laundering. I have talked to quite a lot of people who work in banks and other organisations who have anti-money laundering responsibilities. I am sure there are people who work in accounting and other walks of life for whom this is a concern. Very often the clear message I get, as I am sure colleagues do, is that those individuals are working very hard to prevent money laundering but they are not supported by the leadership team within their firm. Global Witness has stated that,
“responsibility for compliance with anti-money laundering and other regulations is usually allocated to compliance teams, rather than to senior executives, who actually wield power within banks over what customers they take. This is a serious problem because it gives compliance staff none of the authority but all of the responsibility, breaking the important link between decision making and accountability.”
That is certainly what I find when I talk to individuals who are in that responsible position. They find they are often not supported by senior managements. That has also been discovered in some of the big corporate scandals—I referred to the HSBC case a moment ago. In his written evidence to the UK Parliament, David Bagley, who led on compliance at HSBC during the period of the failings we were just talking about, stated:
“as the Head of Group Compliance, my mandate was … limited to advising, recommending and reporting. My job was not—and I did not have the authority, resources, support or infrastructure—to ensure that all of these global affiliates followed the Group’s compliance standards”.
Alison Thewliss (Glasgow Central) (SNP)
I do not want to add a huge amount, but I very much welcome the new clause. As the hon. Member for Oxford East said, there is a big issue of incentive and authority for organisations, particularly for those that facilitate the formation and operation of Scottish limited partnerships in the private fund sector.
There has to be an effort to ensure that compliance with the rules is extended as far as possible. For example, a legal firm may be asked to register an SLP to get it up and going, and operating, but if no buck stops with it, there is no punishment for not ensuring that the SLPs are operating as we would want them to. For example, if a firm asks its client to register a person of significant control, and the client does not do so, where is the incentive for that firm to remove that client altogether? The firm has to decide for itself whether the cost of reputational damage from being named in the press is enough. That is the balance that it has at the moment. It is not obliged not to have that SLP within its client base. There is no comeback and no consequence.
There needs to be some means by which the firm is forced to do something to put that right. If the SLPs under its umbrella do not register a person of significant control, and continue not to register them, there is no fine to that legal firm, as I understand it. The SLP may face a fine—I am trying to get to the bottom of how many fines have been issued to those who have not registered a person of significant control—but there is no comeback to the legal firm, other than potential reputational damage.
The Government need to think about where the buck really stops in these arrangements , and this type of new clause would put some emphasis on the firm to do something about failing to prevent money laundering, rather than allowing things to continue as they are. As I understand it, there is no comeback at the moment to the legal firm that is protecting the SLPs underneath its umbrella.
John Glen
I undertake to address the points raised by the hon. Member for Oxford East. I will come to the point about the directors’ responsibility in my scripted remarks and also to the issue of what provision the fines were imposed under.
On the specific question the hon. Lady asked, the Ministry of Justice’s call for evidence considered a wide range of reforms to the law relating to corporate liability for economic crime. That is against a backdrop of already significant reform in this area in recent years, including the Bribery Act 2010, the Criminal Finances Act 2017 and the introduction of deferred prosecution agreements, which the Government would contend have strengthened the UK’s defences against corporate criminality. The Ministry of Justice is carefully considering the responses received to the call for evidence and is analysing the impacts of the Government’s range of recent reforms in this area. It will respond to its call for evidence in due course. I do not have a specific timetable, but that is the best information I can give the hon. Lady.
New clauses 9 and 15 seek to create a corporate criminal offence of failure to prevent money laundering, with an obligation on the Secretary of State to submit a disqualification order to the court against directors of a company found guilty of such an offence without having adequate anti-money laundering procedures in place. New clause 9 provides that a company or partnership is guilty of a criminal offence where the company’s employee, agent or other service provider commits one of the substantive money laundering offences in part 7 of the Proceeds of Crime Act 2002. The relevant company would have a defence if it could prove that it had adequate procedures in place to prevent its employees or agents from committing such an offence.
The offence is not necessary in view of the extensive reforms to the UK’s anti-money laundering regime that the Government have put in place. The proposed offence is substantively applied to firms that are regulated for anti-money laundering purposes by part 2 of the Money Laundering Regulations 2017. Those require that regulated firms have policies, controls and procedures to mitigate and manage risks of money laundering and terrorist financing. The Government have legislated to require that these policies, controls and procedures are proportionate with regard to the size and nature of the firm’s business and proved by the firm’s senior management. Failure to comply with these requirements is a criminal offence in itself.
The Financial Conduct Authority and other supervisors are additionally able to take action against firms if their measures to counter money laundering are deficient. As was touched on in our exchange earlier, recent regulatory penalties related to firms’ anti-money laundering weaknesses include fines of £163 million for Deutsche Bank in January 2017 and £72 million for Barclays Bank in November 2015. They were a consequence of failures in anti-money laundering measures under the Financial Services and Markets Act 2000.
The new clause also seeks to address challenges that have arisen in apportioning responsibility for corporate failings. Within the financial services sector, that has been addressed through the senior managers regime, which was introduced after the financial crisis. Banks are now required to ensure that a named senior manager has unequivocal responsibility for overseeing the firm’s efforts to counter financial crime. That ensures that firms and individuals can be held to account for failing to put proper systems in place to prevent financial crime. If a relevant firm breaches its anti-money laundering obligations, the FCA can take action against a senior manager if it can prove that they did not take such steps as a person in their position can reasonably have been expected to take to avoid the breach occurring. The enforcement action includes fines and disbarment from undertaking regulated activities. The Government have legislated to extend the senior managers regime to apply across all financial services firms. That will be implemented in due course, and will further the Government’s reform programme. All those requirements are additional to the substantive money laundering offences in the Proceeds of Crime Act, such as entering into arrangements that facilitate the use of criminal property, which apply to any individual or company.
As hon. Members know, the Government have previously introduced two similar offences: the failure to prevent bribery, in 2010, and the failure to prevent the facilitation of UK and foreign tax evasion, in 2017. They are structured in a similar way to the proposed new clause, but they were introduced following clear evidence of gaps in the relevant legal frameworks that were limiting the bringing of effective and dissuasive enforcement proceedings. It is right that the offences that we have already established apply to legal entities, regardless of whether they operate in the regulated sector.
The situation in relation to money laundering is very different. The international standard is set by the Financial Action Task Force, which has been referred to numerous times in the Committee’s discussions. The UK’s money laundering regulations apply to banks, financial institutions, certain professional services firms and other types of entity, and act as gatekeepers to the financial system. As I have said, such firms are already required to have policies and procedures in place to prevent their services from being misused for money laundering.
Subsection (6) of new clause 9 would require all companies, regardless of whether they are incorporated, to have procedures in place to prevent persons connected to them from laundering money. The Government do not believe that that would be appropriate. It would risk making non-regulated firms liable for the actions of their regulated professional advisers. Instead, responsibility for anti-money laundering compliance should rest in the regulated sector, as is currently the case. The new clause would not go beyond the existing regulatory framework in that area, and it would blur where responsibility should lie for anti-money laundering compliance. Therefore, I respectfully ask the hon. Member for Oxford East to withdraw the new clause.
Anneliese Dodds
I am grateful to the Economic Secretary for those helpful explanations and clarifications. Despite his useful response, however, there are a number of areas where I am unclear. First, I appreciate that he has probably anticipated this question, but the Committee may ask why it has taken Government a whole year to assess the responses from their consultation on economic crime. Government frequently work at a far faster pace than that. He said that we will have the analysis of those consultation responses in due course. It would be helpful to know more about why it is taking so long for Government to analyse them.
Secondly, the Economic Secretary spoke about the requirement for all regulated firms to ensure that their policies, controls and procedures are appropriate to prevent money laundering, but there is a question about who assesses that and whose responsibility that is. That takes us back to the issue about there being myriad professional bodies, which all operate subtly different approaches towards regulation in this area. As I said, I appreciate that OPBAS has been created to try to draw them together, but I do not think we heard exactly what the status of that office is—I was trying to concentrate on what the Economic Secretary was saying. I have seen different descriptions of it as a team, an office and an organisation. It would be helpful to have a clearer indication, particularly because those professional bodies are, as I understand it, required to contribute financially to OPBAS, so a number of them are keen to understand what is happening with it. Furthermore, HMRC is not a member of it, as I said before, so the concern about a lack of regulatory co-ordination persists.
Finally, the Economic Secretary referred approvingly to the senior managers regime that has been brought in since the financial crisis, which looks like a positive step initially—of course, the HSBC problems occurred following that. In any case, as I understand it, the actual operation of this new regime and its extension are quite different from, for example, what was recommended by the Parliamentary Commission on Banking Standards. Under this approach, the burden to show that senior managers failed to take appropriate steps will be on the regulator, rather than the senior managers themselves.
That is different from the approach taken in many other areas, including road traffic, health and safety at work, the Bribery Act 2010—which the Minister referred to—terrorist legislation, the Misuse of Drugs Act 1971 and so on. It would be helpful to understand why, with the extension of this regime, the burden of proof has essentially now been placed on the shoulders of the regulator, rather than the shoulders of the managers.
Question put, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss the following:
New clause 11—Due diligence—
“(1) For the purposes of preventing money laundering, when a company is formed, any company formation agent providing formation services must ensure that the identity and business risk profile of all beneficial owners of the company are established in accordance with—
(a) the customer due diligence measures under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692),
(b) regulations made under section 41 of this Act, or
(c) the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on anti-money laundering measures.
(2) For the purposes of subsection (1), Companies House is to be treated as a ‘company formation agent’.”
This new clause would ensure that when a company is formed in the UK, the relevant formation services must identify the beneficial owners of the company. It will also treat Companies House as a “company formation agent”, ensuring that the data on the public register of beneficial ownership for companies is accurate.
New clause 12—Companies House: due diligence and resources—
“(1) For the purposes of preventing money laundering, the Companies Act 2006 is amended as follows.
(2) In section 1061 (the registrar’s functions) after subsection (1) insert—
‘(1A) Functions directed by the Secretary of State under subsection (1)(b) must include due diligence on a person wishing to register a company.
(1B) In this section “due diligence” has the same meaning as “customer due diligence measures” in regulation 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017).’
(3) In section 1063 (Fees payable to the registrar), in subsection (2)(a) after ‘Secretary of State’ insert ‘including the duty of due diligence under section 1061(1A).’”
This new clause would amend the duties of Companies House to ensure that any person wishing to register a company must be checked for due diligence by Companies House, in line with the measures included in the Money Laundering Regulations 2017. It also ensures that the Secretary of State can charge fees for due diligence checks to cover costs incurred by Companies House.
New clause 13—UK bank accounts—
“(1) For the purposes of tackling money laundering, the Companies Act 2006 is amended as follows.
(2) In section 853A (duty to deliver confirmation statements), after subsection (1) insert—
‘(1A) In subsection (1) “information” includes such information as is able to demonstrate that the company has a UK bank account.
(1B) Any company that is unable to provide the information required in subsection (1A) is liable to a fee which may be prescribed by regulations.’”
This new clause would ensure that all companies wishing to be created in the UK must provide evidence of a UK bank account to ensure it has gone through proper money laundering checks by a UK supervising body. If a company is unable to provide proof then they are liable to a fee which will cover the cost of such checks.
Anneliese Dodds
It is a pleasure to present the new clauses to the Committee. As colleagues will know, they all essentially call for an increase in the due diligence and anti-money laundering checks for those who register a company through Companies House.
There is a clear rationale for the new clauses. Around 40% of incorporations in the UK every year are done directly through Companies House, which in many ways offers an easy and helpful service. It is very quick; it is one of the fastest and easiest ways to form a company—it costs only £12 and takes a matter of minutes to complete the necessary paperwork online. That is all very positive, but the negative side comes from the risks that result from an approach where there is insufficient due diligence on the data submitted through that route.
The problem, as I am sure Ministers are well aware—I have asked a number of parliamentary question to probe this—is that Companies House is exempt from the Money Laundering Regulations 2017 because of its not-for-profit status and the fact that it is not a company service provider. That means that a huge number of companies are created without any checks being made on the person setting up the company or the source of their wealth. We are talking about 251,628 companies last year.
As I said, there are very positive aspects to being able to create companies quickly, but the quality of data that results from that is potentially very poor; my hon. Friend the Member for Bishop Auckland talked of , potentially, 10% of company reports not including the appropriate information. There are some cases that might almost be humorous, but given the the circumstances they are deeply disturbing and indicate how little due diligence is taking place. An investigative journalist, Oliver Bullough, created a company called “Crooked Crook Crook Ltd.” With that name, many of us might think that this would be a company we would want to look into, but no, the confirmation documents were delivered within 36 hours. He details in an article, which colleagues can look up, should they wish, how easy it was to create that company. If he had not reported his activities in an article for a media outlet, his company could have gone on to partake in a myriad of activities, showing just how cheap, easy and disposable company formation through Companies House can be.
There are many concerns about that. We have a new regime in place now through the money laundering regulations, which covers trust and company service providers—TCSPs—as we have already mentioned. We have some amendments further down the agenda looking at some of those, because there is a particular issue around the operations of non-UK TCSPs. It is surely the case that when a company can be created through a TCSP, that TCSP has to follow all money laundering legislation, but when it does not go through a TCSP, and there is no money laundering legislation applying to it, we should be very concerned. Potentially, that money laundering regulation is undermined by having this massive loophole in place.
There are many disturbing findings from the data from Companies House that has been crunched by different investigative journalists and NGOs. We find that 4,000 beneficial owners named in the Companies House register are under the age of two. My daughter is two. She is really good at lots of things, such as climbing on to chairs. I am not sure that she or any of her playmates would be very good at being a person exercising significant control within a company. There are five beneficial owners registered who control more than 6,000 companies. Perhaps each one of those five are exercising all of their responsibilities perfectly in line with legislation and probity, but it must be very difficult for them to do that. We also have the fact that companies from secrecy jurisdictions can then be registered by Companies House through a UK company, or another formation agent, without there being any background or due diligence check.
I realise that some of these cases might sound a little bit silly, but potentially we are talking about some very worrying examples where there has not been that due diligence and there should have been. There was recently a BBC investigation—we have already referred to it within this Committee—into the case where a UK company registered at a Potters Bar address appeared to facilitate very complex financial arrangements involving the former President of Ukraine. At least £1.2 billion has been funnelled through companies registered at the same Potters Bar address, some of them potentially linked to the very complex situation where huge funds from the Eurovision song contest and lots of other activities seem to have somehow ended up in this company through very unclear routes.
It is concerning that we are in this kind of situation. Because of that, we find a number of professionals highlighting this as an area where we need to have reform. Frances Coulson, the head of insolvency and litigation at Moon Beever Solicitors, has been quoted as saying that this money is passing through Britain, through companies created with insufficient due diligence. She said:
“This is going on now and all the time…All the indicators are that it’s getting worse.”
And she said that,
“better due diligence—such as checking identification documents—by company formation agents and the UK corporate register, Companies House, would help combat fraud.”
Even if we do not manage to pass these new clauses at this stage, I hope that we will at least get some clarification on some of the rather unclear aspects of the regulatory regime. First, there is the role of Companies House. We are getting only a bit of an inkling of the role of Companies House through parliamentary questions. One response, given on 12 October 2017, said that the Government’s view is that Companies House
“does not have a front-line role in combatting money laundering”.
In the same month we were told:
“Companies House does not have powers to verify the authenticity of company directors, secretaries and registered office addresses. However, it does carry out a number of checks on all information received; ensuring it is valid, complete, correctly formatted and in compliance with company filing requirements.”
However, when we try to find out what this verification process involves, the picture gets rather complicated. Is any automated verification of beneficial ownership information occurring? I tried to find out in February, and no, there are “no current plans” to undertake that; however, Companies House is, it seems, undertaking activities, including,
“contacting companies where they believe the company has misunderstood the requirements…pursuing companies that have not provided PSC information”—
it seems that there is a huge number they will have to pursue, given the statistics discussed by my hon. Friend the Member for Bishop Auckland,
“following up with companies and PSCs where they have issued notices to their PSC (asking the PSCs to provide them with information)”—
PSCs being “people with significant control”—and
“seeking compliance from companies where there has been a complaint about missing or incorrect PSC information.”
This was where the picture got more confused. [Interruption.]
I may have heard the Minister suggesting that I was rabbiting on. I am terribly sorry, but some of us are concerned about these matters and a number of professionals have contacted us about their concerns, so it is absolutely right that we deal with them in this Committee.
I tried to find out how many reports have been made about money laundering through the “report it” facility that Companies House has set up. The Minister of State, Department for Digital, Culture, Media and Sport, the hon. Member for Stourbridge (Margot James), responded to me on 19 December, stating:
“Eight reports about money laundering have been made through the Companies House report it facility.”
However, I was then told on 20 December that the new “Report It Now” feature had led to Companies House
“receiving between 180-200 contacts a day through this service.”
That seems like quite a big gap. Will the Economic Secretary please indicate how many of those reports are about money laundering? Is it eight, or is it 180 to 200 a day?
I have been very concerned by the Government’s claim, in the same written answer:
“Higher risk company formation activities in the UK will generally be done via Trust or Company Service Providers, who are subject to the Money Laundering Regulations.”
I want to illustrate that with one last example, which I was told about yesterday and is quite concerning. It is the case of an individual who has previously described himself as “The Chicken Thief”. That is his name as a person of significant control within the Companies House database. His real name is thought to be Antonio Righi—a mafia kingpin in Italy. If someone searches for his name on the Companies House website, as an academic did yesterday before informing me about this, they get a link to Business Bank Italy Ltd.
All banks should be regulated through the FCA nowadays. We are supposed to have that proper approach in place. The use of the word “bank” in a company name is restricted. Any would-be bank has needed to obtain a letter or email of non-objection from the FCA before being allowed to operate as a bank. Yet we see this company still apparently registered with Companies House.
That is deeply worrying because the individual concerned has been named as an active member of the Camorra—a very problematic criminal network that operates in Italy, with links in many other countries. The revelations about “The Chicken Thief” are not new, so one would have thought that Business Bank Italy would have been looked into carefully by the Government, but apparently not, and it still appears to be registered on the Companies House website. I hope the Minister can indicate why that is and whether he will look into this matter, if he has not done so already.
Alison Thewliss
I support the new clauses proposed by the hon. Member for Oxford East. They flag up a huge loophole in the anti-money laundering regime, which is the inability of Companies House to do anything about what comes through its door. By not acting on information, and expecting company formation agents to behave in a different way from the way the Government’s own agency behaves, the Government become complicit in the money laundering that is clearly going on through companies that are registered for only £12.
The situation is curious. Last week I sat on a delegated legislation Committee that discussed passport fees and the need for full cost recovery of those fees by the Government because the Passport Agency wants to ensure that it is not making a loss. There is an argument about whether passports are too expensive, which I think they are, but it costs £12 for the registration of a company. If Companies House is not getting full-cost recovery for that, and that is the reason for not carrying out the due diligence that ought to be done on anti-money laundering, that is an argument to find a reasonable cost of registration that would allow Companies House to operate, make money and have sufficient funds to carry out the due diligence it ought to. If there is an incentive not to play by the rules, and the Government are incentivising that through the operation of its own agency, that is nonsense. That is highlighted in Global Witness’s “The Idiot’s Guide to Money Laundering”:
“Step 4: open your company direct with the corporate registry—they don’t do any checks on you!”
It seems ludicrous that the Government are going to encourage agents who want to set up companies for people to do that and go through the anti-money laundering things that they have to do, but the Government are not enforcing that. That seems absolutely ludicrous. I cannot for the life of me think how the Government will defend that unjustifiable loophole.
Transparency International reported that in the UK last year, 251,628 companies were created with no checks being made on the person setting up the company or their source of wealth. It is a scandal that these companies can be set up, facilitated by the Government, because Companies House has to accept their documents in good faith without doing due diligence checks that we would expect of other agents. If they are not going to support the new clauses, I urge the Government to propose a measure themselves, because this simply cannot continue.
John Glen
The new clauses are broadly similar in purpose and intention. Each would expand the role that Companies House plays in relation to anti-money laundering checks, whether by conducting due diligence directly, confirming that due diligence has been carried out, or confirming that a company seeking to be incorporated has a UK bank account.
I will turn to the practical difficulties of these proposals in a moment, but the first point to make in connection with each is that the UK’s anti-money laundering regime is undergoing an assessment by the Financial Action Task Force. The FATF is the international standard setter in this area and will report publicly later this year on its findings. The report will consider matters, including the effectiveness of how the UK prevents the misuse of legal persons, such as companies, for money laundering purposes. Hon. Members will appreciate that this report will greatly inform the future of the UK’s anti-money laundering regime, including in relation to how we can best prevent the misuse of legal entities, some of which have been described in the course of this debate.
Once the FATF has reported, the Government will actively consider its conclusions, including those in relation to any areas in which the UK’s anti-money laundering framework can be improved. These new clauses pre-empt the review process already under way. It would be more sensible to allow the review to identify specific areas where action is necessary before making further changes to our AML regime.
New clause 10 would require anti-money laundering checks to be undertaken before any UK company can be incorporated by preventing the registrar of companies from registering a company unless she is satisfied that such checks have been carried out. It then says that the registrar is entitled to accept the anti-money laundering registration number of the UK body that has submitted the application as evidence that such checks have taken place. The effect would be to require all incorporations to be made through a UK body regulated for anti-money laundering purposes. This would prevent people from applying directly to Companies House to register and set up their own business; any person seeking to set up a business would be required to use the services of a professional agent that is also regulated for anti-money laundering purposes, and pay for those services, which will in turn increase the cost of setting up businesses.
The proposed new clause assumes that all bad companies are set up directly with Companies House, and that only companies set up through the agency of a regulated professional can be trusted. That is simply not true. Only the simplest companies—those using standard-form constitutions—can be set up directly with Companies House online in the way described by the hon. Member for Glasgow Central. Typically they are self-standing, family-run and family-operated businesses. More complex corporate structures will, in contrast, frequently be established through trust or company service providers. The UK’s national risk assessment of money laundering and terrorist financing noted last year that
“While companies can be registered directly with Companies House, criminals continue to make use of third party TCSPs, to establish the structures within which illegitimate activity subsequently takes place.”
The fact that TCSPs are legally required to conduct customer due diligence does not in and of itself solve the problem. The new clause would therefore impose an across-the-board administrative burden on individuals seeking to establish companies, without adding any significant new obstacles to money laundering. Companies incorporated directly through Companies House are overwhelmingly likely to interact with the UK regulated sector, and so face anti-money laundering checks either by having a UK bank account or through having a UK accountant.
We discussed in the previous debate the 22 different regimes, and this speaks to the necessity for some degree of complexity to minimise the risks as far as possible. New clauses 11 and 12 are similar in outcome to new clause 10: they would require company formation agents—defined for these purposes as including the UK registrar of companies at Companies House—to conduct customer due diligence to establish the identity and risk profile of all beneficial owners of such companies registered at Companies House. The key difference is the reclassification of Companies House, which would now be required to deliver its statutory duties as if it were a private sector business. The accompanying explanatory statement suggests that these clauses will identify the beneficial owners of a company and make information held at Companies House more accurate. Although similar to the proposed new clause 10, these new clauses would go further in imposing expansive new obligations upon Companies House, requiring significant changes to the UK company law system.
Given the overlap with the lead new clause group, I will focus on the most novel element: the proposal that Companies House be treated as a company formation agent. Since the registrar of companies was first created, it has been required to accept any application that is validly and correctly submitted, and to duly incorporate the company as requested. Companies House does not help customers through this process, and is responsible solely for conducting the process of company incorporation. Company formation agents, known as TCSPs, are entirely distinct from Companies House. They are already subject to due diligence obligations through the Money Laundering Regulations 2017, and these extend to being required to terminate any existing business relationship when they are unable to meet their due diligence obligations. In contrast, Companies House has no legal right to refuse or decline a request to incorporate a company if the application is valid, and therefore it does not have the ability to decline a business relationship in the way that TCSPs must when they cannot discharge their due diligence obligations. If accepted, these amendments would essentially require fundamental reform of the Companies Act 2006.
To emphasise the scale of that proposed reform, 3.9 million companies are currently registered at Companies House and approximately 600,000 new companies register each year. The impact on resource to carry out due diligence on that number of companies would be considerable. The burdens and cost would fall on those 3.9 million companies, and specifically on the vast majority of legitimate companies, many of which are very small businesses. They would be forced to pay to duplicate the cost of due diligence checks that are already conducted by banks and other regulated professionals. The overall cost to the UK economy could run into hundreds of millions of pounds each year.
New clause 13 would amend part 24 of the Companies Act so as to require UK companies to establish a UK bank account and evidence that to Companies House on an annual basis or pay a fee or financial penalty. As with other new clauses in this group, new clause 13 will not achieve its stated intention. The wider purpose behind that part of the 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 in relation to company share capital, business activities and the address of a company’s registered office.
That is not to say that the new clause’s underlying principle does not merit further consideration. Evidence of a UK bank account is intended to demonstrate that a company has been through proper money laundering checks by a UK supervising body related to the financial activities of that company. However, the practical implications need careful consideration. To make the proposal operational, Companies House would require new systems with access to UK and international banking information. The costs associated with the development and operation of such systems would inevitably be large and would need to be recovered from UK businesses. Once again, that would necessarily establish a new reporting burden that would essentially target the overwhelming majority of law-abiding UK businesses.
The new clause suggests that companies that cannot provide evidence that they have a UK bank account would be liable to a fee, although that could better be characterised as a penalty—its purpose is not specified. If it is intended to incentivise companies that are established to launder money to open a UK bank account, it would need to be set sufficiently high to achieve that objective, which would be disproportionate to the notional offence of not providing evidence of a UK bank account.
The Government are already active in that sphere. Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, regulated bodies such as banks are obliged to carry out CDD checks on their customers on an ongoing basis. That is a rich field of data, and the regulated sector is already closely engaged with UK law enforcement to identify and report suspicious behaviour. In parallel, Companies House has an extensive outreach programme to the regulated sector to promote use of its data and encourage bodies to report possible errors back to it.
To sum up, a simple demonstration of a bank account is a blunt instrument. As drafted, the new clause simply adds a burden to UK companies to report more information. We should not proceed down that path without being much clearer that the information we require them to disclose is valuable, that it is necessary and that it cannot be achieved by other less burdensome means. On that basis, I ask the hon. Member for Oxford East to withdraw the amendment.
Anneliese Dodds
I am grateful to the Economic Secretary for those clarifications. He made several helpful points, but some concerns remain. He mentioned the FATF process, which the Committee has discussed previously, and seemed to suggest that we should not make alterations in this area of anti-money laundering activity because of the ongoing FATF assessment. Of course, that argument could stop action in any other area, because the FATF is looking at anti-money laundering and anti-corruption provisions across the board, so it is not clear that it is completely convincing. Furthermore, I understand that representations have been made to the FATF as part of its review that change is needed in this area, which suggests that the argument is the other way round. The Economic Secretary also suggested that there would be a much higher cost for those that want to incorporate through a TCSP. In practice, as I understand it, the cost may not be substantial—only a couple of pounds more in many cases.
Hannah Bardell
Does the hon. Lady agree that we are letting our citizens down if we do not legislate properly and close these loopholes? I am sure we have all had constituency cases where people have lost money to unscrupulous companies and company owners. We have an opportunity to take action, and we must take it. The Government are letting citizens down if they do not accept the new clauses.
Anneliese Dodds
I am grateful to the hon. Lady for making the point clearly that our proposal has been portrayed as only a burden, when it could help to prevent our constituents from being ripped off by unscrupulous individuals who are able to set themselves up as a company with only minimum requirements for due diligence. As I said, they can be there by day, fly off by night, and leave the unfortunate person who dealt with that company in a very difficult position.
To end my remarks specifically on the Minister’s comments on new clause 13, many of us are worried that, in practice, there are TCSPs that offer UK company formation with a range of optional services, including setting up bank accounts in other jurisdictions such as Latvia, Belize, Switzerland and Cyprus. That would not necessarily be a problem, were it not for the fact that, time and again, we have seen in the cases we have discussed in this Committee that reliance on the third parties—the banks in those other countries—does not lead to a real assurance that money laundering provisions are being followed. The reality is quite the opposite.
In the Russian laundromat scandal, which we have already talked about, of the 440 UK shell companies used in the scheme—in itself, a staggering statistic—392 of them had Baltic bank accounts, with 270 UK firms using Latvian banks and 122 using banks in Estonia. It may be that we are fully confident in every case that anti-money laundering regulations were followed in those countries, but given some of what came out of the Russian laundromat scandal, it could be suggested that that is not the case.
We do need to get at this problem through another route. We need reform of the Companies House system, but we also need the use of another prong which is requiring a UK bank account.
Question put, That the clause be read a Second time.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It feels a little like going out of the freezer and into the fire, because it is rather warm on this side of the Committee Room, but I am sure that we will be rewarded somewhere else for our endurance.
Anneliese Dodds
We tabled the new clause because ineffective anti-money laundering supervision has a clear and obvious link with inadequate compliance and with low and poor-quality reporting of suspicious activity to the National Crime Agency. Research by a number of non-governmental organisations, particularly Transparency International, has indicated serious failings in the current framework for supervising money laundering compliance in the UK, especially with respect to trust and company service providers.
Under the Money Laundering Regulations 2017, only TCSPs carrying on business in the UK—that is their formulation in the legislation—have to register with an anti-money laundering supervisor and comply with MLR 2017. That means of course that TCSPs with no UK presence can incorporate UK companies without any oversight from an AML supervisor. They do not have to comply with UK standards for money laundering checks. We have seen a number of clear examples—I will talk about some in a moment—where that has allowed non-UK TCSPs to incorporate UK companies that have subsequently been used in large-scale money laundering schemes. I think many of the concerns raised a moment ago around undercutting existing legislation and the lack of a fair playing field for UK TCSPs come up again in this regard.
In 2012 the International Consortium of Investigative Journalists showed how a number of UK individuals offering company services had moved their base of operations outside our country but continued to form, and act as nominee directors for, UK companies. There are two examples that are particularly important. The first was Jesse Grant Hester, who was originally from the UK and who moved to Cyprus to form Atlas Corporate Services Ltd before moving to Dubai and, finally, Mauritius—he is somebody who has been lucky enough to travel much in life. Those jurisdictions have all been identified as presenting high money laundering risks. Mauritius in particular is very concerning: it scored 5.92 out of 10 on the Basel Institute on Governance money laundering risk index. Ten is the highest level of money laundering risk and zero is the least, so it is well up there. Jesse Grant Hester appeared on numerous occasions as a nominee director for companies embroiled in corruption scandals. In the Moldovan bank theft that we talked about earlier, he signed fake promissory notes using an alias on behalf of a UK firm, Goldbridge Trading Ltd, allowing £444 million to be stolen. Atlas Corporate Services is associated with eight people who, between them, have held directorships of 3,613 UK companies. Again, that is a staggering number of companies to be held by just eight people. As we discussed, that scandal caused enormous problems for the country of Moldova.
Another UK resident who became internationally renowned, although not in a positive way, for his company formation activities, is Ian Taylor. That is not the famous social policy academic, who I had the pleasure of working with, but another Ian Taylor. He also moved around a lot: he moved to Vanuatu.
Anneliese Dodds
Oh, there was a Tory MP as well. Goodness—the name is frequently used. He moved to Vanuatu after he was banned from being a corporate director, first in New Zealand in 2011 and then in the UK in 2015, as a result of his companies’ involvement in numerous scandals, including a land banking scam in Somerset. Vanuatu’s self-assessment on money laundering risk found that its TCSP sector was among the most vulnerable to such activity. In 2015 the Asia/Pacific Group on Money Laundering found serious deficiencies in Vanuatu’s AML system. Despite being banned in the UK, Taylor seems to have retained a UK presence. Various investigations have identified the circle of nominee directors that he works with. One of them is a Vanuatu resident who is a director of more than 61 companies. He took over from Taylor as a director of 20 of them on the same date.
Those examples show that physically moving out of the UK does not result in a lack of activity in the UK. Networks of associates make it difficult to stop the formation of UK companies by individuals who have already been disqualified here. Such individuals, who have been shown to have engaged in money laundering activities or have otherwise been disqualified or viewed as not competent in this arena, can function in other countries and create companies. The checking that should go on does not happen, and there is inadequate anti-money laundering supervision. We do not have a means of dealing with that, because we do not have a regulatory system for TCSPs that are not based in countries with appropriate anti-money laundering provisions. That is not currently illegal, which is why we want to change the legal situation.
John Glen
I am grateful to the hon. Lady for setting out her new clause, which would prohibit TCSPs that do not conduct business in the UK from incorporating UK companies, unless they are overseen by a UK anti-money laundering supervisor. As hon. Members will know, the Money Laundering Regulations 2017 specifically provide for TCSPs conducting business in the UK to be subject to a fitness and propriety test and to register with either Her Majesty’s Revenue and Customs or the Financial Conduct Authority. In borderline cases where it is unclear whether a TCSP is conducting business in the UK—in which case it would be supervised by a UK anti-money laundering supervisor—HMRC would consider on a case-by-case basis whether registration for supervision is necessary. This acts as an anti-evasion mechanism preventing TCSPs from artificially claiming that they are outside the scope of the UK’s anti-money laundering regime.
The hon. Member for Oxford East asked earlier where this was based. The Government recently established the Office for Professional Body Anti-Money Laundering Supervision, known as OPBAS, within the Financial Conduct Authority. It works to secure consistently high standards of AML supervision of professional bodies, including TCSPs. These reforms follow the identification of risks associated with TCSPs in the Government’s 2016 action plan for anti-money laundering and counter-terrorist financing. This found that service sectors such as TCSPs were a significant money-laundering threat.
Although it is for anti-money laundering supervisors to determine their areas of focus, they are required to have regard for the UK’s national risk assessment of money laundering and terrorist financing when assessing risks in their own sector. The risk assessment that the Government published in October last year concludes:
“The highest risk TCSPs are assessed to be UK TCSPs which offer a wide range of services (including nominee directors, registered office services, and banking facilities)”.
Additionally, individual anti-money laundering supervisors are under a duty to identify and assess the international and domestic risks of money laundering and terrorist financing to which their sectors are subject.
Helen Goodman
I am surprised by what the Minister is saying. He obviously did not listen to the BBC “Analysis” programme that was broadcast about three weeks ago on the role of overseas TCSPs. We think it is great when people build real-life factories as a jumping-off point into the single market, but it is evident that TCSPs and banks located in the Baltic states, which do not have such good anti-money laundering regulatory regimes, attract money and are used as a jumping-off point to move that money into the European system. Does the Minister really think that the anti-money laundering regimes throughout the European Union are as effective the one in the UK?
John Glen
I cannot comment on the specific cases that the hon. Lady mentions, because I have not seen or studied them. I imagine that there is a degree of variability in the effectiveness of regimes, but I am trying to set out the Government’s rationale for what we have in place. I do not suggest that it is perfect, but some of the developments have occurred in response to shortcomings that have been identified.
The individual anti-money laundering supervisors are under a duty to identify and assess international and domestic risks, including the money laundering and terrorism risk, which ensures that the most intensive supervision is applied where the highest risks of money laundering exist. The establishment of OPBAS will assist with the consistent identification of such risks across the TCSP sector. Our national risk assessment makes it clear that the Government are aware of the money laundering risks connected with TCSPs, and further reform in the area should take account of the conclusions of the ongoing FATF review. I assure Opposition Members that the regime is a searching and exacting one. I know from ministerial meetings concerning preparations for it that the evaluation will be exacting. We expect the observations to be meaningful, and we will need to respond carefully to them. However, until we receive the outcome of that review of the UK’s anti-money laundering regime and of the experience of OPBAS as its role develops, it would not be appropriate to adopt the amendment.
Hon. Members should be mindful of the fact that anti-money laundering supervision around the world follows a territorial model. Simply requiring non-UK TCSPs to have a UK supervisor when they set up UK companies will not address the challenges of extra-territorial supervision. Effective anti-money laundering supervision depends on measures that include supervisory on-site visits and close engagement with higher-risk firms. Requiring a UK supervisor to do that in relation to a non-UK firm will not, in and of itself, address the issue that hon. Members have identified.
As was noted in the other place, the most effective means of combating international money laundering is cross-border co-operation to drive up the standards of overseas supervision and enforcement. For those reasons, we have imposed a duty on each UK anti-money laundering supervisor to take such steps as they consider appropriate to co-operate with overseas authorities. That is the agenda we pursue through the global FATF process. I therefore respectfully ask the hon. Lady to withdraw the new clause.
Anneliese Dodds
I am grateful to the Minister for those remarks and clarifications. They have been genuinely helpful, but I regret that some areas are still rather unclear to me; perhaps they are not to other Committee members. He stated that the highest-risk TCSPs are assessed to be UK ones, but it has not been spelled out why. Perhaps he could write to me about that.
Anneliese Dodds
I am grateful to the Minister for offering to look into that. We must always be wary of talking about a general pattern of activity as necessarily reflecting the risk profile of that overall activity. Among those TCPS, there could be overseas ones that are not appropriately regulated and that also offer a wide range of services, in the same way as some UK TCSPs do.
I am also a bit confused about the professional regulators. As the Minister said, there are about 22 of them, and then on top of that we stick Her Majesty’s Revenue and Customs, the Financial Conduct Authority and so on. As I understand it, the professional regulators do not have members based in other countries; they cover only UK residents. We are talking about, for example, the Law Society of Scotland and the Law Society of England and Wales—professional bodies dealing with UK individuals. We are not talking about professional associations covering professionals in other countries.
The Minister seemed to talk about a process of liaison between these organisations and their counterparts in other countries. I am sure we all want to encourage that, because it sounds like a very good idea. Information sharing is wonderful, but information sharing is not the same as having an appropriate process of regulation to ensure that there is compliance with anti-money laundering requirements.
The Minister said that the approach was an extraterritorial one, because it affects bodies in other countries. That is absolutely right, but those bodies then interact with our company formation procedure. That is the reason why we, as a country, have a stake in this process—a rather large one, given the reputational damage that seems to be being caused by the activities of some unregulated or inappropriately regulated TCSPs. I will be pressing the new clause to a vote.
Question put, That the clause be read a Second time.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
The new clause looks to ensure that standards published by the Financial Action Task Force in relation to combating money laundering, terrorist financing and other threats to the integrity of the financial system can be easily implemented in this country. We are also seeking to identify or revoke a designation of a high-risk country, taking account of best international practice, including EU sanctions regimes.
We have talked a bit about the FATF in the Committee. As colleagues will know, its objectives are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. It is a policy-making body that works to generate political will to bring about national legislative and regulatory reforms. We have talked about its reporting cycle already and the fact that the UK is currently being investigated in order for the FATF to report on us later in the year.
John Glen
I just want to clarify that, while I would not profess to be an expert on Pakistan’s compliance with the FATF, the concerns raised about its recent greylisting were around the specific handling of various banned terrorist organisations. I would not wish to cast any wider doubt over its intentions to improve the provision of services.
Anneliese Dodds
I thank the Minister for that helpful clarification. It is helpful to know the exact locus of FATF activity or the concerns about Pakistan that were focused on terrorist financing. That is not the area we are focused on now, but such financing and money laundering often go hand in hand.
Given the potential effects of such a ruling—we have talked about that in relation to Pakistan—we think it necessary that Ministers should have the flexibility to ensure that FATF standards can be implemented as soon as possible in our country in order to be on top of new international standards. That is particularly important because the UK was a founding member of the FATF, so we need to show that we are at the cutting edge of implementing its requirements.
As I mentioned, we also need to be able to identify or revoke high-risk countries quickly, taking account of the FATF’s standards and given the effect that it can have on the countries themselves and also on our reputation. If we are viewed as not following FATF recommendations, that prevents the co-ordinated approach that the FATF was set up to promote in the first place.
Finally on this amendment, we hope that Ministers will take account of aligning the designations with our EU partners. We have talked consistently in our deliberations about the need for co-ordination, which of course makes all the mechanisms much more effective. When they are not co-ordinated, there can be loopholes. In that regard, it is important to mention the case of Russia. In 2014, the Arms Export Controls Committees—we talked about their composition when we talked about scrutiny arrangements—reported that more than 200 licences to sell British weapons to Russia, including missile-launching equipment, were still in place, despite David Cameron’s claim that the Government had imposed an absolute arms embargo against Russia in alignment with the rest of the EU. We really need to make sure that that alignment is genuine in practice, not just on the surface and rhetorical.
John Glen
New clause 16 would limit amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to those that would implement standards published by the Financial Action Task Force, or those whose purpose was identifying or revoking a designation of a high-risk third country. The 2017 regulations transpose the fourth EU anti-money laundering directive, which was in turn derived from the most recent major updates to the FATF standards, which were made in 2012. As the hon. Lady acknowledged, the UK is a founder member of the FATF and is committed to playing a leading role in its continuing work. It is right for the Government to 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 those standards. Our recently established register of trusts generating tax consequences, for example, goes beyond the standards set by the FATF. Similarly, the UK announced at the time of the 2015 Budget that we intended to regulate virtual currency exchanges for AML purposes—an objective that was accomplished through negotiation of the fifth EU anti-money laundering directive—but that was not required by the FATF. So although we will remain aligned with the FATF standards after the UK ceases to be a member of the EU, our anti-money laundering regime exceeds those standards in certain areas.
The Government are determined to ensure that our defences against misuse of a financial system remain ahead of global standards rather than solely reflecting them. That is reflected in our commitment to the establishment of a public register of the beneficial ownership of non-UK companies that own UK property, which the Committee debated earlier, even if we did not agree on the timeline for it. The new clause would reduce our ability to do so. Under the power in question, the UK’s anti-money laundering regime could not go further in areas where we would otherwise want to.
As I said previously, in debating amendment 7, and as my right hon. Friend the Minister said about new clause 3, we do not believe that a bar on new offences is the right way to address the concerns raised by Lord Judge and others. We have instead tabled amendments to ensure that the power is used only where it is needed, and that Ministers are properly accountable to Parliament for it.
Ensuring that we can make regulations to prevent, or to enable or facilitate the detection or investigation of, money laundering or terrorist financing, as well as to implement the standards of the FATF, is the most certain method of placing future changes to our anti-money laundering system on a sound legal basis. The new clause would limit our ability to do so in the future, and I am sure that is not the intention behind it. I respectfully suggest that the hon. Lady might withdraw it.
Anneliese Dodds
I am grateful to the Minister for his explanation. It may be the fact that we have been in this room for a few hours, but I am struggling a little with, in particular, the suggestion that new clause 16 would somehow tie the UK’s hands in implementing additional requirements beyond the FATF standards.
The Minister referred to the public register of property owned by non-UK entities. We had a discussion about that, but he is right: it would arguably be an innovation in the UK. Of course it is one that we need more than other countries, because of the use of our property market in many such cases, and the exponential rise in house prices. He could have talked—although he did not—about the register of beneficial ownership of companies being an innovation as well, but countries such as the Netherlands and Norway are putting those into practice anyway, so perhaps we are not quite as far-reaching in what we are doing as we might suggest. Particularly in relation to the charges and fines levied against those found guilty of money laundering offences, we seem to be in a different position from that of our North American counterparts, for example, as we have discussed. None the less, it is not clear how the new clause would stop us going further than those other jurisdictions where we wished to do so. It says that we would take account of the
“best international practice including EU sanctions regimes”,
not that we would be led by it.
Helen Goodman
On a point of order, Dame Cheryl, in the light of what the Minister said earlier, I would like to read precisely what was published by The Independent. I misinterpreted it and, consequently, I misled the Committee. I wish to apologise to him and to the Committee for that. This is what The Independent published in 2014:
“According to Electoral Commission records, New Century Media gave the Conservatives £85,000 in the months leading up to the 2010 general election…New Century represents the personal foundation of the Ukrainian billionaire Dmitry Firtash, who has been indicted on bribery and corruption charges, which he denies, in the United States…David Burnside, New Century’s executive chairman, has made…claims about his connections with senior Tories…The company has paid for a table at the last four Conservative summer balls and paid for…the International Development minister”—
who is now the Minister for Europe and the Americas—to be its guest
“at Conservative events at a cost of…£800”.
I am sorry. I misread it and misunderstood it, and consequently I misled the Committee.
The Chair
The hon. Lady has had the opportunity to put that on the record. If the Minister wants to add something, he may.
Sir Alan Duncan
May I thank the hon. Lady for her most gracious withdrawal, which sets the record straight? I appreciate the manner in which she did it.
Question put, That the clause be read a Second time.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It is good that we can continue proceedings, because there are many matters that we still need to consider, not least this new clause and the others on the selection list. I am grateful for the opportunity to do so.
New clause 17 requires a public consultation on corporate liability for money laundering within six months. We have already discussed what occurred with the Government’s evidence-gathering exercise—as I think they described it—in relation to a broader economic crime offence, and how the results of that exercise have been with the Government since last March. We still have no indication of how that will be dealt with, aside from the Economic Secretary’s helpful remark that it will be dealt with in due course. I know he always tries to be helpful, but I am afraid that that is not good enough for those of us who want to see change in this area.
We are specifically requesting a public consultation to get the process moving and to promote it, not least because of what the Government have committed to—or at least, what past Conservative leaders have committed to. In 2016, at the time of the anti-corruption summit, David Cameron wrote an article for The Guardian in which he claimed:
“In the UK, in addition to prosecuting companies that fail to prevent bribery and tax evasion”—
Sanctions and Anti-Money Laundering Bill [ Lords ] (Sixth sitting)
(6 years, 9 months ago)
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The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Chair
Before we resume line-by-line consideration of the Bill, will everyone check that they have their electronic devices turned off or to silent mode? I remind Members of Mr Speaker’s rule that teas and coffees are not allowed during sittings.
New Clause 1
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 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 by 1 January 2020.
(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).”—(Helen Goodman.)
This new clause would require the Secretary of State to take steps to ensure the governments of specified British overseas territories introduce public registers of beneficial ownership of companies.
Brought up, read the First time, and motion made (this day), That the clause be read a Second time.
The Chair
I remind the Committee that with this we are considering new clause 8—Public registers of beneficial ownership of companies in the British Crown Dependencies—
“(1) For the purpose of preventing money laundering, the Secretary of State must consult with the authorities of governments in each Crown Dependency on establishing a publicly accessible register of the beneficial ownership of companies registered in their jurisdictions.
(2) Within 6 months of this Act being passed, and every 12 months thereafter, the Secretary of State must report to Parliament on progress within the Crown Dependencies on establishing registers as referred to in subsection (1).
(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).”
This new clause would require the Secretary of State to consult with the governments in each Crown Dependency about introducing public registers of beneficial ownership of companies in the Crown Dependencies, and to report to Parliament on the progress of establishing such registers.
Helen Goodman (Bishop Auckland) (Lab)
Before we broke for Justice questions, I was speculating about why David Cameron’s Administration were quite enthusiastic to make progress on this issue but the current Administration seem less enthusiastic. I had basically made my arguments and I was about to bring my speech to an end.
Luke Graham (Ochil and South Perthshire) (Con)
I say to the hon. Member for Bishop Auckland that there are Government Members who are in favour of public registers of beneficial ownership in British overseas territories. I studied international financial reporting standards extensively in my former life as an accountant—I draw Members’ attention to my entry in the Register of Members’ Financial Interests—and I am a member of the Public Accounts Committee. Having more transparency through country-by-country reporting and ensuring public oversight and increased transparency of a lot of our transactions will mean that we actually raise standards, not only in the UK mainland, where we have done so by introducing a public register, but in our overseas territories. Given the opportunity that Brexit provides us, in terms of having to reinvigorate our economy and our brand, it is important that we lead. Certainly, what is good enough for the mainland should be good enough for overseas territories.
I know from conversations with my right hon. Friend the Minister for Europe and the Americas that the Foreign and Commonwealth Office has concerns about whether it is right to impose measures on overseas territories. There is precedent for that, as the hon. Member for Bishop Auckland said, but there are concerns about whether it would be right to do so in this case. I do not believe in “devolve and forget”, although overseas territories have different constitutional arrangements. As MPs, we are responsible for taking a leading role. Westminster is here to lead, not to follow, and the United Kingdom should be a leading light when it comes to financial transactions and financial transparency, as it has been on so many global reporting standards.
Helen Goodman
The distinction that the hon. Gentleman makes suggests to me that, although he may hesitate to vote for new clause 1, he will agree to new clause 8, which merely calls for a consultation.
Luke Graham
Yes, exactly. I am conscious that we have discussed new clause 1 at length and that my right hon. Friend the Minister has listened to private petitions from me and other Members. I reiterate that I am sensitive to the different constitutional arrangements for each overseas territory, the way that local legislatures pass their laws and the reasons why they have interests in different areas of financial services, as the hon. Lady highlighted. However, the United Kingdom Parliament should be clear that, if we find a wrong, we should try to right it. I have received correspondence from overseas territories about the cost of implementing a public register and how that might negatively impact their economies. The United Kingdom Government should try to help them with any transition or implementation costs. In the longer term, if it means a shift in their economies and if implementing a public register creates a large gap, we should commit to helping their economies to transition. We must not just take away one aspect of their economies and leave them to fend for themselves.
I ask my right hon. Friend the Minister to commit to engaging with the overseas territories. We have already made a lot of progress. The United Kingdom mainland is the leading light on financial transparency, and we have led the way with the public register. We must engage with the overseas territories, take them on the journey with us and help them to overcome some of the challenges they will inevitably face in a positive and constructive way.
Alex Norris (Nottingham North) (Lab/Co-op)
It is a pleasure to follow the hon. Member for Ochil and South Perthshire. My hon. Friend the Member for Bishop Auckland probably shares quite a few of these views. She made a comprehensive and weighty case; I just want to build on a couple of elements of it. We have recognised on Second Reading and during this discussion that Britain and the British Parliament have a really good record in this area. We should be proud that we are world-leading, and we should continue to be so. As we debate this transition Bill, which is a Brexit Bill at its heart, we should ensure that we remain at the forefront.
We can have the best fence in the world, but there are limits to what we can do if this goes on to our neighbours’ properties. If we have a special relationship with our neighbour, perhaps there are better ways of doing it—I will not torture that metaphor further. At its root, this is clearly a problem that needs solving. The hon. Member for Ochil and South Perthshire characterised it as a wrong that needs righting. The Panama papers listed the British Virgin Islands as the No. 1 location for those issues. Similarly, as my hon. Friend the Member for Bishop Auckland said, Oxfam listed Bermuda as No. 1, and we have seen the briefing materials from Christian Aid. Just so this cannot be portrayed as an activist campaign—as though that could be a bad thing—HSBC and even BHP Billiton say that this is the sort of thing we need. BHP Billiton is the world’s biggest mining company, so it is not often that it and I are bedfellows, but it understands that unclear audit trails for money are bad for its business. They are bad for the communities from which the money comes, but also bad for BHP Billiton’s global finance enterprises, so it is urging us to take action.
This proposal is proportionate. We heard on Second Reading that, given that the overseas territories have had a difficult few months, time has been built into the proposal. There is recognition of how the Crown dependencies ought to be supported. Ministers have said throughout this Bill Committee that, when it comes to the overseas territories, we are responsible for foreign affairs and security. Absolutely—I could not agree more—and anti-money laundering and dirty money passing over borders in massive quantities are at the root of security and foreign affairs. Money laundering underpins global terror, and we ought to be squeezing it wherever we can, because that is one way of cutting off those networks. The combatants we engage with may seem like they are hidden in hills and hard to find, and are perhaps not like us, but from all we have been through over the past 20 years, we know that they have some very sophisticated cells, behind which is big money. This is a chance to clamp down on that.
This will say a lot about us as we go into the brave new post-Brexit world. We have heard the phrase “brand Britain”—the hon. Member for Ochil and South Perthshire talked about our brand—and who we are and where we place ourselves in the world will be very important to it. On the one hand, our Ministers are going round the world saying that we have a great approach to money laundering, but on the other, these are British overseas territories—the Minister referred to them as overseas territories, but they are British overseas territories, and our name is attached to them.
Jo Stevens (Cardiff Central) (Lab)
Does my hon. Friend agree that, although there are some very good things in the Bill, not dealing with secrecy in relation to the overseas territories will damage the credibility of the rest of the Bill and will put it in danger?
Alex Norris
I thank my hon. Friend for that useful intervention. I absolutely agree. We should not see the Paradise papers and the Panama papers as the past, and assume that we will not see anything about this issue again. We are likely to see such things periodically on different programmes and in different newspapers. Every time that happens, people will ask, “What did you do about it? When you heard about it last time, how did you act?” If we say, “Well, we have this brilliant law, which we consider world-leading, but we stopped short of doing this,” people will wonder why we did that, and that will damage our brand.
This is not just about the British overseas territories—people will say, “Hang on a minute. They are British. What are you doing in your engagement with them?”—but about the Crown dependencies. The Crown will, dare I say, be a very important part of brand Britain, and people will draw a very straight line. Even if we feel that we should not be able to act in this area, people will expect that we can, so we ought to have a pretty clear picture on it. What is being asked for in the two new clauses is proportionate and sensible, and hopefully something that we can all support.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I do not want to speak for very long, or repeat what colleagues have said. I very much agree with the comments made by my hon. Friends the Members for Nottingham North and for Bishop Auckland. However, there are a couple of aspects that I would like to emphasise, and provide the Committee with a bit more information on.
First, it is the friends of the overseas territories and Crown dependencies who are deeply concerned about the lack of action in this area. I have had many meetings with representatives from both groups of jurisdictions over the years, both as an MP and as a Member of the European Parliament before that, when I sat on tax committees and the Panama papers committees in the European Parliament. I have had many discussions on these topics. I acknowledge that there is currently some resistance, but there is also an awareness of the reputational damage that is being done to their jurisdictions, as my hon. Friend the Member for Nottingham North mentioned.
There is also concern about having the resource necessary to implement more transparency. I strongly agree with what the hon. Member for Ochil and South Perthshire said in that regard. That is why our new clause calls for support for the overseas territories to implement the changes. We do not want to end up in a situation similar to what happened in the Turks and Caicos Islands, where there were repeated warnings that there were problems but nothing was done until it got to such a height that there had to be what some would say was a very draconian response. We do not want to get to that situation; we want to see change. I will go on to explain what happened in the Turks and Caicos Islands in a moment, because colleagues need to know about that. We have not yet talked about the instances where Britain has exercised its relationships and the levers it possesses.
It is also important that we acknowledge that for many of the overseas territories and Crown dependencies there has been positive legislative change, particularly around 2013 and 2014. However, that has died off a bit recently. One thing that worried me was the fact that the British Virgin Islands have passed new laws against whistleblowers. That has caused a lot of concern, and appears to suggest a shift in the wrong direction. The US State Department, for example, has commented on the fact that low numbers of prosecutions are coming from some of the jurisdictions. Frankly, it is a bit of an embarrassment that the US State Department has commented on that, and we have not seen the necessary action.
It is also a major concern for our country. Others have commented on this, but we have not yet quoted from the National Crime Agency’s “National Strategic Assessment of Serious and Organised Crime 2016”. That report spelled out the problem with having our open register of beneficial ownership without having commensurate obligations in our associated jurisdictions—not to mention the register’s own problems, which we will come on to. The report said:
“When legislation to report beneficial ownership begins to be fully enforced…the UK will be less vulnerable to shell companies formed by professional enablers and others within the UK for the purposes of enabling bribery, corruption and money laundering. The UK will remain at risk from company formation in overseas jurisdictions where similar legislation is not in place.”
It is a direct concern for Britain that we have this leaky fence, to stretch again the metaphor of my hon. Friend the Member for Nottingham North.
It is particularly worrying that the British Government’s position seems to have shifted backwards. Other colleagues have mentioned that, and I wanted to draw attention to the precise language that is now being used by the Government. David Cameron gave us a commitment to beneficial ownership registers—not to public ones. We wanted him to go further, but he committed to getting registers that could at least be used by law enforcement agencies.
As of the debate on the Bill in the other place, we have a new formulation of words, talking instead about either registers, or similarly effective mechanisms to beneficial ownership registers. It would be helpful to hear from the Minister exactly how they are similarly effective. I asked a parliamentary question about this issue and I was told that, for example, electronic search platforms are a technical solution designed to achieve precisely the same result. Well, they do not achieve the same result if it takes longer for law enforcement agencies to get the information they need to root out crooks and prosecute them.
The Minister for Europe and the Americas (Sir Alan Duncan)
Unfortunately for the hon. Lady, she seems unaware that I was the Minister responsible for Turks and Caicos, as a Minister in the Department for International Development at the time. The reasons she cited for our intervention are completely inaccurate. There was a growing financial deficit of £30 million, forecast to be £60 million and then £90 million—it would have been half a billion pounds within a very short time. On that basis, we stepped in and parachuted in a chief financial officer to get the public finances back into shape. It was a great success and is a good example of us intervening in a perfectly proper way in co-operation with the Governor and the Government there.
Anneliese Dodds
I am grateful to the Minister for those comments; I might agree with the second half of them. I wonder whether his remembering of the time is the same as that of the relevant FCO Minister. I am terribly sorry; I do not know who the individuals were, but I was not in the House at the time. He or she commented:
“These are some of the worst allegations that I have ever seen about sitting politicians”
and
“when things go badly wrong…we need to act”.
I suspect that they were not talking simply about a budget deficit at that stage; they may have been talking about other matters.
Sir Alan Duncan
The hon. Lady is conflating two separate issues. There was a parallel legal issue over the plight and fleeing of Mr Misick, but that was not the basis on which we intervened.
Anneliese Dodds
Whether the intervention was due to alleged corruption in the activities of the former leader or budgetary matters, the arguments point in the same direction. When the British Government saw there was a problem, they decided it was appropriate to take action. We are lucky to have the Minister here. We are grateful to hear of his experience, and I hope he will inform us of how, in that regard, we can use that experience, in a consensual, respectful manner, to deal with our associated territories in relation to ownership registers.
Sir Alan Duncan
This has been a lively and interesting debate on an issue that we all agree is of importance. It boils down to how we think it appropriate for the Government to act. I am grateful to hon. Members for tabling new clauses, and I appreciate the desire for the overseas territories and Crown dependencies to adopt public registers. However, we should acknowledge the significant steps already taken by those jurisdictions in this area and continue to build on that progress.
While we continue to push for public registers to become the global standard, we should recognise that the arrangements that the territories and dependencies have concluded with the UK exceed the international standards set by the Financial Action Task Force, which do not require private registers, let alone public registers. Nevertheless, should public registers become the global standard, we would expect the overseas territories and Crown dependencies to meet that standard.
As the Committee knows, the overseas territories and Crown dependencies are separate jurisdictions with their own democratically elected Governments. We have therefore legislated for them without their consent only in exceptional circumstances—for example, to decriminalise homosexuality in certain territories, to ensure they were compliant with international human rights obligations. By contrast, financial services are an area of domestic responsibility for territory and dependency Governments.
Legislating for those jurisdictions without their consent effectively disenfranchises their elected representatives and risks harming our overall relationship with them. It also risks leading to a flight of business to other, less regulated jurisdictions, with the undesirable consequence that our law enforcement authorities would not have the same level of access to beneficial ownership information as under the existing bilateral arrangements. Imposing public registers of company beneficial ownership on the overseas territories would carry with it the risk that the territories would be less willing to work with us on this important issue.
[Dame Cheryl Gillan in the Chair]
I would like to draw parallels with the devolved Administrations and the Sewel convention. The hon. Member for Glasgow Central addressed the point on Second Reading:
“Much as I do not wish the House to legislate on Scottish matters, I do not want us to legislate for overseas territories or Crown dependencies without consent.”—[Official Report, 20 February 2018; Vol. 636, c. 92.]
I agree with her that that is the right approach.
The overseas territories and Crown dependencies have already made significant progress on beneficial ownership. Since we concluded our exchanges of notes with them in 2016, they have passed new primary legislation and delivered technological improvements to comply with the terms of the arrangements. They have committed to provide UK law enforcement authorities with automatic access to beneficial ownership information within 24 hours of a request being made, or within one hour in urgent cases. Those arrangements strengthen our law enforcement authorities’ ability to investigate serious organised crime, including money laundering and tax evasion.
The hon. Member for Oxford East asked about what are termed similarly effective systems. Some jurisdictions have opted under the bilateral arrangements concluded with the UK to establish an electronic search platform, allowing them to gain access to beneficial ownership information held by their authorities or by corporate service providers.
The exchanges of notes permit such similarly effective arrangements, provided that the following criteria are met. Law enforcement authorities can obtain beneficial ownership information without restrictions, and that information is available for use in both civil and criminal proceedings. Law enforcement authorities can also quickly identify all corporate and legal entities connected to a beneficial owner, without needing to submit multiple and repeated requests. Corporate and legal entities, or those to whom the beneficial ownership information relates, are not to be alerted to the fact that a request has been made or that an investigation is under way. We will monitor that arrangement to ensure that it does indeed provide the same results.
I hope that hon. Members agree that the overseas territories, in some cases in the most challenging circumstances, and the Crown dependencies have made significant efforts to move forward on this agenda. The effective implementation of the exchanges of notes will put them ahead of many G20 countries and many individual states of the USA, and demonstrates what can be achieved through working co-operatively.
Alex Chalk (Cheltenham) (Con)
Does my right hon. Friend agree that, as a result of the steps that have been taken in the Crown dependencies, there is a far greater degree of transparency in Jersey and Guernsey than in Delaware in the United States, for example?
Sir Alan Duncan
My hon. Friend is absolutely right. It is exactly that comparison that we need to see in the round, in order to understand that there could be unforeseen detrimental consequences of any kind of imposition proposed for the overseas territories.
Luke Graham
I understand the Minister’s point about overseas territories and the challenges faced by other jurisdictions such as the United States. Britain leads in a number of global reporting initiatives. Without compelling overseas territories to change their ways, we could still lead the conversation with the United States and the overseas territories in the round, to ensure that we progress this reporting and show the benefits that we have already recognised on the mainland. I urge my right hon. Friend not to draw parallels with the devolved settlement in the UK because we have Scottish MPs in this House, and they are there making laws in Scotland, whereas the overseas territories do not have MPs in this House.
The Chair
May I remind the hon. Gentleman that interventions should be shorter than that?
Sir Alan Duncan
You have been transformed, Dame Cheryl. The second point is within the constitutional settlement with the devolved Assemblies that has been reached in the United Kingdom. On the first point, I would have no objection to any hon. or right hon. Member urging the Government to take a lead in such areas. I hope that, at least by example and in international forums such as the UN, we do just that. I hope the UK’s leadership role will continue.
Hannah Bardell (Livingston) (SNP)
I am a little perplexed by what the Minister said. It seems that he conflated the comments of my hon. Friend the Member for Glasgow Central with the intent of the amendment, which is to encourage—not to compel—Governments in overseas territories to do that. Perhaps I am mistaken and he can clarify that, but it seems that there is a misrepresentation.
Sir Alan Duncan
The hon. Lady is not being unreasonable; there are some arguments where some people say compel, and others say urge and consult. My argument would be that we are consulting—we do it all the time. We have a regular dialogue, and in that, we are urging them in the right direction. Anything that smacks of us in any way telling them what to do is counterproductive, because rather than imposing new requirements on these jurisdictions, it is better to continue to focus our efforts on the consolidation of the existing arrangements.
The exchange of notes provides for the operation of these arrangements to be reviewed six months after they come into force. We are working very closely with the territories and dependencies on this review, and plan to conclude it by the end of March. That is a very good example of the sort of consultation we are engaging in on a regular basis.
Anneliese Dodds
When those letters are exchanged, will they include the logistics of this operation? I am trying to get my head round how we can genuinely say that contacting potentially myriad trust and company service providers and getting information from them is equivalent to having access to a register. How are the Government truly going to assess that in this exchange of letters? Will it be a question of time? We could be talking about hundreds of TCSPs.
Sir Alan Duncan
I am not directly involved in this, but as I have said frequently, I am very happy to offer the expertise of officials to the hon. Lady so that she can fully get to grips with the intricate detail of the question she has asked.
Hon. Members will recall that the Criminal Finances Act 2017 provides for a review of the effectiveness of the bilateral arrangements. That report must be prepared before 1 July 2019, and it will then be published and laid before Parliament. The reviews will provide a clear understanding of how the jurisdictions are meeting their commitments. At that point, we will be in a better position to consider what more might need to be done. I stress once again that we will engage with the overseas territories and dependencies; we do so already and we will continue to do so on a regular basis, with the clear objectives in mind of wanting consistent and constant improvements in the way in which their finances are organised.
A key feature of the Government’s approach has been to maintain a level playing field between all the overseas territories with financial centres and the Crown dependencies. As I have described, we have robust review processes regarding the implementation of these arrangements. If these reviews demonstrate that the full implementation of the exchanges of notes is not taking place in any individual jurisdiction, it would be right for hon. Members to consider this issue further. For the time being, however, we should continue to focus on the full implementation of the existing bilateral arrangements. We are on a good and solid track; therefore, I urge hon. Members to withdraw the new clause.
Helen Goodman
It is nice to see you in the Chair, Dame Cheryl. I wish to remind members of the Committee of two things: first, the Government’s own statement in 2012 that, as a matter of constitutional law, the British Parliament can legislate for Crown dependencies and overseas territories. Secondly, the current approach, where the authorities in London have to ask individual questions, is not as effective in tracking down and deterring illegality as having a transparent approach. That was demonstrated by the fact that, when the Panama and Paradise papers were leaked, they were able to initiate more inquiries and take more action against people because, as I was trying to explain this morning, they were able to see the overall pattern.
I am disappointed in the Minister’s response—not surprised, but disappointed—because he has not shown any flexibility at all. However, I do not wish to put the hon. Member for Ochil and South Perthshire on the spot. I think we will come back to this on Report, so I do not wish to put the motion to a vote. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 2
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.”.—(Helen Goodman.)
This new clause would require the Secretary of State to 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, within 12 months.
Brought up, and read the First time.
Helen Goodman
I beg to move, That the clause be read a Second time.
In 2015, David Cameron said:
“London is not a place to stash your dodgy cash.”
That is why he wanted to set up a register of the real owners of UK property owned by companies registered overseas. Unfortunately, the timetable for that has slipped. Following his announcement in 2015, the Government made an announcement shortly before Christmas saying that they now expected to set up the register in 2021. That is six years. In the other place, it was Tory peers who pressed for this to be speeded up. Our new clause does precisely the same thing.
Last week, the right hon. Member for Newbury mentioned unexplained wealth orders. Indeed, the Security Minister got an excellent splash on the implantation of this part of David Cameron’s package on 3 February. It was headed:
“Russians in Britain told to reveal their riches. McMafia-style crackdown on ‘corrupt’ oligarchs.”
It said:
“The government estimates that about £90 billion of illegal cash is laundered in Britain every year.”
The Minister said:
“McMafia is one of those things where you realise that fact is ahead of fiction…It’s a really good portrayal of sharp-suited wealthy individuals, but follow the money and it ends up with a young girl getting trafficked for sex.
What we know from the Laundromat exposé is that certainly there have been links to the [Russian] state. The government’s view is that we know what they are up to and we are not going to let it happen any more.”
He then explained that unexplained wealth orders were coming into effect.
I cannot understand why, given that those orders are coming into effect, a start has not been made on one with the purchase from the Ministry of Defence of Brompton Road tube station by a Ukrainian gas magnate. For colleagues who have not been following this long-running issue, Dmytro Firtash is a friend of ex-President Yanukovych and an associate of both President Putin and Paul Manafort. He was arrested in Vienna on corruption charges at the request of the FBI. Latterly, attempts have been made to extradite him to the United States, first on Magnitsky charges and later in relation to his alleged role in masterminding an international racket that aimed to sell titanium to Boeing.
Like all rich people, he operates indirectly. For example, his foundation, New Century Media, paid for the £800 ticket to a summer ball for the Minister here today—the right hon. Member for Rutland and Melton—according to the Minister’s entry in the Register of Members’ Financial Interests from 2010. He also gave £85,000 to the Conservative party centrally. I would have thought that he was a prime candidate to receive an unexplained wealth order, and I hope that Ministers will see if that can be pursued.
Sir Alan Duncan
Is the hon. Lady saying that New Century Media is owned by Mr Firtash?
Helen Goodman
I think Mr Burnside is employed by Mr Firtash. That is the issue. These things are not exactly transparent.
Let us return to the question of whether the current state of the law is adequate. The Times also had a leading article which said:
“Three difficulties may blunt the effectiveness of the wealth orders. First, all the agencies involved in investigating and prosecuting those suspected of laundering dirty money in Britain are already over-stretched. They need experienced staff used to digging through multiple layers of shell companies and intricate business transactions, and they do not have enough of them.
Second, the orders freeze assets for an interim period and are only one early step in the process of bringing oligarchs to heel. The government has to be braced for legal marathons contested by the rich and corrupt. That requires political will.
Above all, the red carpet for crooks has to be rolled up. Too many people in the City of London, in the divorce and libel courts, in the art world and in high-end estate agencies have failed to look closely at the cash coming their way. An overdue step would be a public register revealing the true owners of overseas companies that own property in Britain.”
Until we have the public register, it is not going to be possible to identify who owns the properties and whether the wealth invested in them has been gained legitimately or illegitimately. In other words, are the wealth orders explained or unexplained? I am not quoting the Morning Star or the Daily Mirror—I am quoting The Times.
We think that this is all taking too long; it is a problem that it is taking too long. It is a problem because of its size, which I will describe. It is also a problem because Ministers are giving time to people to rearrange their affairs and to reorganise them in order to avoid the measures which are in train. A concrete example of that would be the use of trusts. That is why further we have tabled a new clause on trusts.
Global Witness and Transparency International believe that 86,397 properties in England and Wales are owned by companies registered in offshore secrecy jurisdictions; 87% of properties owned by foreign companies have owners in secret jurisdictions. Half of them are in London and half are in other parts of the country. The 10 most expensive properties owned by companies in tax havens are worth £1.5 billion. Furthermore, Transparency International believes that there are suspicions about £4.4 billion-worth of UK properties, over half of which—£2.36 billion—belongs to companies registered in the British Virgin Islands. They also say that these properties in secret jurisdictions account for 75% of all UK properties under investigation for corruption. If hon. Members or members of the public are interested in seeing what is going on, I recommend going to the Global Witness website where they can type in their postcode and see how many of those secretly owned properties with overseas owners are located on a map.
The Economic Secretary to the Treasury (John Glen)
May I say what a pleasure it is to serve under your chairmanship once again, Dame Cheryl? I acknowledge that the amendment seeks to set in legislation an obligation on the Government to implement, within 12 months of Royal Assent, our commitment to establish a public register of company beneficial ownership information for foreign companies that already own or buy property in the UK or who bid on UK central Government contracts. It puts an accelerated timetable on something that the Government are doing anyway. In the next few minutes, I will remind the Committee of the timetable to which the Government are committed for delivery of this policy. I will set out the challenges and complexities of the policy and demonstrate why setting an early and artificial deadline for implementation would inadvertently undermine its aims. I know that these are supported across the House, so it is important to ensure that we get the detail of the policy right.
In listening to the remarks made by the hon. Member for Bishop Auckland, I acknowledge the frustration around this; but this Government are committed to continue to lead by example and improve corporate transparency. Over the past five years, the reforms delivered by the Department for Business, Energy and Industrial Strategy have made the UK a global leader on corporate transparency issues. We were the first country in the G20 to establish a fully and publicly accessible company beneficial ownership register and, across the world, non-governmental organisations lobby their Governments to follow the UK example. There is a reason we have that world-leading reputation: it is because of the quality of the measures we have passed and it is a reputation we would lose if this measure were accepted. A 12-month timetable to draft and pass primary and secondary legislation, empower the responsible agencies and commence the obligations is not realistic. The rush to meet such an unrealistic deadline would inevitably lead to loopholes that would be readily exploited by those seeking to evade the new requirements.
Alex Norris
We are not just talking about a 12-month timetable; this was first announced by a Conservative Prime Minister in 2015. What have Ministers been doing since then?
John Glen
I will come on to explain the history of this and why we are where we are. I am happy for the hon. Gentleman to intervene if he does not feel satisfied at the end of that.
Mindful that the eyes of the world are on us, hon. Members should recognise that this legislation would be a world first. Successful delivery raises significant challenges and it is right that the Government achieve the right balance in an effective regime with robust enforcement that does not have a negative impact on land registration processes across the UK. I acknowledge that some have accused the Government—and we have also been accused this afternoon—of not acting swiftly enough to implement this policy. Let me address those concerns.
We have committed to publishing a draft Bill before the summer to introduce the Bill early in the second Session and for the register to be operational in 2021. Publishing a Bill in draft is the right approach. As I said before, this register will be the first of its kind in the world, and it will affect people’s property rights, including not just new purchasers but existing owners. This is a sensitive and delicate area. Getting it wrong would have significant adverse consequences.
Anneliese Dodds
The Minister is being generous. He has kindly set out for us a three-year timetable, adding on a couple of years before that when Government committed to this. Is he aware of the Private Eye map, which has been in existence for some time? Through civil society and journalistic activity, Land Registry and Companies House data were put together and a map produced. That appears to have been done quite quickly.
John Glen
I am not familiar with that particular map but I would be very happy to examine it. For clarity, and addressing the hon. Lady’s previous point, the register will capture the details of beneficial owners of all non-UK companies—including those in the overseas territories—that own UK property. This will be a world first, so we are moving as fast as possible, while ensuring that the register is as comprehensive as possible.
As the Government set out in last year’s call for evidence, for the register to be effective the sanctions to be applied for non-compliance must be a meaningful deterrent. Enforcement must be energetic. Simple criminal sanctions may not be sufficient in isolation. The draft Bill will include enforcement through land registration law. Where an overseas entity buys property, it will never be able to obtain legal title to that property without having complied with the register’s requirements. Similarly, a restriction on the title register for property owned by an overseas entity will signal to third parties that the overseas entity must comply with the regime before selling the property, creating a long lease or legal charge. Those are significant steps on which it is right to consult.
Hon. Members will recognise that there are separate Land Registries in Scotland and Northern Ireland, as well as the Land Registry for England and Wales. The approaches taken to land registration and overseas entities by each of those Land Registries have been different until now. That too will need be streamlined. Delivery of an holistic outcome that complements all three land registration regimes is an exercise touching multiple teams across Government and the Land Registries. Put simply, it is an exercise that will take time to get right and a further demonstration of why publishing the legislation in draft is the appropriate next step if we are to get it right. Although I appreciate that the motive underlying the new clause supports the policy as a whole and demonstrates a desire for early delivery and implementation, it does not take account of the complexities that I have set out or the challenges of delivery and implementation.
The register will further demonstrate the Government’s commitment to combating money laundering through the property market. Hon. Members will have seen recent press reports—the hon. Member for Bishop Auckland drew our attention to the splash on 3 February—that two unexplained wealth orders have been obtained by the National Crime Agency in connection with two properties worth £22 million.
Those are the first orders obtained under the relevant powers conferred by the Criminal Finances Act 2017, which commenced at the end of January. They were obtained only a few days after it came into effect. As the Minister for Security and Economic Crime has said, the orders are an important addition to the UK’s ability to tackle illicit finance, and it is great to see them already in use.
The Government will continue to take action. BEIS’s response to last year’s call for evidence will be published shortly, and it will set out the Government’s approach to areas of particular complexity. BEIS has already made significant progress in preparing draft legislation; the work with the office of the parliamentary counsel to draft the Bill is under way.
Separately, BEIS is working to quantify the impact of the legislation on the UK. The impact assessment will quantify the register’s potential impact on the property market and investment flows, around which foreign direct investment is very specific, to pick up on the point made by the hon. Member for Bishop Auckland. The register will rightly make the UK more hostile to illicit flows of money, but we must understand the potential impact on legitimate inward investment.
All those issues were considered in last year’s call for evidence. Scrutiny of the draft Bill will further stress-test whether it will be effective. I hope that that process demonstrates the Government’s continued commitment to enact the policy, and our commitment to get it right. For those reasons, I hope that the hon. Lady will withdraw the new clause.
Sir Alan Duncan
On a point of order, the hon. Member for Bishop Auckland earlier asserted that New Century Media is owned by a disreputable Ukrainian oligarch called Dmytro Firtash. That is completely untrue. New Century Media is owned by a former Member of this House, Mr David Burnside, whose reputation she has inadvertently maligned. I ask her to withdraw her comment immediately, or to say the same thing outside the House and take the full legal consequences of doing so.
The Chair
That is not really a point of order for the Chair, but the Minister has made his point of order and put it on record.
The Chair
Unless any other Member wants to rise on a point of order, we will move on. If the hon. Lady wishes to respond, she may.
Helen Goodman
My understanding is—and this has been in the public domain and stated outside this House—that Mr Burnside was the executive chair, but that New Century Media represented the personal foundation of Dmytro Firtash.
The Chair
The hon. Lady has made a response, but it is really not a point of order for the Chair. Members have managed to put it on record, and we will move on. I apologise to Mr Norris, who did not catch my eye before I called the Minister. I call him now.
Alex Norris
You are very kind, Dame Cheryl. I am not a very good bobber—I find myself inadvertently bobbing in the wrong place or staying in my seat. My wife is currently doing the 100 squat challenge, and I wonder whether an afternoon of questions on a particularly good statement is a good way to make a down-payment on that. That is not the point I rise to make, however—proud of her though I am.
The new clause comes back to our place in the world after Brexit. There are very legitimate anxieties across the House, which are often played out in the Chamber, that post-Brexit, Britain will become the low standards capital of Europe: people will have all the benefits of being in Europe, but will not have to put up with those pesky regulations. We have what we consider to be very legitimate concerns about workers’ rights, product regulations and environmental standards that we raise frequently, and we hear back from Ministers—to their credit, we always hear back—“No, that is not our plan post-Brexit. That is not the Britain we want to live in.” We say that we will hold them to that, as we will.
The Ministers are exceptionally lucky that this is a good opportunity to raise that flag and demonstrate that. The Bill will send a strong signal about what Britain will be like and about our role in the world. The Ministers have said that it will be the first of its kind, which is a good thing. We should seek to lead on such important issues. We have a chance to lead and show that Britain is a high-standards, high-quality economy to occupy and if people come to Britain, they should expect to have the relevant level of scrutiny if there are questions over the assets that they bring or purchase. So it is time: that is what campaigners tell us and what we feel too. We are not asking for this to be done overnight. This is something that Ministers have had since 2015 and that will still have another year after this legislation passes, which is some way away. It is time.
Richard Benyon (Newbury) (Con)
I think it is worth saying for the record that there is a chill wind blowing through the financial lives of some of the people who have used our economy, particularly our property sector, for nefarious purposes and money laundering. From my conversations with a current Security Minister, and from what I know the Government are doing to implement the asset freeze legislation, I have no doubt that that is being taken forward aggressively and in a determined way. That is being recognised abroad; it is certainly being recognised by some of those people who have used the ability of our economy, through good title deeds, to make property a means by which to bury nefarious funds.
We are talking about legislation to hold future Governments to account. I entirely accept my hon. Friend the Economic Secretary’s assertion that this a complex situation to get right. I would like a little more clarification, and I am prepared to cut him some slack on this because if this is not done properly, it will be exploited and people will be able to move wealth in a globalised economy in a much freer way. It should be tied down in a way that encourages people still to invest in this country. I welcome the fact that people want to invest in our property, whether commercial or residential, but not, as the hon. Member Bishop Auckland says, just to leave homes empty. I recognise that that is a real issue, but there is the sheer importance of making sure that all of the provisions are correct. I know it has been complicated: in the asset freeze legislation, there was institutional resistance to what are called Magnitsky-lite measures that were introduced. In a classic piece of good ministerial play, the Government faced down those institutional problems that existed in parts of the civil service and elsewhere and took that forward. To their credit, they are now implementing the measures. I would just like some more assurance from my hon. Friend that this complexity will be tackled with urgency.
John Glen
I am grateful to my right hon. Friend the Member for Newbury and to the Member for Nottingham North for their further observations. I understand the sentiments of frustration and impatience with the Government on this matter. I hope I have spelled out in some detail—in the areas of land registration; alignment around the different parts of the United Kingdom; and making sure that the penalties are appropriate and that the enforcement measures are set to meet the challenge—that the Government have bold ambitions to get this right and to be a world leader in this area. I acknowledge that this has taken rather longer than it would have done in ideal circumstances, but I can confirm and reiterate to my right hon. Friend that the Government are fully committed to delivering this as soon as possible, and that there is a commitment across multiple Departments and the ministerial team to ensure that this reflects the bold aspirations that we have as a nation. I hope that that would be sufficient for us to move on.
Helen Goodman
Ministers have heard that this is an issue of significant concern, and interest in making speedy progress has been expressed on both sides. We will return to this on Report and, that being the case, I do not intend to press it to a vote. I beg to move that the clause be withdrawn.
Clause, by leave, withdrawn.
New Clause 6
Alignment of sanctions
(1) It shall be a negotiating objective of Her Majesty’s Government in negotiations on the matters specified in subsection (2) to continue the United Kingdom’s participation in the Political and Security Committee of the European Union in order to align sanctions policy with the European Union.
(2) Those matters are—
(a) the United Kingdom’s withdrawal from the European Union, and
(b) a permanent agreement with the European Union for a period subsequent to the transitional period after the United Kingdom’s withdrawal from the European Union.
(3) It shall be the duty of the Secretary of State to lay a report before both Houses of Parliament in accordance with either subsection (4) or subsection (5).
(4) A report under this subsection shall be to the effect that the negotiating objective specified in subsection (1) has been achieved.
(5) A report under this subsection shall be to the effect that the negotiating objective specified in subsection (1) has not been achieved.
(6) This Act shall not come into force until a report under either subsection (4) or (5) has been approved via resolution of the House of Commons and considered by the House of Lords.—(Helen Goodman.)
This new clause would require the UK Government to seek continued participation in the Political and Security Committee so as to allow alignment on international sanctions.
Helen Goodman
I beg to move, That the clause be read a Second time.
We now move to a slightly different aspect of the Bill—how decisions will be taken once we leave the European Union. The new clause would require that in negotiations with our European partners, we seek to maintain participation in the Political and Security Committee of the European Union, to align sanctions policy with the European Union, and would require the Government to report on those negotiations and on how they are going. As with the commencement plan, which I felt the Minister was vague and unclear about, so with this. How are we going to co-ordinate in the new world? How is this going to operate?
Sanctions will work if we co-operate and collaborate with other countries. We are all agreed that that is when they are most effective. They are effective in terms of putting pressure on those that are sanctioned, upholding the rule of international law and protecting national security. It is necessary for us to work with our European partners to make our international sanctions regime as effective as possible. One of the issues previously discussed —which Ministers bump up against all the time—is the difficulty of getting agreements in the UN Security Council. Obviously the sanctions that we had on Russia over the annexation of Crimea could not be agreed in the UN Security Council, and that stands to reason. We have been able to get effective sanctions at European level, however, and our security interests are obviously aligned with those of the European Union, objectively speaking, and therefore we are going to take a similar view. We propose that we need to carry on working through the Political and Security Committee. The withdrawal agreement produced by the Commission said some interesting things about decision making. On the subject of administrative co-operation in article 30, it says that,
“as of the date of entry into force of this Agreement, the United Kingdom shall have the status of observer in the Administrative Commission. It may, where the items on the agenda concern the United Kingdom, send a representative, to be present in an advisory capacity, to the meetings of the Administrative Commission and to the meetings of the Technical Commission”.
The section on institutions includes proposals on representatives of member states and the United Kingdom taking part in the work of the Union’s institutions. Chapter 4, article 104 states:
“Article 10…shall apply in the United Kingdom in respect of representatives of Member States and of the United Kingdom taking part in the work of the institutions, agencies, offices and bodies of the Union”
in so far as their participation in that work took place before the end of the transition period.
There is then a section on how the transition period should work, and that is in part 4 of the document produced by the European Commission.
Paragraph 2 of article 122 states:
“Should an agreement between the Union and the United Kingdom governing their future relationship in the area of the Common Foreign and Security Policy and the Common Security and Defence Policy become applicable during the transition period, Chapter 2 of Title V of the”
treaty on European Union
“and the acts adopted on the basis of those provisions shall cease to apply”.
We then have the UK’s obligations with respect to financing defence and security operations, and finally, in article 157 under “Institutional provisions,” it is proposed that, on the date that the withdrawal agreement comes into force:
“A joint committee is hereby established”.
I am not saying that what the Commission proposes is the right way to go, but we are concerned that we have no sense of what the Government think we should do. That is why we tabled the new clause, which suggests that, with respect to sanctions policy, we should retain our membership of the Political and Security Committee of the European Union.
Sir Alan Duncan
The new clause would require the Government to commit to negotiating the UK’s continued participation in the EU’s Political and Security Committee after Brexit and delay the commencement of the Bill until a report had been laid before Parliament setting out whether that had been achieved.
The first point I make is that the Bill is about powers, not policy. The UK’s legal powers to implement sanctions flow largely from the European Communities Act 1972. The Bill will replace those powers and, as is recognised on both sides of the House, is necessary to enable the UK to impose sanctions. We are, of course, looking at our sanctions policy and have described our desired future relationship with the EU in a range of places, but it is not appropriate to place that in the Bill.
Secondly, as we have set out, the Government have an unconditional commitment to European security, and we continue to share common threats, interests and values with our European partners. That makes close co-operation, including on sanctions, in both our interests. The exact nature of the UK’s future relationship with the EU on sanctions still needs to be determined, but the UK will remain a critical player in both the European context and the global context.
The UK’s influence on sanctions derives in part from our membership of the EU, but it is not dependent on continued participation in EU bodies. A lot of it derives from the pre-eminence of the City of London in controlling so many flows of money. Our influence also comes from our status as a permanent member of the UN Security Council and our membership of bodies such as the G7. That influence is underpinned by our strong economy and financial sector, and both public and private sanctions expertise. That makes the UK a key sanctions partner.
As the Prime Minister made clear at the Munich security conference a couple of weeks ago, our partnership with the EU should offer us the means and the choice to combine our efforts to the greatest effect where that is in our shared interest. That includes working closely with the EU on sanctions. My right hon. Friend the Foreign Secretary was clear on Second Reading that he hopes
“we can act in tandem”
with the EU on sanctions because we
“will always confront the same threats and defend the same values.”—[Official Report, 20 February 2018; Vol. 636, c. 78.]
That demonstrates our commitment to close co-operation with the EU and other international partners regardless of the institutional framework.
Finally, we do not seek to attend EU meetings on the same basis as EU members. It is worth noting that the PSC is not the primary body that deals with sanctions. Sanctions pass through a range of EU institutions before adoption, from working groups to Council meetings. Committing the Government to seek to join the PSC for sanctions would not make sense from a sanctions policy perspective, and does not make sense in relation to our broader approach to negotiations with the EU. Although the details are a matter for negotiation, in the area of foreign policy as a whole we envisage both formal and informal mechanisms to allow regular dialogue, co-operation and close co-ordination.
To tie our objectives to one model would be counterproductive and would remove the freedom to explore new and better ways of working together with the EU on sanctions once we have left the European Union. However, we do not need text in the Bill to underline our commitment to working closely with international partners on sanctions, because that is what we will do. Given that, I respectfully ask the hon. Lady to withdraw the motion.
Helen Goodman
The question of how we will co-operate with our European partners on sanctions was debated last July in a general debate on sanctions. I am glad that the Minister now acknowledges that we need to do this, and I am glad that he said that we need formal and informal contacts. Given that he says that this is not the only piece of institutional architecture used at the moment, I will not press the motion to a vote. However, a slightly clearer view from Ministers on how they propose to handle this would be extremely helpful to the House at some point in the future. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Helen Goodman
I would like to put new clause 5 and new clause 7 to a vote. Have I missed the opportunity to vote on new clause 5?
Helen Goodman
Yes, I do.
New Clause 7
Parliamentary committee to scrutinise regulations
(1) A Minister may not lay before Parliament a statutory instrument under section 48(5) unless a committee of the House of Commons charged with scrutinising statutory instruments made under this Act has recommended that the instrument be laid.
(2) The committee of the House of Commons so charged under subsection (1) may scrutinise any reviews carried out under section 27 of this Act.—(Helen Goodman.)
This new clause would require a specialised House of Commons Committee to approve all statutory instruments laid under the affirmative procedure under this Act. The Committee would also scrutinise the Government’s reviews of sanctions regulations.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss new clause 15—Disqualification—
In the event that adequate procedures under subsection (3) of section [Failure to prevent money laundering] are found not to be in place, the Secretary of State must refer to the court a disqualification order under section 8 of the Company Directors Disqualification Act 1986 (disqualification of director on finding of unfitness).”.
This new clause would require the Minister to ask the courts to investigate whether directors of a company are fit and proper, if it was found that proper procedures against money laundering were not in place.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It is a pleasure to serve under your chairmanship, Dame Cheryl, and in rather warmer circumstances than the last time. New clause 9 seeks to create an offence if a relevant body failed to put in place adequate procedures to prevent a person associated with it from carrying out a money laundering facilitation offence. New clause 15 creates a process for disqualification for those at the top level who have failed to prevent money laundering.
I will deal with each new clause in turn and then speak briefly about the overall regulatory context, which creates a necessity for these new approaches. First, on new clause 9 and the failure to prevent the facilitation of money laundering, there are many problems with the existing system. The FCA has found weaknesses in governance and long-standing and significant under-investment in resourcing for control systems, even in the sector that is actually regulated for money laundering. I will talk about some of the problems there later on.
Many of those who investigate in this area find that rules are intermittently enforced, penalties are low and senior executives face few personal, financial or reputational consequences. It is constructive to compare some of the penalties that have been levied in the UK with those levied in the US. As I understand, the largest fine levied in the UK for anti-money laundering or sanctions offences—the Minister may contradict me if I am wrong—was levied against Coutts & Co for £8.75 million. That is six hundred times less than the penalty that was levied by the United States on BNP Paribas for sanctions-related offences.
Anneliese Dodds
It would be helpful to know under which pieces of legislation those fines were levied, because I am uncertain whether they were directly under money laundering legislation. I will come back to that, particularly in relation to some of the outcomes of some parliamentary questions that I have asked to try to dig into this and find out what prosecutions have been enabled by existing legislation.
I am grateful for the information that the Economic Secretary has provided; however, there is still a lot of concern about banks’ and others’ ability to root out money laundering and the facilitating of money laundering. The FCA found—admittedly, in 2014—that there was
“significant and widespread weaknesses in most banks’ anti-money laundering systems and controls”.
That is revealed in the case of HSBC. Many members of the Committee will know that it was involved in a money laundering scandal that led to the US fining it £1.2 billion. There was a large investigation into that matter in the United States Senate, where it was said that our UK-based bank had been a conduit for
“drug kingpins and rogue nations”,
including Mexican drug cartels and North Korea. In fact, that case has been referred to already in this Committee.
Particularly worryingly, a congressional report found that George Osborne and the Financial Services Authority—now the FCA—corresponded on numerous occasions with their US counterparts about the case; in fact, they urged a less aggressive judicial approach on the US side. Apparently, the congressional report said that the UK interventions played a significant role in ultimately persuading the US Department of Justice not to prosecute HSBC. I find it quite concerning that the UK actually argued against measures being taken by other countries to try to deal with this problem.
We were hoping to have some change; the Serious Fraud Office has called for the broadening of existing economic offences to cover a kind of umbrella approach, also to cover failure to prevent. It thinks that that would be helpful to hold large companies to account criminally across the board. At the moment, we have the ability to prosecute the failure to prevent bribery and corruption, but those activities are rarely committed in isolation from instances of money laundering by corporate entities. Therefore, it seems to make sense to try to extend corporate liability to money laundering. That would push in the same direction as existing pieces of legislation. Of course, the Bribery Act 2010 created a new offence of corporate failure to prevent. I believe that Act was put in place because of the same kind of repeated criticism of the UK regime that we have seen in relation to money laundering. We also now have the offence of failure to prevent criminal tax evasion in the Criminal Finances Act 2017. Surely there is now a strong case for an explicit reference to failure to prevent money laundering.
Many of us thought that we were not going to have to push for a separate offence of money laundering because we were to have an umbrella approach. In May 2016, the Government committed to consult on a broad offence of failure to prevent economic crime, which would cover fraud, false accounting and money laundering. In January 2017, the Government downgraded that commitment and instead published a call for evidence on whether there was a case for economic crime corporate liability law reform.
As I understand it, the call for evidence closed in March 2017. I have not yet seen the results of that call for evidence. It would be helpful for the Minister to let us know the outcome of that call for evidence, the main findings and how the Government have decided to act on them. Will they introduce the umbrella offence or create a discrete offence, as we are asking for? Because we think we need action now. That is new clause 19.
Anneliese Dodds
I beg your pardon. I am getting over-excited and trying to hurtle towards the end of the programme. I am sorry, Dame Cheryl.
Anneliese Dodds
No; we are very keen to have a thorough discussion on every one of our new clauses.
New clause 15 focuses on disqualification. The purpose is to ensure that directors specifically take responsibility for their organisation’s mistakes, and to ensure that the Secretary of State may hold them to account for a failure to prevent money laundering, in the instance where procedures have not been put correctly in place.
Many colleagues might have served as directors and will know the rules on being a director—that directors can already be disqualified if they display unfit conduct. Unfit conduct is defined as including allowing a company to continue trading when it cannot pay its debts, not keeping proper company accounts and so on.
With the new clause, we wish to extend that to include a commitment for every director to ensure that they are not ignoring money laundering concerns. We want to mirror what happens under competition law in Britain, where a director’s role is looked at in the event of a breach of the law. That is necessary because of the situation we find ourselves in today.
I am sure many colleagues will have talked to professionals on the frontline of anti-money laundering. I have talked to quite a lot of people who work in banks and other organisations who have anti-money laundering responsibilities. I am sure there are people who work in accounting and other walks of life for whom this is a concern. Very often the clear message I get, as I am sure colleagues do, is that those individuals are working very hard to prevent money laundering but they are not supported by the leadership team within their firm. Global Witness has stated that,
“responsibility for compliance with anti-money laundering and other regulations is usually allocated to compliance teams, rather than to senior executives, who actually wield power within banks over what customers they take. This is a serious problem because it gives compliance staff none of the authority but all of the responsibility, breaking the important link between decision making and accountability.”
That is certainly what I find when I talk to individuals who are in that responsible position. They find they are often not supported by senior managements. That has also been discovered in some of the big corporate scandals—I referred to the HSBC case a moment ago. In his written evidence to the UK Parliament, David Bagley, who led on compliance at HSBC during the period of the failings we were just talking about, stated:
“as the Head of Group Compliance, my mandate was … limited to advising, recommending and reporting. My job was not—and I did not have the authority, resources, support or infrastructure—to ensure that all of these global affiliates followed the Group’s compliance standards”.
Alison Thewliss (Glasgow Central) (SNP)
I do not want to add a huge amount, but I very much welcome the new clause. As the hon. Member for Oxford East said, there is a big issue of incentive and authority for organisations, particularly for those that facilitate the formation and operation of Scottish limited partnerships in the private fund sector.
There has to be an effort to ensure that compliance with the rules is extended as far as possible. For example, a legal firm may be asked to register an SLP to get it up and going, and operating, but if no buck stops with it, there is no punishment for not ensuring that the SLPs are operating as we would want them to. For example, if a firm asks its client to register a person of significant control, and the client does not do so, where is the incentive for that firm to remove that client altogether? The firm has to decide for itself whether the cost of reputational damage from being named in the press is enough. That is the balance that it has at the moment. It is not obliged not to have that SLP within its client base. There is no comeback and no consequence.
There needs to be some means by which the firm is forced to do something to put that right. If the SLPs under its umbrella do not register a person of significant control, and continue not to register them, there is no fine to that legal firm, as I understand it. The SLP may face a fine—I am trying to get to the bottom of how many fines have been issued to those who have not registered a person of significant control—but there is no comeback to the legal firm, other than potential reputational damage.
The Government need to think about where the buck really stops in these arrangements , and this type of new clause would put some emphasis on the firm to do something about failing to prevent money laundering, rather than allowing things to continue as they are. As I understand it, there is no comeback at the moment to the legal firm that is protecting the SLPs underneath its umbrella.
John Glen
I undertake to address the points raised by the hon. Member for Oxford East. I will come to the point about the directors’ responsibility in my scripted remarks and also to the issue of what provision the fines were imposed under.
On the specific question the hon. Lady asked, the Ministry of Justice’s call for evidence considered a wide range of reforms to the law relating to corporate liability for economic crime. That is against a backdrop of already significant reform in this area in recent years, including the Bribery Act 2010, the Criminal Finances Act 2017 and the introduction of deferred prosecution agreements, which the Government would contend have strengthened the UK’s defences against corporate criminality. The Ministry of Justice is carefully considering the responses received to the call for evidence and is analysing the impacts of the Government’s range of recent reforms in this area. It will respond to its call for evidence in due course. I do not have a specific timetable, but that is the best information I can give the hon. Lady.
New clauses 9 and 15 seek to create a corporate criminal offence of failure to prevent money laundering, with an obligation on the Secretary of State to submit a disqualification order to the court against directors of a company found guilty of such an offence without having adequate anti-money laundering procedures in place. New clause 9 provides that a company or partnership is guilty of a criminal offence where the company’s employee, agent or other service provider commits one of the substantive money laundering offences in part 7 of the Proceeds of Crime Act 2002. The relevant company would have a defence if it could prove that it had adequate procedures in place to prevent its employees or agents from committing such an offence.
The offence is not necessary in view of the extensive reforms to the UK’s anti-money laundering regime that the Government have put in place. The proposed offence is substantively applied to firms that are regulated for anti-money laundering purposes by part 2 of the Money Laundering Regulations 2017. Those require that regulated firms have policies, controls and procedures to mitigate and manage risks of money laundering and terrorist financing. The Government have legislated to require that these policies, controls and procedures are proportionate with regard to the size and nature of the firm’s business and proved by the firm’s senior management. Failure to comply with these requirements is a criminal offence in itself.
The Financial Conduct Authority and other supervisors are additionally able to take action against firms if their measures to counter money laundering are deficient. As was touched on in our exchange earlier, recent regulatory penalties related to firms’ anti-money laundering weaknesses include fines of £163 million for Deutsche Bank in January 2017 and £72 million for Barclays Bank in November 2015. They were a consequence of failures in anti-money laundering measures under the Financial Services and Markets Act 2000.
The new clause also seeks to address challenges that have arisen in apportioning responsibility for corporate failings. Within the financial services sector, that has been addressed through the senior managers regime, which was introduced after the financial crisis. Banks are now required to ensure that a named senior manager has unequivocal responsibility for overseeing the firm’s efforts to counter financial crime. That ensures that firms and individuals can be held to account for failing to put proper systems in place to prevent financial crime. If a relevant firm breaches its anti-money laundering obligations, the FCA can take action against a senior manager if it can prove that they did not take such steps as a person in their position can reasonably have been expected to take to avoid the breach occurring. The enforcement action includes fines and disbarment from undertaking regulated activities. The Government have legislated to extend the senior managers regime to apply across all financial services firms. That will be implemented in due course, and will further the Government’s reform programme. All those requirements are additional to the substantive money laundering offences in the Proceeds of Crime Act, such as entering into arrangements that facilitate the use of criminal property, which apply to any individual or company.
As hon. Members know, the Government have previously introduced two similar offences: the failure to prevent bribery, in 2010, and the failure to prevent the facilitation of UK and foreign tax evasion, in 2017. They are structured in a similar way to the proposed new clause, but they were introduced following clear evidence of gaps in the relevant legal frameworks that were limiting the bringing of effective and dissuasive enforcement proceedings. It is right that the offences that we have already established apply to legal entities, regardless of whether they operate in the regulated sector.
The situation in relation to money laundering is very different. The international standard is set by the Financial Action Task Force, which has been referred to numerous times in the Committee’s discussions. The UK’s money laundering regulations apply to banks, financial institutions, certain professional services firms and other types of entity, and act as gatekeepers to the financial system. As I have said, such firms are already required to have policies and procedures in place to prevent their services from being misused for money laundering.
Subsection (6) of new clause 9 would require all companies, regardless of whether they are incorporated, to have procedures in place to prevent persons connected to them from laundering money. The Government do not believe that that would be appropriate. It would risk making non-regulated firms liable for the actions of their regulated professional advisers. Instead, responsibility for anti-money laundering compliance should rest in the regulated sector, as is currently the case. The new clause would not go beyond the existing regulatory framework in that area, and it would blur where responsibility should lie for anti-money laundering compliance. Therefore, I respectfully ask the hon. Member for Oxford East to withdraw the new clause.
Anneliese Dodds
I am grateful to the Economic Secretary for those helpful explanations and clarifications. Despite his useful response, however, there are a number of areas where I am unclear. First, I appreciate that he has probably anticipated this question, but the Committee may ask why it has taken Government a whole year to assess the responses from their consultation on economic crime. Government frequently work at a far faster pace than that. He said that we will have the analysis of those consultation responses in due course. It would be helpful to know more about why it is taking so long for Government to analyse them.
Secondly, the Economic Secretary spoke about the requirement for all regulated firms to ensure that their policies, controls and procedures are appropriate to prevent money laundering, but there is a question about who assesses that and whose responsibility that is. That takes us back to the issue about there being myriad professional bodies, which all operate subtly different approaches towards regulation in this area. As I said, I appreciate that OPBAS has been created to try to draw them together, but I do not think we heard exactly what the status of that office is—I was trying to concentrate on what the Economic Secretary was saying. I have seen different descriptions of it as a team, an office and an organisation. It would be helpful to have a clearer indication, particularly because those professional bodies are, as I understand it, required to contribute financially to OPBAS, so a number of them are keen to understand what is happening with it. Furthermore, HMRC is not a member of it, as I said before, so the concern about a lack of regulatory co-ordination persists.
Finally, the Economic Secretary referred approvingly to the senior managers regime that has been brought in since the financial crisis, which looks like a positive step initially—of course, the HSBC problems occurred following that. In any case, as I understand it, the actual operation of this new regime and its extension are quite different from, for example, what was recommended by the Parliamentary Commission on Banking Standards. Under this approach, the burden to show that senior managers failed to take appropriate steps will be on the regulator, rather than the senior managers themselves.
That is different from the approach taken in many other areas, including road traffic, health and safety at work, the Bribery Act 2010—which the Minister referred to—terrorist legislation, the Misuse of Drugs Act 1971 and so on. It would be helpful to understand why, with the extension of this regime, the burden of proof has essentially now been placed on the shoulders of the regulator, rather than the shoulders of the managers.
Question put, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss the following:
New clause 11—Due diligence—
“(1) For the purposes of preventing money laundering, when a company is formed, any company formation agent providing formation services must ensure that the identity and business risk profile of all beneficial owners of the company are established in accordance with—
(a) the customer due diligence measures under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692),
(b) regulations made under section 41 of this Act, or
(c) the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on anti-money laundering measures.
(2) For the purposes of subsection (1), Companies House is to be treated as a ‘company formation agent’.”
This new clause would ensure that when a company is formed in the UK, the relevant formation services must identify the beneficial owners of the company. It will also treat Companies House as a “company formation agent”, ensuring that the data on the public register of beneficial ownership for companies is accurate.
New clause 12—Companies House: due diligence and resources—
“(1) For the purposes of preventing money laundering, the Companies Act 2006 is amended as follows.
(2) In section 1061 (the registrar’s functions) after subsection (1) insert—
‘(1A) Functions directed by the Secretary of State under subsection (1)(b) must include due diligence on a person wishing to register a company.
(1B) In this section “due diligence” has the same meaning as “customer due diligence measures” in regulation 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017).’
(3) In section 1063 (Fees payable to the registrar), in subsection (2)(a) after ‘Secretary of State’ insert ‘including the duty of due diligence under section 1061(1A).’”
This new clause would amend the duties of Companies House to ensure that any person wishing to register a company must be checked for due diligence by Companies House, in line with the measures included in the Money Laundering Regulations 2017. It also ensures that the Secretary of State can charge fees for due diligence checks to cover costs incurred by Companies House.
New clause 13—UK bank accounts—
“(1) For the purposes of tackling money laundering, the Companies Act 2006 is amended as follows.
(2) In section 853A (duty to deliver confirmation statements), after subsection (1) insert—
‘(1A) In subsection (1) “information” includes such information as is able to demonstrate that the company has a UK bank account.
(1B) Any company that is unable to provide the information required in subsection (1A) is liable to a fee which may be prescribed by regulations.’”
This new clause would ensure that all companies wishing to be created in the UK must provide evidence of a UK bank account to ensure it has gone through proper money laundering checks by a UK supervising body. If a company is unable to provide proof then they are liable to a fee which will cover the cost of such checks.
Anneliese Dodds
It is a pleasure to present the new clauses to the Committee. As colleagues will know, they all essentially call for an increase in the due diligence and anti-money laundering checks for those who register a company through Companies House.
There is a clear rationale for the new clauses. Around 40% of incorporations in the UK every year are done directly through Companies House, which in many ways offers an easy and helpful service. It is very quick; it is one of the fastest and easiest ways to form a company—it costs only £12 and takes a matter of minutes to complete the necessary paperwork online. That is all very positive, but the negative side comes from the risks that result from an approach where there is insufficient due diligence on the data submitted through that route.
The problem, as I am sure Ministers are well aware—I have asked a number of parliamentary questions to probe this—is that Companies House is exempt from the Money Laundering Regulations 2017 because of its not-for-profit status and the fact that it is not a company service provider. That means that a huge number of companies are created without any checks being made on the person setting up the company or the source of their wealth. We are talking about 251,628 companies last year.
As I said, there are very positive aspects to being able to create companies quickly, but the quality of data that results from that is potentially very poor; my hon. Friend the Member for Bishop Auckland talked of, potentially, 10% of company reports not including the appropriate information. There are some cases that might almost be humorous, but given the the circumstances they are deeply disturbing and indicate how little due diligence is taking place. An investigative journalist, Oliver Bullough, created a company called “Crooked Crook Crook Ltd.” With that name, many of us might think that this would be a company we would want to look into, but no, the confirmation documents were delivered within 36 hours. He details in an article, which colleagues can look up, should they wish, how easy it was to create that company. If he had not reported his activities in an article for a media outlet, his company could have gone on to partake in a myriad of activities, showing just how cheap, easy and disposable company formation through Companies House can be.
There are many concerns about that. We have a new regime in place now through the money laundering regulations, which covers trust and company service providers—TCSPs—as we have already mentioned. We have some amendments further down the agenda looking at some of those, because there is a particular issue around the operations of non-UK TCSPs. It is surely the case that when a company can be created through a TCSP, that TCSP has to follow all money laundering legislation, but when it does not go through a TCSP, and there is no money laundering legislation applying to it, we should be very concerned. Potentially, that money laundering regulation is undermined by having this massive loophole in place.
There are many disturbing findings from the data from Companies House that has been crunched by different investigative journalists and NGOs. We find that 4,000 beneficial owners named in the Companies House register are under the age of two. My daughter is two. She is really good at lots of things, such as climbing on to chairs. I am not sure that she or any of her playmates would be very good at being a person exercising significant control within a company. There are five beneficial owners registered who control more than 6,000 companies. Perhaps each one of those five are exercising all of their responsibilities perfectly in line with legislation and probity, but it must be very difficult for them to do that. We also have the fact that companies from secrecy jurisdictions can then be registered by Companies House through a UK company, or another formation agent, without there being any background or due diligence check.
I realise that some of these cases might sound a little bit silly, but potentially we are talking about some very worrying examples where there has not been that due diligence and there should have been. There was recently a BBC investigation—we have already referred to it within this Committee—into the case where a UK company registered at a Potters Bar address appeared to facilitate very complex financial arrangements involving the former President of Ukraine. At least £1.2 billion has been funnelled through companies registered at the same Potters Bar address, some of them potentially linked to the very complex situation where huge funds from the Eurovision song contest and lots of other activities seem to have somehow ended up in this company through very unclear routes.
It is concerning that we are in this kind of situation. Because of that, we find a number of professionals highlighting this as an area where we need to have reform. Frances Coulson, the head of insolvency and litigation at Moon Beever Solicitors, has been quoted as saying that this money is passing through Britain, through companies created with insufficient due diligence. She said:
“This is going on now and all the time…All the indicators are that it’s getting worse.”
And she said that,
“better due diligence—such as checking identification documents—by company formation agents and the UK corporate register, Companies House, would help combat fraud.”
Even if we do not manage to pass these new clauses at this stage, I hope that we will at least get some clarification on some of the rather unclear aspects of the regulatory regime. First, there is the role of Companies House. We are getting only a bit of an inkling of the role of Companies House through parliamentary questions. One response, given on 12 October 2017, said that the Government’s view is that Companies House
“does not have a front-line role in combatting money laundering”.
In the same month we were told:
“Companies House does not have powers to verify the authenticity of company directors, secretaries and registered office addresses. However, it does carry out a number of checks on all information received; ensuring it is valid, complete, correctly formatted and in compliance with company filing requirements.”
However, when we try to find out what this verification process involves, the picture gets rather complicated. Is any automated verification of beneficial ownership information occurring? I tried to find out in February, and no, there are “no current plans” to undertake that; however, Companies House is, it seems, undertaking activities, including,
“contacting companies where they believe the company has misunderstood the requirements…pursuing companies that have not provided PSC information”—
it seems that there is a huge number it will have to pursue, given the statistics discussed by my hon. Friend the Member for Bishop Auckland. It is also
“following up with companies and PSCs where they have issued notices to their PSC (asking the PSCs to provide them with information)”—
PSCs being “people with significant control”—and
“seeking compliance from companies where there has been a complaint about missing or incorrect PSC information.”
This was where the picture got more confused. [Interruption.]
I may have heard the Minister suggesting that I was rabbiting on. I am terribly sorry, but some of us are concerned about these matters and a number of professionals have contacted us about their concerns, so it is absolutely right that we deal with them in this Committee.
I tried to find out how many reports have been made about money laundering through the “report it” facility that Companies House has set up. The Minister of State, Department for Digital, Culture, Media and Sport, the hon. Member for Stourbridge (Margot James), responded to me on 19 December, stating:
“Eight reports about money laundering have been made through the Companies House report it facility.”
However, I was then told on 20 December that the new “Report It Now” feature had led to Companies House
“receiving between 180-200 contacts a day through this service.”
That seems like quite a big gap. Will the Economic Secretary please indicate how many of those reports are about money laundering? Is it eight, or is it 180 to 200 a day?
I have been very concerned by the Government’s claim, in the same written answer:
“Higher risk company formation activities in the UK will generally be done via Trust or Company Service Providers, who are subject to the Money Laundering Regulations.”
I want to illustrate that with one last example, which I was told about yesterday and is quite concerning. It is the case of an individual who has previously described himself as “The Chicken Thief”. That is his name as a person of significant control within the Companies House database. His real name is thought to be Antonio Righi—a mafia kingpin in Italy. If someone searches for his name on the Companies House website, as an academic did yesterday before informing me about this, they get a link to Business Bank Italy Ltd.
All banks should be regulated through the FCA nowadays. We are supposed to have that proper approach in place. The use of the word “bank” in a company name is restricted. Any would-be bank has needed to obtain a letter or email of non-objection from the FCA before being allowed to operate as a bank. Yet we see this company still apparently registered with Companies House.
That is deeply worrying because the individual concerned has been named as an active member of the Camorra—a very problematic criminal network that operates in Italy, with links in many other countries. The revelations about “The Chicken Thief” are not new, so one would have thought that Business Bank Italy would have been looked into carefully by the Government, but apparently not, and it still appears to be registered on the Companies House website. I hope the Minister can indicate why that is and whether he will look into this matter, if he has not done so already.
Alison Thewliss
I support the new clauses proposed by the hon. Member for Oxford East. They flag up a huge loophole in the anti-money laundering regime, which is the inability of Companies House to do anything about what comes through its door. By not acting on information, and expecting company formation agents to behave in a different way from the way the Government’s own agency behaves, the Government become complicit in the money laundering that is clearly going on through companies that are registered for only £12.
The situation is curious. Last week I sat on a delegated legislation Committee that discussed passport fees and the need for full cost recovery of those fees by the Government because the Passport Agency wants to ensure that it is not making a loss. There is an argument about whether passports are too expensive, which I think they are, but it costs £12 for the registration of a company. If Companies House is not getting full-cost recovery for that, and that is the reason for not carrying out the due diligence that ought to be done on anti-money laundering, that is an argument to find a reasonable cost of registration that would allow Companies House to operate, make money and have sufficient funds to carry out the due diligence it ought to. If there is an incentive not to play by the rules, and the Government are incentivising that through the operation of their own agency, that is nonsense. That is highlighted in Global Witness’s “The Idiot’s Guide to Money Laundering”:
“Step 4: open your company direct with the corporate registry—they don’t do any checks on you!”
It seems ludicrous that the Government are going to encourage agents who want to set up companies for people to do that and go through the anti-money laundering things that they have to do, but the Government are not enforcing that. That seems absolutely ludicrous. I cannot for the life of me think how the Government will defend that unjustifiable loophole.
Transparency International reported that in the UK last year, 251,628 companies were created with no checks being made on the person setting up the company or their source of wealth. It is a scandal that these companies can be set up, facilitated by the Government, because Companies House has to accept their documents in good faith without doing due diligence checks that we would expect of other agents. If they are not going to support the new clauses, I urge the Government to propose a measure themselves, because this simply cannot continue.
John Glen
The new clauses are broadly similar in purpose and intention. Each would expand the role that Companies House plays in relation to anti-money laundering checks, whether by conducting due diligence directly, confirming that due diligence has been carried out, or confirming that a company seeking to be incorporated has a UK bank account.
I will turn to the practical difficulties of these proposals in a moment, but the first point to make in connection with each is that the UK’s anti-money laundering regime is undergoing an assessment by the Financial Action Task Force. The FATF is the international standard setter in this area and will report publicly later this year on its findings. The report will consider matters, including the effectiveness of how the UK prevents the misuse of legal persons, such as companies, for money laundering purposes. Hon. Members will appreciate that this report will greatly inform the future of the UK’s anti-money laundering regime, including in relation to how we can best prevent the misuse of legal entities, some of which have been described in the course of this debate.
Once the FATF has reported, the Government will actively consider its conclusions, including those in relation to any areas in which the UK’s anti-money laundering framework can be improved. These new clauses pre-empt the review process already under way. It would be more sensible to allow the review to identify specific areas where action is necessary before making further changes to our AML regime.
New clause 10 would require anti-money laundering checks to be undertaken before any UK company can be incorporated by preventing the registrar of companies from registering a company unless she is satisfied that such checks have been carried out. It then says that the registrar is entitled to accept the anti-money laundering registration number of the UK body that has submitted the application as evidence that such checks have taken place. The effect would be to require all incorporations to be made through a UK body regulated for anti-money laundering purposes. This would prevent people from applying directly to Companies House to register and set up their own business; any person seeking to set up a business would be required to use the services of a professional agent that is also regulated for anti-money laundering purposes, and pay for those services, which will in turn increase the cost of setting up businesses.
The proposed new clause assumes that all bad companies are set up directly with Companies House, and that only companies set up through the agency of a regulated professional can be trusted. That is simply not true. Only the simplest companies—those using standard-form constitutions—can be set up directly with Companies House online in the way described by the hon. Member for Glasgow Central. Typically they are self-standing, family-run and family-operated businesses. More complex corporate structures will, in contrast, frequently be established through trust or company service providers. The UK’s national risk assessment of money laundering and terrorist financing noted last year that
“While companies can be registered directly with Companies House, criminals continue to make use of third party TCSPs, to establish the structures within which illegitimate activity subsequently takes place.”
The fact that TCSPs are legally required to conduct customer due diligence does not in and of itself solve the problem. The new clause would therefore impose an across-the-board administrative burden on individuals seeking to establish companies, without adding any significant new obstacles to money laundering. Companies incorporated directly through Companies House are overwhelmingly likely to interact with the UK regulated sector, and so face anti-money laundering checks either by having a UK bank account or through having a UK accountant.
We discussed in the previous debate the 22 different regimes, and this speaks to the necessity for some degree of complexity to minimise the risks as far as possible. New clauses 11 and 12 are similar in outcome to new clause 10: they would require company formation agents—defined for these purposes as including the UK registrar of companies at Companies House—to conduct customer due diligence to establish the identity and risk profile of all beneficial owners of such companies registered at Companies House. The key difference is the reclassification of Companies House, which would now be required to deliver its statutory duties as if it were a private sector business. The accompanying explanatory statement suggests that these clauses will identify the beneficial owners of a company and make information held at Companies House more accurate. Although similar to the proposed new clause 10, these new clauses would go further in imposing expansive new obligations upon Companies House, requiring significant changes to the UK company law system.
Given the overlap with the lead new clause in the group, I will focus on the most novel element: the proposal that Companies House be treated as a company formation agent. Since the registrar of companies was first created, it has been required to accept any application that is validly and correctly submitted, and to duly incorporate the company as requested. Companies House does not help customers through this process, and is responsible solely for conducting the process of company incorporation. Company formation agents, known as TCSPs, are entirely distinct from Companies House. They are already subject to due diligence obligations through the Money Laundering Regulations 2017, and these extend to being required to terminate any existing business relationship when they are unable to meet their due diligence obligations. In contrast, Companies House has no legal right to refuse or decline a request to incorporate a company if the application is valid, and therefore it does not have the ability to decline a business relationship in the way that TCSPs must when they cannot discharge their due diligence obligations. If accepted, these amendments would essentially require fundamental reform of the Companies Act 2006.
To emphasise the scale of that proposed reform, 3.9 million companies are currently registered at Companies House and approximately 600,000 new companies register each year. The impact on resource to carry out due diligence on that number of companies would be considerable. The burdens and cost would fall on those 3.9 million companies, and specifically on the vast majority of legitimate companies, many of which are very small businesses. They would be forced to pay to duplicate the cost of due diligence checks that are already conducted by banks and other regulated professionals. The overall cost to the UK economy could run into hundreds of millions of pounds each year.
New clause 13 would amend part 24 of the Companies Act so as to require UK companies to establish a UK bank account and evidence that to Companies House on an annual basis or pay a fee or financial penalty. As with other new clauses in this group, new clause 13 will not achieve its stated intention. The wider purpose behind that part of the 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 in relation to company share capital, business activities and the address of a company’s registered office.
That is not to say that the new clause’s underlying principle does not merit further consideration. Evidence of a UK bank account is intended to demonstrate that a company has been through proper money laundering checks by a UK supervising body related to the financial activities of that company. However, the practical implications need careful consideration. To make the proposal operational, Companies House would require new systems with access to UK and international banking information. The costs associated with the development and operation of such systems would inevitably be large and would need to be recovered from UK businesses. Once again, that would necessarily establish a new reporting burden that would essentially target the overwhelming majority of law-abiding UK businesses.
The new clause suggests that companies that cannot provide evidence that they have a UK bank account would be liable to a fee, although that could better be characterised as a penalty—its purpose is not specified. If it is intended to incentivise companies that are established to launder money to open a UK bank account, it would need to be set sufficiently high to achieve that objective, which would be disproportionate to the notional offence of not providing evidence of a UK bank account.
The Government are already active in that sphere. Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, regulated bodies such as banks are obliged to carry out CDD checks on their customers on an ongoing basis. That is a rich field of data, and the regulated sector is already closely engaged with UK law enforcement to identify and report suspicious behaviour. In parallel, Companies House has an extensive outreach programme to the regulated sector to promote use of its data and encourage bodies to report possible errors back to it.
To sum up, a simple demonstration of a bank account is a blunt instrument. As drafted, the new clause simply adds a burden to UK companies to report more information. We should not proceed down that path without being much clearer that the information we require them to disclose is valuable, that it is necessary and that it cannot be achieved by other less burdensome means. On that basis, I ask the hon. Member for Oxford East to withdraw the amendment.
Anneliese Dodds
I am grateful to the Economic Secretary for those clarifications. He made several helpful points, but some concerns remain. He mentioned the FATF process, which the Committee has discussed previously, and seemed to suggest that we should not make alterations in this area of anti-money laundering activity because of the ongoing FATF assessment. Of course, that argument could stop action in any other area, because the FATF is looking at anti-money laundering and anti-corruption provisions across the board, so it is not clear that it is completely convincing. Furthermore, I understand that representations have been made to the FATF as part of its review that change is needed in this area, which suggests that the argument is the other way round. The Economic Secretary also suggested that there would be a much higher cost for those that want to incorporate through a TCSP. In practice, as I understand it, the cost may not be substantial—only a couple of pounds more in many cases.
Hannah Bardell
Does the hon. Lady agree that we are letting our citizens down if we do not legislate properly and close these loopholes? I am sure we have all had constituency cases where people have lost money to unscrupulous companies and company owners. We have an opportunity to take action, and we must take it. The Government are letting citizens down if they do not accept the new clauses.
Anneliese Dodds
I am grateful to the hon. Lady for making the point clearly that our proposal has been portrayed as only a burden, when it could help to prevent our constituents from being ripped off by unscrupulous individuals who are able to set themselves up as a company with only minimum requirements for due diligence. As I said, they can be there by day, fly off by night, and leave the unfortunate person who dealt with that company in a very difficult position.
To end my remarks specifically on the Minister’s comments on new clause 13, many of us are worried that, in practice, there are TCSPs that offer UK company formation with a range of optional services, including setting up bank accounts in other jurisdictions such as Latvia, Belize, Switzerland and Cyprus. That would not necessarily be a problem, were it not for the fact that, time and again, we have seen in the cases we have discussed in this Committee that reliance on the third parties—the banks in those other countries—does not lead to a real assurance that money laundering provisions are being followed. The reality is quite the opposite.
In the Russian laundromat scandal, which we have already talked about, of the 440 UK shell companies used in the scheme—in itself, a staggering statistic—392 of them had Baltic bank accounts, with 270 UK firms using Latvian banks and 122 using banks in Estonia. It may be that we are fully confident in every case that anti-money laundering regulations were followed in those countries, but given some of what came out of the Russian laundromat scandal, it could be suggested that that is not the case.
We do need to get at this problem through another route. We need reform of the Companies House system, but we also need the use of another prong, which is requiring a UK bank account.
Question put, That the clause be read a Second time.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It feels a little like going out of the freezer and into the fire, because it is rather warm on this side of the Committee Room, but I am sure that we will be rewarded somewhere else for our endurance.
Anneliese Dodds
We tabled the new clause because ineffective anti-money laundering supervision has a clear and obvious link with inadequate compliance and with low and poor-quality reporting of suspicious activity to the National Crime Agency. Research by a number of non-governmental organisations, particularly Transparency International, has indicated serious failings in the current framework for supervising money laundering compliance in the UK, especially with respect to trust and company service providers.
Under the Money Laundering Regulations 2017, only TCSPs carrying on business in the UK—that is their formulation in the legislation—have to register with an anti-money laundering supervisor and comply with MLR 2017. That means of course that TCSPs with no UK presence can incorporate UK companies without any oversight from an AML supervisor. They do not have to comply with UK standards for money laundering checks. We have seen a number of clear examples—I will talk about some in a moment—where that has allowed non-UK TCSPs to incorporate UK companies that have subsequently been used in large-scale money laundering schemes. I think many of the concerns raised a moment ago around undercutting existing legislation and the lack of a fair playing field for UK TCSPs come up again in this regard.
In 2012 the International Consortium of Investigative Journalists showed how a number of UK individuals offering company services had moved their base of operations outside our country but continued to form, and act as nominee directors for, UK companies. There are two examples that are particularly important. The first is Jesse Grant Hester, who was originally from the UK and who moved to Cyprus to form Atlas Corporate Services Ltd before moving to Dubai and, finally, Mauritius—he is somebody who has been lucky enough to travel much in life. Those jurisdictions have all been identified as presenting high money laundering risks. Mauritius in particular is very concerning: it scored 5.92 out of 10 on the Basel Institute on Governance money laundering risk index. Ten is the highest level of money laundering risk and zero is the least, so it is well up there. Jesse Grant Hester appeared on numerous occasions as a nominee director for companies embroiled in corruption scandals. In the Moldovan bank theft that we talked about earlier, he signed fake promissory notes using an alias on behalf of a UK firm, Goldbridge Trading Ltd, allowing £444 million to be stolen. Atlas Corporate Services is associated with eight people who, between them, have held directorships of 3,613 UK companies. Again, that is a staggering number of companies to be held by just eight people. As we discussed, that scandal caused enormous problems for the country of Moldova.
Another UK resident who became internationally renowned, although not in a positive way, for his company formation activities is Ian Taylor. That is not the famous social policy academic, who I had the pleasure of working with, but another Ian Taylor. He also moved around a lot: he moved to Vanuatu.
Anneliese Dodds
Oh, there was a Tory MP as well. Goodness—the name is frequently used. He moved to Vanuatu after he was banned from being a corporate director, first in New Zealand in 2011 and then in the UK in 2015, as a result of his companies’ involvement in numerous scandals, including a land banking scam in Somerset. Vanuatu’s self-assessment on money laundering risk found that its TCSP sector was among the most vulnerable to such activity. In 2015 the Asia/Pacific Group on Money Laundering found serious deficiencies in Vanuatu’s AML system. Despite being banned in the UK, Taylor seems to have retained a UK presence. Various investigations have identified the circle of nominee directors that he works with. One of them is a Vanuatu resident who is a director of more than 61 companies. He took over from Taylor as a director of 20 of them on the same date.
Those examples show that physically moving out of the UK does not result in a lack of activity in the UK. Networks of associates make it difficult to stop the formation of UK companies by individuals who have already been disqualified here. Such individuals, who have been shown to have engaged in money laundering activities or have otherwise been disqualified or viewed as not competent in this arena, can function in other countries and create companies. The checking that should go on does not happen, and there is inadequate anti-money laundering supervision. We do not have a means of dealing with that, because we do not have a regulatory system for TCSPs that are not based in countries with appropriate anti-money laundering provisions. That is not currently illegal, which is why we want to change the legal situation.
John Glen
I am grateful to the hon. Lady for setting out her new clause, which would prohibit TCSPs that do not conduct business in the UK from incorporating UK companies, unless they are overseen by a UK anti-money laundering supervisor. As hon. Members will know, the Money Laundering Regulations 2017 specifically provide for TCSPs conducting business in the UK to be subject to a fitness and propriety test and to register with either Her Majesty’s Revenue and Customs or the Financial Conduct Authority. In borderline cases where it is unclear whether a TCSP is conducting business in the UK—in which case it would be supervised by a UK anti-money laundering supervisor—HMRC would consider on a case-by-case basis whether registration for supervision is necessary. This acts as an anti-evasion mechanism preventing TCSPs from artificially claiming that they are outside the scope of the UK’s anti-money laundering regime.
The hon. Member for Oxford East asked earlier where this was based. The Government recently established the Office for Professional Body Anti-Money Laundering Supervision, known as OPBAS, within the Financial Conduct Authority. It works to secure consistently high standards of AML supervision of professional bodies, including TCSPs. These reforms follow the identification of risks associated with TCSPs in the Government’s 2016 action plan for anti-money laundering and counter-terrorist financing. This found that service sectors such as TCSPs were a significant money-laundering threat.
Although it is for anti-money laundering supervisors to determine their areas of focus, they are required to have regard for the UK’s national risk assessment of money laundering and terrorist financing when assessing risks in their own sector. The risk assessment that the Government published in October last year concludes:
“The highest risk TCSPs are assessed to be UK TCSPs which offer a wide range of services (including nominee directors, registered office services, and banking facilities)”.
Additionally, individual anti-money laundering supervisors are under a duty to identify and assess the international and domestic risks of money laundering and terrorist financing to which their sectors are subject.
Helen Goodman
I am surprised by what the Minister is saying. He obviously did not listen to the BBC “Analysis” programme that was broadcast about three weeks ago on the role of overseas TCSPs. We think it is great when people build real-life factories as a jumping-off point into the single market, but it is evident that TCSPs and banks located in the Baltic states, which do not have such good anti-money laundering regulatory regimes, attract money and are used as a jumping-off point to move that money into the European system. Does the Minister really think that the anti-money laundering regimes throughout the European Union are as effective the one in the UK?
John Glen
I cannot comment on the specific cases that the hon. Lady mentions, because I have not seen or studied them. I imagine that there is a degree of variability in the effectiveness of regimes, but I am trying to set out the Government’s rationale for what we have in place. I do not suggest that it is perfect, but some of the developments have occurred in response to shortcomings that have been identified.
The individual anti-money laundering supervisors are under a duty to identify and assess international and domestic risks, including the money laundering and terrorism risk, which ensures that the most intensive supervision is applied where the highest risks of money laundering exist. The establishment of OPBAS will assist with the consistent identification of such risks across the TCSP sector. Our national risk assessment makes it clear that the Government are aware of the money laundering risks connected with TCSPs, and further reform in the area should take account of the conclusions of the ongoing FATF review. I assure Opposition Members that the regime is a searching and exacting one. I know from ministerial meetings concerning preparations for it that the evaluation will be exacting. We expect the observations to be meaningful, and we will need to respond carefully to them. However, until we receive the outcome of that review of the UK’s anti-money laundering regime and of the experience of OPBAS as its role develops, it would not be appropriate to adopt the amendment.
Hon. Members should be mindful of the fact that anti-money laundering supervision around the world follows a territorial model. Simply requiring non-UK TCSPs to have a UK supervisor when they set up UK companies will not address the challenges of extra-territorial supervision. Effective anti-money laundering supervision depends on measures that include supervisory on-site visits and close engagement with higher-risk firms. Requiring a UK supervisor to do that in relation to a non-UK firm will not, in and of itself, address the issue that hon. Members have identified.
As was noted in the other place, the most effective means of combating international money laundering is cross-border co-operation to drive up the standards of overseas supervision and enforcement. For those reasons, we have imposed a duty on each UK anti-money laundering supervisor to take such steps as they consider appropriate to co-operate with overseas authorities. That is the agenda we pursue through the global FATF process. I therefore respectfully ask the hon. Lady to withdraw the new clause.
Anneliese Dodds
I am grateful to the Minister for those remarks and clarifications. They have been genuinely helpful, but I regret that some areas are still rather unclear to me; perhaps they are not to other Committee members. He stated that the highest-risk TCSPs are assessed to be UK ones, but it has not been spelled out why. Perhaps he could write to me about that.
Anneliese Dodds
I am grateful to the Minister for offering to look into that. We must always be wary of talking about a general pattern of activity as necessarily reflecting the risk profile of that overall activity. Among those TCPS, there could be overseas ones that are not appropriately regulated and that also offer a wide range of services, in the same way as some UK TCSPs do.
I am also a bit confused about the professional regulators. As the Minister said, there are about 22 of them, and then on top of that we stick Her Majesty’s Revenue and Customs, the Financial Conduct Authority and so on. As I understand it, the professional regulators do not have members based in other countries; they cover only UK residents. We are talking about, for example, the Law Society of Scotland and the Law Society of England and Wales—professional bodies dealing with UK individuals. We are not talking about professional associations covering professionals in other countries.
The Minister seemed to talk about a process of liaison between these organisations and their counterparts in other countries. I am sure we all want to encourage that, because it sounds like a very good idea. Information sharing is wonderful, but information sharing is not the same as having an appropriate process of regulation to ensure that there is compliance with anti-money laundering requirements.
The Minister said that the approach was an extraterritorial one, because it affects bodies in other countries. That is absolutely right, but those bodies then interact with our company formation procedure. That is the reason why we, as a country, have a stake in this process—a rather large one, given the reputational damage that seems to be being caused by the activities of some unregulated or inappropriately regulated TCSPs. I will be pressing the new clause to a vote.
Question put, That the clause be read a Second time.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
The new clause looks to ensure that standards published by the Financial Action Task Force in relation to combating money laundering, terrorist financing and other threats to the integrity of the financial system can be easily implemented in this country. We are also seeking to identify or revoke a designation of a high-risk country, taking account of best international practice, including EU sanctions regimes.
We have talked a bit about the FATF in the Committee. As colleagues will know, its objectives are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. It is a policy-making body that works to generate political will to bring about national legislative and regulatory reforms. We have talked about its reporting cycle already and the fact that the UK is currently being investigated in order for the FATF to report on us later in the year.
John Glen
I just want to clarify that, while I would not profess to be an expert on Pakistan’s compliance with the FATF, the concerns raised about its recent greylisting were around the specific handling of various banned terrorist organisations. I would not wish to cast any wider doubt over its intentions to improve the provision of services.
Anneliese Dodds
I thank the Minister for that helpful clarification. It is helpful to know the exact locus of FATF activity or the concerns about Pakistan that were focused on terrorist financing. That is not the area we are focused on now, but such financing and money laundering often go hand in hand.
Given the potential effects of such a ruling—we have talked about that in relation to Pakistan—we think it necessary that Ministers should have the flexibility to ensure that FATF standards can be implemented as soon as possible in our country in order to be on top of new international standards. That is particularly important because the UK was a founding member of the FATF, so we need to show that we are at the cutting edge of implementing its requirements.
As I mentioned, we also need to be able to identify or revoke high-risk countries quickly, taking account of the FATF’s standards and given the effect that it can have on the countries themselves and also on our reputation. If we are viewed as not following FATF recommendations, that prevents the co-ordinated approach that the FATF was set up to promote in the first place.
Finally on this amendment, we hope that Ministers will take account of aligning the designations with our EU partners. We have talked consistently in our deliberations about the need for co-ordination, which of course makes all the mechanisms much more effective. When they are not co-ordinated, there can be loopholes. In that regard, it is important to mention the case of Russia. In 2014, the Arms Export Controls Committees—we talked about their composition when we talked about scrutiny arrangements—reported that more than 200 licences to sell British weapons to Russia, including missile-launching equipment, were still in place, despite David Cameron’s claim that the Government had imposed an absolute arms embargo against Russia in alignment with the rest of the EU. We really need to make sure that that alignment is genuine in practice, not just on the surface and rhetorical.
John Glen
New clause 16 would limit amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to those that would implement standards published by the Financial Action Task Force, or those whose purpose was identifying or revoking a designation of a high-risk third country. The 2017 regulations transpose the fourth EU anti-money laundering directive, which was in turn derived from the most recent major updates to the FATF standards, which were made in 2012. As the hon. Lady acknowledged, the UK is a founder member of the FATF and is committed to playing a leading role in its continuing work. It is right for the Government to 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 those standards. Our recently established register of trusts generating tax consequences, for example, goes beyond the standards set by the FATF. Similarly, the UK announced at the time of the 2015 Budget that we intended to regulate virtual currency exchanges for AML purposes—an objective that was accomplished through negotiation of the fifth EU anti-money laundering directive—but that was not required by the FATF. So although we will remain aligned with the FATF standards after the UK ceases to be a member of the EU, our anti-money laundering regime exceeds those standards in certain areas.
The Government are determined to ensure that our defences against misuse of a financial system remain ahead of global standards rather than solely reflecting them. That is reflected in our commitment to the establishment of a public register of the beneficial ownership of non-UK companies that own UK property, which the Committee debated earlier, even if we did not agree on the timeline for it. The new clause would reduce our ability to do so. Under the power in question, the UK’s anti-money laundering regime could not go further in areas where we would otherwise want to.
As I said previously, in debating amendment 7, and as my right hon. Friend the Minister said about new clause 3, we do not believe that a bar on new offences is the right way to address the concerns raised by Lord Judge and others. We have instead tabled amendments to ensure that the power is used only where it is needed, and that Ministers are properly accountable to Parliament for it.
Ensuring that we can make regulations to prevent, or to enable or facilitate the detection or investigation of, money laundering or terrorist financing, as well as to implement the standards of the FATF, is the most certain method of placing future changes to our anti-money laundering system on a sound legal basis. The new clause would limit our ability to do so in the future, and I am sure that is not the intention behind it. I respectfully suggest that the hon. Lady might withdraw it.
Anneliese Dodds
I am grateful to the Minister for his explanation. It may be the fact that we have been in this room for a few hours, but I am struggling a little with, in particular, the suggestion that new clause 16 would somehow tie the UK’s hands in implementing additional requirements beyond the FATF standards.
The Minister referred to the public register of property owned by non-UK entities. We had a discussion about that, but he is right: it would arguably be an innovation in the UK. Of course it is one that we need more than other countries, because of the use of our property market in many such cases, and the exponential rise in house prices. He could have talked—although he did not—about the register of beneficial ownership of companies being an innovation as well, but countries such as the Netherlands and Norway are putting those into practice anyway, so perhaps we are not quite as far-reaching in what we are doing as we might suggest. Particularly in relation to the charges and fines levied against those found guilty of money laundering offences, we seem to be in a different position from that of our North American counterparts, for example, as we have discussed. None the less, it is not clear how the new clause would stop us going further than those other jurisdictions where we wished to do so. It says that we would take account of the
“best international practice including EU sanctions regimes”,
not that we would be led by it.
Helen Goodman
On a point of order, Dame Cheryl, in the light of what the Minister said earlier, I would like to read precisely what was published by The Independent. I misinterpreted it and, consequently, I misled the Committee. I wish to apologise to him and to the Committee for that. This is what The Independent published in 2014:
“According to Electoral Commission records, New Century Media gave the Conservatives £85,000 in the months leading up to the 2010 general election…New Century represents the personal foundation of the Ukrainian billionaire Dmitry Firtash, who has been indicted on bribery and corruption charges, which he denies, in the United States…David Burnside, New Century’s executive chairman, has made…claims about his connections with senior Tories…The company has paid for a table at the last four Conservative summer balls and paid for…the International Development minister”—
who is now the Minister for Europe and the Americas—to be its guest
“at Conservative events at a cost of…£800”.
I am sorry. I misread it and misunderstood it, and consequently I misled the Committee.
The Chair
The hon. Lady has had the opportunity to put that on the record. If the Minister wants to add something, he may.
Sir Alan Duncan
May I thank the hon. Lady for her most gracious withdrawal, which sets the record straight? I appreciate the manner in which she did it.
Question put, That the clause be read a Second time.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It is good that we can continue proceedings, because there are many matters that we still need to consider, not least this new clause and the others on the selection list. I am grateful for the opportunity to do so.
New clause 17 requires a public consultation on corporate liability for money laundering within six months. We have already discussed what occurred with the Government’s evidence-gathering exercise—as I think they described it—in relation to a broader economic crime offence, and how the results of that exercise have been with the Government since last March. We still have no indication of how that will be dealt with, aside from the Economic Secretary’s helpful remark that it will be dealt with in due course. I know he always tries to be helpful, but I am afraid that that is not good enough for those of us who want to see change in this area.
We are specifically requesting a public consultation to get the process moving and to promote it, not least because of what the Government have committed to—or at least, what past Conservative leaders have committed to. In 2016, at the time of the anti-corruption summit, David Cameron wrote an article for The Guardian in which he claimed:
“In the UK, in addition to prosecuting companies that fail to prevent bribery and tax evasion”—
Sanctions and Anti-Money Laundering Bill [ Lords ] (Fifth sitting)
(6 years, 9 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Committee divided: - Ayes: 8 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 10 / Noes: 8 - Question accordingly agreed to.
The Chair
Before we resume line-by-line consideration, may I ask everyone to ensure that their electronic devices, including phones, are turned off or silenced? I remind hon. Members that Mr Speaker does not allow tea or coffee to be brought into Committee sittings.
Today’s selection list is available in the Committee Room and on the Bill website. It shows how the selected amendments—generally those on the same or a similar issue—have been grouped for debate. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules after debate on the relevant amendments.
Clause 44
Reports on progress towards register of beneficial owners of overseas entities
Question proposed, That the clause stand part of the Bill.
Helen Goodman (Bishop Auckland) (Lab)
It is nice to see you in the Chair again, Mr McCabe, in this much warmer Committee Room 12.
Clause 44 is a concession that the Government made in the other place because there was a lot of concern that they had not cracked on with making progress towards a register of beneficial owners of overseas entities—an extremely important part of the machinery for preventing money laundering. It is rather a pathetic clause, so the Opposition have tabled a new clause that would speed up the timetable, for reasons that I will explain when I move it. I want to register the fact that although we do not intend to vote against clause 44, we think it somewhat weak as a concession.
The Economic Secretary to the Treasury (John Glen)
As the hon. Lady says, clause 44 fulfils a Government commitment made at an earlier stage of the Bill in response to a call for clarity on our intentions for the delivery of a separate anti-corruption policy. My noble Friend Lord Ahmad of Wimbledon committed us to reporting on progress made on our policy to create a register of beneficial owners of overseas entities that own or buy property in the UK or that participate in UK Government procurement. We are committed to the register being operational in 2021.
The clause requires the Secretary of State to publish and lay before Parliament three reports on the progress made towards putting the register in place, each of which will be due after the expiry of a 12-month reporting period. The first and second reports must set out
“the steps that are to be taken in the next reporting period towards putting the register in place, and…an assessment of when the register will be put in place.”
The third
“must include a statement setting out what further steps, if any, are to be taken towards putting the register in place.”
The obligation to report to the House on progress reinforces the commitments on our timetable that the Government have given elsewhere.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clause 45
Crown application
Question proposed, That the clause stand part of the Bill.
The Minister for Europe and the Americas (Sir Alan Duncan)
Clause 45 allows sanctions regulations under clause 1 and regulations under clause 43 to make provision binding the Crown, but not to make the Crown criminally liable. It also stipulates:
“Nothing in this Act affects Her Majesty in Her private capacity”.
Both are common provisions in law. I commend the clause to the Committee.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Clause 46 ordered to stand part of the Bill.
Clause 47
Regulations: general
Helen Goodman
I beg to move amendment 39, in clause 47, page 34, line 33, leave out paragraph (a).
This amendment would remove paragraph 2(a) from Clause 47, which enables the appropriate Minister to amend, repeal or revoke enactments for regulations under section 1 or 43.
We return to the vexed issue of Henry VIII powers and the Government over-reaching themselves once again. I want to recount for the Committee what happened on this matter in the Lords. Lord Judge moved an amendment to leave out paragraph (a), because he was concerned that it was a Henry VIII provision. Our amendment covers the same issue. Lord Judge said that
“with Clause 44, there is no primary legislation at all...It just says, ‘Let’s give the Minister regulation-making powers for this, that and the other’...This is all being done on the basis of an unknown law, because the Minister has not yet brought the regulations into existence.”
One might say that clauses 47 and 48 are pure Henry VIII powers. They give Ministers the power to change this piece of legislation and other pieces of legislation in perpetuity before the regulations under the clauses have been made. This is perhaps slightly more difficult to understand than the problems with making new criminal offences by regulations, but it is wholly objectionable.
Lord Judge continued:
“In advance of the law being made by regulation, we are giving the Minister power to amend the regulations and to do away with statute. This is in a world where, as we discussed earlier, we already have the Terrorism Act, the Counter-Terrorism and Security Act, the Terrorism Asset-Freezing etc Act and the Proceeds of Crime Act…all of which bear on this Act, and all of which will be susceptible to amendment repeal at the Minister’s behest…the secondary will override the primary; and the Minister is in effect going to replace Parliament”.—[Official Report, House of Lords, 17 January 2018; Vol. 788, c. 718.]
It was not just the Cross-Bench peers who expressed concern about this. Viscount Hailsham, another Lord with a great deal of legal experience, also argued against it. He said:
“It could be used in amending, revoking or repealing existing legislation or to extend classes of offence to which the amended legislation applied. It could be used to increase penalties. It could be used to remove statutory defences. It could be used to amend the definition of criminal intent. Indeed, it could make absolute offences that presently require proof of a specific intent. Because it is an amending power, it could be used to give further powers to the investigating officials or to increase the penalties imposed by the courts.”—[Official Report, House of Lords, 17 January 2018; Vol. 788, c. 719.]
Lord Pannick, as everybody will recall, was the lawyer who ensured that article 50 was brought to Parliament rather than exercised through the royal prerogative, and he is a person with a strong commitment to this House. He argued that this excess of Henry VIII powers could lead to a point where,
“the courts are not prepared to accept them and are showing every sign that they will give them the narrowest possible interpretation because, as a matter of constitutional principle, they are objectionable”.—[Official Report, House of Lords, 17 January 2018; Vol. 788, c. 721.]
The Committee has gone over the argument about the problem with Henry VIII powers before, and we have debated it in the Chamber on the European Union (Withdrawal Bill.) People may begin to find it slightly boring, but we are debating it repeatedly because the Government have stuffed it into the Bill so many times. That is the problem, so we really need to persuade Ministers that it is excessive and we need to demonstrate how much they are going down that path.
Of course Ministers think, “When we write these regulations it will all be absolutely fine, because we are nice chaps. It will all be perfectly okay,” but they need to remember that they might not always be in power. Other Ministers might write regulations, about which the current Ministers might not be quite so enthusiastic. We need to be a lot more cautious. I do not understand why Minsters have structured the Bill in such a way. They should have put into primary legislation the overall structure for making regulations on both sanctions and anti-money laundering. Ministers are in an even weaker position on anti-money laundering than they are on sanctions.
There is a case for saying that individual sanctions must be made swiftly, and therefore having the negative resolution procedure for statutory instruments is common sense. We all understand that. However, I cannot fathom why Ministers have not said to the lawyers, “Can we please structure this so that we have the overall shape of the way these things work and the penalties in primary legislation?”, and Ministers could categorise them. They could say, “We will have a class A, a class B and a class C, and then we will name them quickly,” in the way that we do with drugs when people make new chemical formulae and we have to swiftly designate things. That would have got over the problem.
We started with clause 1(1), which states that Ministers may make sanctions regulations. Here we are, right at the end of the Bill, and the pattern is still the same. We still have the same problem.
Sir Alan Duncan
Amendment 39 would remove the power to make certain consequential modifications to existing primary and secondary legislation through regulations made under the Bill. Such power is not unusual. It is worth noting that the Delegated Powers and Regulatory Reform Committee made no comment on the inclusion of the delegated power in its report on the Bill. I recognise that concerns have been expressed—we have just heard them—about the breadth of the regulation-making powers conferred by the Bill. The consequential power is both appropriate and necessary, and I hope I can provide reassurance on that.
The power can be used only to make consequential provisions. It also enables other provisions that are supplemental, incidental or transitional, or that make savings to the sanctions or money-laundering regulations. It is important to note that it does not confer the power to make any changes to legislation that are independent of the sanctions and money-laundering power. For example, the power can be used to repeal frozen EU legislation saved by the European Union (Withdrawal) Bill, so when we use the powers in the Bill to replace a sanctions regime in frozen EU law with one in a statutory instrument, the power will enable the frozen EU law to be repealed even if all that has happened in practice is that the sanctions have been relabelled. Without the power we would be unable to do so without another Act of Parliament. I am sure hon. Members agree that that would not be a good use of parliamentary time and that it would be impractical.
The power simply provides a tool to make changes to ensure that the statute book works as a result of sanctions being imposed or anti-money laundering regulations created. It does not give the Government the ability to change swathes of legislation without regard to the purposes of sanctions and anti-money laundering.
I want to reassure hon. Members that any regulations made that use the power to amend, revoke or repeal any primary legislation would be required to use the draft affirmative procedure. That means both Houses would need to give their consent before the changes would come into effect, and it is fully in line with the standing advice of the Delegated Powers and Regulatory Reform Committee about the appropriate parliamentary procedure for such powers.
In other words, we know what these laws will be. They will be sanctions and anti-money laundering regimes of the types set out in the Bill and for the purposes listed in it. I hope that I have been clear that this power is appropriately limited to what is necessary, and that on that basis the hon. Lady will withdraw the amendment.
Helen Goodman
The Minister said that this power to amend primary legislation through regulations will apply only to sanctions and anti-money laundering; however, he did not and could not say, because it would not be true, that that will mean amendments only to this Bill. That is because sanctions and anti-money laundering offences are already covered by other pieces of legislation on the statute book. This will not be the one Act that says everything anybody ever dared to ask about sanctions and anti-money laundering. This is part of a large carpet, and it has been woven in, I feel, in a most unsatisfactory way. The principle is broken when Ministers take the power to make regulations that may amend primary legislation.
Sir Alan Duncan
May I point out that if there is an amendment to another Bill, it is because those offences would become out of date, and therefore these are consequential?
Helen Goodman
I am grateful to the Minister for that interjection. As I said, and as he has just admitted, this does affect other pieces of legislation. Even if that were not the case, the problem is an issue of principle. We are changing primary legislation with secondary legislation. That is what we find objectionable, and that is why I wish to test the will of the Committee on the amendment.
Question put, That the amendment be made.
John Glen
I beg to move amendment 8, in clause 47, page 34, line 38, leave out subsection (3) and insert—
“(3) Regulations under section 1 may amend the definition of “terrorist financing” in section 43(4) so as to remove any reference to a provision of regulations that is revoked by regulations under section 1.
(3A) Regulations under section 1 may amend the definition of “terrorist financing” in section 43(4) so as to add a reference to a provision of regulations under section 1 that contains an offence, but only if—
(a) each purpose of the regulations containing the offence, as stated under section1(3), is compliance with a UN obligation or other international obligation, or
(b) paragraph (a) does not apply but the report under section 2 in respect of the regulations containing the offence indicates that, in the opinion of the appropriate Minister making those regulations, the carrying out of a purpose stated in those regulations under section1(3) would further the prevention of terrorism in the United Kingdom or elsewhere.”
This amendment provides that regulations under Clause 1 may amend the definition of “terrorist financing” in the Bill to add a reference to an offence only where the purpose of the regulations containing the offence is compliance with a UN or other international obligation or a purpose related to the prevention of terrorism.
There are two purposes behind the amendment. The first is to allow us to update the definition of “terrorist financing” in regulations. The nature of terrorist finance has a tendency to change over time and it is important that we are able to update our counter-terrorism measures to take account of the changes. This will allow us to continue to maintain a robust counter-terrorism regime, while meeting our international UN obligations.
While that is crucial, we also seek to restrict the ability to add to the definition of terrorist financing in the second part of the amendment. The Government listened to the concerns expressed by noble Lords about the aims of the regimes and the need for a proportionate approach. Having engaged with noble Lords, we agreed to restrict the ability to add to the definition of terrorist financing. The definition may be changed only to comply with international obligations or to further the prevention of terrorism, as set out in the clause. If the amendment were not agreed to, we would be unable to update our terrorist finance regime to respond to changing events.
Helen Goodman
Of course, nobody thinks that we should not have effective measures to tackle terrorist financing. That is plain and there is an obvious consensus about that. There are two questions. First, is this the appropriate way to go about it? Secondly—I would like the Minister to elucidate on this a little further—could the Minister give us some examples of the kind of changes to terrorist financing, that are not caught at the moment, but that could be dealt with in regulations as the issues arose?
John Glen
I am grateful for that challenge. As I set out, the Government would only amend the definition when necessary to meet UN obligations to further the prevention of terrorism. The clause is designed just to give the scope to amend the definition of terrorist financing.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is good to be here with you in the Chair, Mr McCabe. My reading of the Government amendment—maybe I have interpreted something wrong—is that it says,
“or a purpose related to the prevention of terrorism.”
John Glen
As I was about to say, the Government will be allowed to amend the definition only if it is necessary to continue to meet our new UN obligations or if it would further the prevention of terrorism in the UK or elsewhere.
The hon. Member for Bishop Auckland asked me to speculate on potential uses. That is difficult to do, by the very nature of these things, but, for example, we are seeing the use of cryptocurrencies such as Bitcoin. It may be that there is potential risk associated with that and there may be a need to include that, but I am making a speculative observation. It would depend on the circumstances, and what other jurisdictions and the UN were bringing forward.
Amendment 8 agreed to.
Question proposed, That the clause, as amended, stand part of the Bill.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to see you in the Chair, Mr McCabe.
I would like to reiterate the concerns that I raised on Second Reading about the overruling of any Acts made by the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly. I have a solution to this, to some degree, in amendment 37. That is coming up, so I will speak about it more then. However, I am deeply concerned that UK Ministers are being empowered in this Bill to make changes to devolved legislation without the involvement or the permission of the Scottish Government or the Scottish Parliament. That is deeply concerning. If not this Government, it makes future Governments capable of amending Acts of another Parliament and I remain deeply concerned about that.
Sir Alan Duncan
The hon. Lady’s fears are utterly unfounded. I do not think there are any such examples. These are reserved matters, so changes are for this Parliament. The question of overriding the devolution settlement simply does not apply to this clause or to the Bill.
Question put and agreed to.
Clause 47, as amended, accordingly ordered to stand part of the Bill.
Clause 48
Parliamentary procedure for regulations
Helen Goodman
I beg to move amendment 40, in clause 48, page 36, line 1, leave out paragraph (d).
The Chair
With this it will be convenient to discuss new clause 7—Parliamentary committee to scrutinise regulations—
“(1) A Minister may not lay before Parliament a statutory instrument under section 48(5) unless a committee of the House of Commons charged with scrutinising statutory instruments made under this Act has recommended that the instrument be laid.
(2) The committee of the House of Commons so charged under subsection (1) may scrutinise any reviews carried out under section 27 of this Act.”
This new clause would require a specialised House of Commons Committee to approve all statutory instruments laid under the affirmative procedure under this Act. The Committee would also scrutinise the Government’s reviews of sanctions regulations.
Helen Goodman
The clause relates to parliamentary procedure for regulations. Amendment 40 distinguishes between regulations relating to anti-money laundering and those relating solely to sanctions. As I have said in relation to other amendments and clauses, there is a question of whether it is appropriate, in the case of anti-money laundering measures, to use the swift regulatory approach, which does not give either House the opportunity to make changes to the regulations. Although it is proposed that the affirmative procedure be used at this point in the Bill, that does not give us the opportunity to amend. We feel that the Government have not made their case for going down this path. We think it would be better to use the super-affirmative procedure as a bare minimum. There was cross-party consensus on that in the Lords—it was not complete, obviously, which is why the proposal is still in the Bill.
New clause 7 would enable us to create a new Committee of the House. One of the problems with what the Government are doing in the Bill is that they are reducing the amount of scrutiny of regulations on sanctions. We have discussed that issue before. For UN sanctions, the same process—Delegated Legislation Committees and the negative resolution procedure—will be followed, but at the moment EU sanctions go to the European Scrutiny Committee and there is a scrutiny reserve. We will lose that part of the machinery. With this new clause, we seek not simply to replace but to enhance and strengthen that piece of the machinery.
In the European Union (Withdrawal) Bill, we agreed that there should be a sifting Committee of the House, which will decide, for any piece of delegated legislation, whether it is appropriate to use the negative procedure or the affirmative procedure. For sanctions, we all agree that we sometimes have to act quickly and use the negative procedure, so the affirmative procedure clearly would not be appropriate.
I am concerned about the use of Delegated Legislation Committees. I am sure that every member of the Committee will agree that they are the lowest form of parliamentary life; they are the weakest form of parliamentary scrutiny. They are pulled together, people often do not turn up to them, people do not read the papers and the papers are not given to the Opposition Front Bench spokesperson more than two days before. Again, there is no possibility of amending the substance of the measures being considered. Because every single Delegated Legislation Committee is a new Committee, no expertise is built up; there is no institutional memory.
One of the things that we kept being told during the referendum campaign was that we were going to take back control and have parliamentary sovereignty. Accepting the amendment would be a way of strengthening Parliament. It would provide a way for Parliament to structure things, to build up some expertise in this important policy area, to learn from experience and to bring the experience of one situation to the next situation.
It would also be sensible, obviously, for the new Committee to be the Committee that looks at the reviews that the Government have agreed to prepare annually for the House under clause 27. I take the Committee back to clause 27, which sets out that annual reviews will be carried out to consider the effectiveness of sanctions.
At the moment, there is not really a Select Committee that has an overarching view of sanctions policy. There is no Select Committee in this House that examines sanctions policy on a regular basis. That is partly because—
Sir Alan Duncan
There is the European Scrutiny Committee, which looks at every single sanction and every piece of legislation coming from the EU. There is a formalised procedure for that sort of thing.
Helen Goodman
First, we are going to lose that Committee under what Ministers are proposing. Secondly, the European Scrutiny Committee is not a Select Committee. Thirdly, that Committee does not look at the UN-based sanctions, which, as the Minister knows, make up half the sanctions we impose.
Sanctions encompass many things: foreign policy objectives, which is why the Minister for Europe and the Americas is leading for the Government on this Bill; financial measures, which is why we have a Treasury Minister on the Committee; trade measures; and travel bans. Because of that, many Departments are involved with sanctions and therefore many Select Committees have an interest in them, but at the moment we do not have a regular review of sanctions policy by everybody.
It might be possible to set up such a scrutiny Committee on a similar basis to the Committees on Arms Export Controls, which have people from a number of different Select Committees bringing their different expertise to a subject. However, I thought that that would be rather too complex and, in any case, it would not be something that one would legislate for in a Bill; it would be a matter for the Standing Orders of the House.
What we would do is to agree that we wanted to improve scrutiny—that is what the whole Brexit thing is all about—and improve the standing and the role of the House. Then, we could consider the detail as to whether we wanted the Committee to be free-standing or a sub-committee of other Committees when we came to amend the Standing Orders of the House.
Both the amendment and the new clause are designed to strengthen Parliament, to strengthen parliamentary sovereignty and to bring back control.
Sir Alan Duncan
Before I speak to the two amendments in this group, perhaps it would be helpful if I restated the Government’s case for the approach we are taking—the parliamentary procedures for secondary legislation under this Bill.
The Government recognise that it is important that Parliament scrutinises the use of sanctions and that this Bill allows for such scrutiny. A set of regulations dealing with UN sanctions regimes will be made under the negative procedure. Once sanctions are agreed at the UN Security Council, the UK has an obligation to implement them under the UN Charter. Not doing so would leave the UK in breach of international law.
A set of regulations that do not deal with UN sanctions regimes will be made under the made affirmative procedure. That will allow regimes to come into force immediately, while still allowing Parliament to debate the regulations. That will negate the risk that, before any restrictions take effect, assets are removed, individuals leave or enter the UK, or arms or other prohibited goods are exported to countries that they should not be. It negates that risk.
Helen Goodman
I do not think the Minister or the officials have understood what the new clause aims to do. It would not change the process or whether the negative, made affirmative or draft affirmative procedure was used for a statutory instrument; it would change the group of people who looked at it, so that we build up some expertise on the matter among parliamentarians across the House.
Sir Alan Duncan
Let me come to the detail of the amendments in a second. I am just outlining the principles behind the Bill and its context.
At present, anti-money laundering regulations are transposed into UK law through the negative procedure in section 2(2) of the European Communities Act 1972. Under the Bill, the vast majority of anti-money laundering regulations will be made using draft affirmative procedures, so parliamentary scrutiny will be increased in that regard. Both the Delegated Powers and Regulatory Reform Committee and the Constitution Committee accepted in their reports on the Bill that the use of delegated powers for sanctions is appropriate. The DPRRC thought that it is
“appropriate for this mechanism to operate through the exercise of delegated powers”.
The Constitution Committee confirmed that and thought that,
“In practice, a delegated powers model is inevitable, given the practical difficulties that would arise if Parliament had to legislate to create and amend individual sanctions regimes.”
Amendment 40 would delete subsection (5)(d) and so remove the reference to regulations made under clause 43 being made under the draft affirmative procedure, in all but narrowly defined circumstances. The effect of that—which I assume is not hon. Members’ intention—would be to reduce parliamentary scrutiny over future money-laundering regulations after the UK ceases to be a member of the EU.
Money-laundering regulations, most recently those that came into force last year, are typically made through the negative procedure. They do not usually require a debate or vote in this House or the other place before coming into force. To enhance scrutiny after the UK ceases to be a member of the EU, subsection (5)(d) provides that substantive changes to money-laundering regulations made under the Bill will be made through the draft affirmative procedure. That will require all such regulations to be debated and voted on by Parliament before coming into force.
The only exception is when the UK is updating the list of high-risk jurisdictions in connection with which enhanced due diligence measures are required. Changes to the list will be made via the made affirmative procedure, as set out in subsections (2) and (3). Again, that will enhance parliamentary scrutiny. Changes to the list are currently made at EU level. If accepted, the amendment would require most regulations under clause 43 instead to be made under the negative procedure, as is provided for clause 48(6). That would weaken parliamentary scrutiny under the Bill as drafted.
New clause 7 would require secondary legislation introduced under subsection (5) to receive the approval of a new House of Commons Committee before being laid before Parliament. I do not think that is necessary, because the new clause would apply to all regulations made using the draft affirmative procedure. Such regulations will be scrutinised directly by Parliament when they are made, as both Houses would need to give consent before they could come into force, thereby negating the need for a scrutiny Committee to look at any of them first.
Were parliamentarians to object, they could reject the regulations. That would force the Government to lay a new instrument, taking into account any concerns that had been expressed. The EU withdrawal Bill is an exception because of the very large volume of statutory instruments that will need to be passed under it in a very short space of time, ahead of the day the UK leaves the EU. That is why a Committee with such a sifting function is appropriate for the powers in that Bill. The same does not apply to the powers mentioned in the new clause. There will not be nearly as much secondary legislation to pass via the draft affirmative procedure. Given that, and together with the points I made on amendment 40, I ask the hon. Lady to withdraw her amendment.
Helen Goodman
I am grateful to the Minister for that explanation. Of course, improvements were made to the Bill in the other place in response to criticisms, and some processes were upgraded from the negative procedure in the original draft to the affirmative procedure in the Bill before the Committee. I do not wish to press amendment 40, but we will wish to press new clause 7 to the vote. I shall explain why, even though we are going to vote on it. First, it is for this House to decide on our processes. We would not dream of telling the other House how to run its affairs. What the Delegated Powers and Regulatory Reform Committee or Constitution Committee in the House of Lords say does not cover procedures in this House. They are our responsibility. The Minister said there would be far fewer statutory instruments under this Bill, but he has given us no estimate. Does he have any sense of the number of statutory instruments that might come forward? Perhaps he will benefit from inspiration before I sit down, so that he can intervene and tell me what he expects.
Sir Alan Duncan
Our estimate of the regimes that will have to be transferred at the moment is in the region of 33.
Helen Goodman
Thirty-three whole regimes is quite a chunky number, is it not? That is not 33 individuals; it is 33 regimes. Of course, I was extremely concerned about the way that the EU withdrawal Bill looked, as were many Members. However, in one respect the problem is greater in this Bill. This is a Bill with permanent powers; the EU withdrawal Bill is one with temporary powers. Therefore, when we come to the right moment, we will wish to put new clause 7 to a vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Alison Thewliss
I beg to move amendment 37, in clause 48, page 36, line 5,
‘(5A) A statutory instrument containing regulations under section 1 that repeals, revokes or amends—
(a) an Act of the Scottish Parliament,
(b) a Measure or Act of the National Assembly for Wales, or
(c) Northern Ireland legislation,
must receive the consent of the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly, respectively.”
This amendment would require the UK Government to obtain the consent of the devolved administrations before repealing, revoking or amending devolved legislation using a statutory instrument containing regulations under section 1.
As I mentioned before, in this Bill the Government have given themselves the capability—although it is not necessarily their intention—to amend devolved Acts. It is not necessarily that the Government will do that, but we need to be mindful that future Governments may choose to. We cannot foretell exactly what the future will hold. In its response to the consultation on this issue, the Law Society posed the question about whether the Government have consulted the devolved Administrations and for what purpose the measure is in the Bill. Although the Government have given themselves this power, they have not explained the circumstances in which they might need to use it. If they say that nothing in the legislation has to do with the devolved Assemblies, why are they giving themselves the power to revoke devolved Assemblies’ legislation, when they would not have any competence to do so? It does make any sense that they would put something in the Bill if they have no intention or need to use it.
I would also like to know—given that the Government have not explained this either—the circumstances in which they would want to override devolved legislation and why they feel a consent provision such as the one I am suggesting is not appropriate. If the Government believe that devolved legislations have no power in this area anyway and would therefore not be legislating in it, why have they put the capability of amending devolved Acts within the scope of this Bill? Would the Minister also explain why our consent provision would be considered inappropriate? That has not been explained up to this point, or during deliberations in the Lords. I have read some of the background, and Baroness Northover and Baroness Sheehan did not quite understand the need for what the Government propose either, so I would be grateful if they made more information available. It is not clear to me, and, as I mentioned previously, this provision strikes me as a power grab, and an unnecessary one at that.
Sir Alan Duncan
If I can set this out again to the hon. Lady’s satisfaction I hope she will draw a conclusion. Under the UK’s constitutional settlement, matters of foreign policy are reserved to Westminster. This Bill will provide the UK Government with powers to be used in pursuit of the UK’s foreign policy as well as to ensure that our national security is intact and to deal with money laundering. The Bill therefore relates to matters that are accordingly reserved. The devolved Administrations were consulted during the Bill’s preparation, and they have not disagreed with our assessment that the Bill deals with a reserved matter. Amendment 37 would mean that the consent of the relevant devolved Administration was required for any sanctions or anti-money laundering regulations that made a consequential repeal, revocation or amendment to any law created by the devolved Administrations. This would effectively give devolved Administrations veto rights over legislation relating to UK foreign and security policy, or to anti-money laundering policy. That is contrary to the established devolution settlement between Westminster and the devolved legislatures.
With regard to regulations under the Bill, any amendment to laws created by devolved Administrations would only arise as the consequence of the sanctions or money laundering measures under the Bill. Regulations cannot make free-standing changes to devolved legislation. Their primary purposes will always be a reserved matter. Such consequential amendments are entirely consistent with the constitutional settlement, and it would not be consistent with our devolution settlement to give the right of veto to devolved Administrations. Given that the effect of this amendment would be to rewrite the devolution settlement without consulting other devolved Administrations or seeking their consent, I do not agree with it and I urge the hon. Lady to withdraw the amendment.
Anneliese Dodds
We have had an interesting exchange of views. The Minister, however, did not explain a couple of things that would be helpful for the Committee to understand. He indicated that there was consultation with the devolved Governments, but did not spell out what kind of arrangements he anticipates in future that might fall short of the requested veto but that could constitute consultation. This is important, because we have just been talking about the fact that money-laundering regulations in particular span a range of Government issues, not all of which are reserved. They cut across a number of different powers and it would be helpful to know whether, for example, he anticipates that these matters would be part of the ongoing dialogue between the Westminster Government and the devolved Governments, and whether there is regular exchange of information.
The Committee has discussed SLPs, and there is huge concern about whether there is sufficient action in Westminster on that. Devolved Administrations have raised the issue, and it would be interesting to know whether that was part of a structured dialogue or whether it was something that occurs in an ad hoc way, and how the Minister anticipates that developing in the future.
Sir Alan Duncan
We have continuous discussions with the devolved Assemblies and, of course, with Scottish Members of this House. Once again, I must make it clear that clause 48 is focused entirely on reserved matters, so it does not affect our devolution settlement in any way, whereas the amendment moved by the hon. Member for Glasgow Central most certainly does.
Alison Thewliss
I am not certain that the Government have answered my points. I can buy what the Minister of State says about sanctions and foreign policy, but Scotland and the Scottish Parliament may have something to say about the money-laundering part. I am concerned that the case has not yet been made for the power grabs in the Bill. Why include powers to overrule Scotland on something that it cannot do in the first place? That is just not logical.
I do not intend to press amendment 37 to a vote at this stage, but I would like the Government to consider the matter further; we might raise it again on Report.
Luke Graham
Opposition Members have spoken about power grabs, and hon. Members who are not Scottish have raised issues relating to devolved Administrations, but we need to be really clear that this is a reserved area, that there is ongoing dialogue and that Scotland has a voice here in Scottish MPs. That is why we are part of Westminster, which is our Parliament as much as Holyrood is. We need to make it very clear that we are having a discussion, but these powers are reserved.
Luke Graham
I will not. These powers are reserved. This is not a power grab; it is a reserved matter. Devolution does not mean “separate”. We are in conversations, and Scotland has a strong voice here in its Members of Parliament.
Alison Thewliss
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 48 ordered to stand part of the Bill.
Clauses 49 and 50 ordered to stand part of the Bill.
Schedule 3 agreed to.
Clauses 51 to 53 ordered to stand part of the Bill.
Clause 54
Extent
Helen Goodman
I beg to move amendment 41, in clause 54, page 41, line 6, leave out “may” and insert “must”.
The Chair
With this it will be convenient to discuss the following:
Amendment 42, in clause 54, page 41, line 16, leave out “may” and insert “must”.
Amendment 43, in clause 54, page 41, line 22, leave out “may” and insert “must”.
Amendment 44, in clause 54, page 41, line 25, leave out “may” and insert “must”.
Helen Goodman
Clause 54 defines the territorial extent of the Bill. I did not include an explanatory statement for amendments 41 to 44 because I thought their effect so obvious that it did not need further explanation.
In the sanctions part of the Bill, at the moment, Ministers may, by Order in Council, provide for any of the provisions to the Channel Islands, the Isle of Man and the British overseas territories, whereas the amendment would require an Order in Council to extend the provisions to the Channel Islands, the Isle of Man and any of the British overseas territories. We are obviously making the distinction that the Minister made earlier between Her Majesty in her personal role and Her Majesty as the Crown, which is the representative of the Executive. We think that it is appropriate to extend the sanctions part of the legislation in this way.
I am sure that Ministers have looked at the draft EU withdrawal document produced by the EU Commission last week, but in case not every member of the Committee has done so, I would like to draw their attention to article 3 on territorial scope:
“1. Unless otherwise provided in this Agreement or in Union law made applicable by this Agreement, any reference in this Agreement to the United Kingdom or its territory, shall be understood as referring to:
(a) the United Kingdom;
(b) the Channel Islands, the Isle of Man, Gibraltar and the Sovereign Base Areas of Akrotiri and Dhekelia in Cyprus to the extent that Union law was applicable to them before the date of entry into force of this Agreement;
(c) the overseas countries and territories listed in Annex II to the TFEU having special relations with the United Kingdom, where the provisions of this Agreement relate to the special arrangements for the association of the overseas countries and territories with the Union.
2. Unless otherwise provided in this Agreement or in Union law made applicable by this Agreement, any reference in this Agreement to Member States, or their territory, shall be understood as covering the territories of the Member States to which the Treaties apply as provided in Article 355 TFEU.”
Then there is a footnote to list the overseas countries and territories that have that special relation with the United Kingdom:
“Anguilla, Cayman Islands, Falkland Islands, South Georgia and the South Sandwich Islands, Montserrat, Pitcairn, Saint Helena and Dependencies, British Antarctic Territory, British Indian Ocean Territory, Turks and Caicos Islands, British Virgin Islands and Bermuda.”
This Bill is a Brexit Bill. We are trying to have new provisions that apply to the United Kingdom post-Brexit. It is absolutely clear that when we leave, the Channel Islands, the Isle of Man, Gibraltar and all the overseas territories will also be affected as set out in that draft agreement. Many things in the Commission’s draft were controversial and were challenged and questioned, but the territorial extent was not one of them. It seems reasonable to enable us to move from a situation where Union law applies in the existing way to the Crown dependencies and the overseas territories, and not to set up a situation where we have great big loopholes.
This raises a question for Ministers. At the moment, European law applies to the United Kingdom, the Channel Islands, the Isle of Man and Gibraltar. There is still a question mark over Ministers’ intentions with respect to the fifth anti-money laundering directive. Although my amendment applies to the sanctions part of the Bill, it raises the question of whether Ministers plan to accept the contents of the fifth anti-money laundering directive. The UK is ahead in some respects, but not in all, and clearly the Crown dependencies and the overseas territories are not ahead. I wish to tease that matter out with this series of amendments.
Sir Alan Duncan
I suppose the overarching point is that Brexit will change the UK’s relationship with the EU; it is not designed to change the UK’s relationship with its overseas territories and Crown dependencies. The starting point is that EU law applies to a certain extent to Crown dependencies and overseas territories, but not entirely. Currently, overseas territories are not bound to apply EU sanctions, but choose to do so to ensure alignment with the UK’s foreign policy.
Let me explain that in more detail. As I said last Tuesday, the UK is responsible for the foreign affairs and security of the Crown dependencies and overseas territories. That is the constitutional position. However, another important constitutional point is that our long-standing practice is that we do not generally legislate for these jurisdictions without their consent, except in exceptional circumstances. Sanctions are tools of foreign policy, or are used to protect our national security. We have been clear that the overseas territories and Crown dependencies must follow the UK Government’s foreign policy, including the sanctions that we apply.
Currently, there are two ways in which sanctions are implemented by the overseas territories and Crown dependencies. The UK legislates directly for the majority of these jurisdictions, with their consent, through Orders in Council. Other jurisdictions choose to legislate for themselves, but they follow precisely the sanctions implemented in the UK. That model is well established, and respects the rights of the jurisdictions. The Bill is drafted in a way that reflects that reality. It is consistent with the current implementation model for UN and EU sanctions, as well as measures under the Terrorist Asset-Freezing (Temporary Provisions) Act 2010. It allows those jurisdictions that choose to follow UK sanctions through their own legislation to continue to do so. It also allows the UK to legislate directly for certain overseas territories, where they choose.
I do not see the Bill as the right place to change those long-standing constitutional arrangements, nor do I see a compelling case for doing so at all. I am sure that hon. Members would not wish to jeopardise the achievements that friendly co-operation with these jurisdictions has already made, nor would they seek to disenfranchise those territories that have chosen to legislate for themselves. On that basis, I urge the hon. Member for Bishop Auckland to withdraw her amendment.
Helen Goodman
The Minister has set out the position in principle; he has not given any examples. Let me put it like this: if they always do what we want them to, why do we not just have an automatic system? What is the value of the divergence? That is the obvious rejoinder, but I feel that perhaps this is not the right way, and the right place, to deal with this matter, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 54 ordered to stand part of the Bill.
Clause 55
Commencement
Helen Goodman
I asked the Minister about commencement last week and he did not have a clear answer. I hope he has had time over the weekend to think about the issue and can now explain the Government’s plan to us. While it is perfectly acceptable, normal and understandable, when dealing with some real technicality, to rely on officials, commencement is something for which Ministers themselves are responsible—how the Bill’s commencement provisions will interrelate with our withdrawal from the European Union, and whether the intention is to implement the sanctions on 1 April 2019, to wait until 1 January 2020—the projected end of the transition period—or to implement them at some other time.
I am concerned that, in looking at the Bill, thinking about what they wanted to do, and considering how this interrelates with everything else in EU withdrawal, Ministers did not seem to have a clear plan—last week, at any rate. They do not appear to have thought through what they are trying to achieve with these negotiations. It is all very well to say, “It’ll all come out in the wash and we’ll find out in the end,” but that puts us very much in the position of being recipients of whatever the European Union, from on high, prefers to give. I would have thought that Ministers would have an objective, and how they wanted it to happen. We need more clarity from the Minister, not on subsection (1) which covers sections 44 to 56, but on the earlier parts of the Bill. What is his plan?
Sir Alan Duncan
This clause sets out when the Act will commence. It is not part of the negotiations we are currently having with the EU, which are, of course, still a matter of negotiation. I urge the hon. Member for Bishop Auckland to appreciate that what we debating here is the detail of this particular Bill.
Clauses 45 to 49 and 51 to 56 will come into force on the day on which the Bill becomes an Act of Parliament. Those clauses make up part 3 of the Bill, dealing with supplementary provisions, definitions and final provisions, with the exception of clause 50 which deals with consequential amendments and repeals. The remaining clauses will come into force on a day appointed by the Secretary of State, who may allow for clauses to commence on different days. That will enable the Secretary of State to commence the other clauses when required. With that flexibility—which I hope the hon. Lady appreciates— I urge that clause 55 stand part of the Bill.
Helen Goodman
The Minister has not given us a plan; he has not said how he sees this panning out, and he has not even made it clear whether the Secretary of State will implement chapters 1 to 5 on the same day, or on multiple days. I think we need to test the view of the Committee.
Question put, That the clause stand part of the Bill.
Sir Alan Duncan
I beg to move, That the clause be read a Second time.
In view of the debate in the other place I will discuss the new clause in some depth, which I hope will satisfy the Committee. I apologise in advance for speaking at length, but this matter exercised the other place in considerable detail and I feel duty bound to give a proper in-depth explanation.
We debated the offences provisions in the Bill in an earlier sitting, and I recognise the concerns raised by hon. Members about returning control to Parliament. We have listened to the concerns raised here and in the other place by Lord Judge and others, and the new clause is intended to address them directly. As I mentioned in a previous sitting of this Committee, we have had meetings with Lord Judge and others, and my officials and I continue to make this offer. We are happy to meet hon. Members to answer their questions about the new clause and previous discussions.
It might be helpful if I remind hon. Members that the new clause proposes nothing new. Offences are regularly provided for in secondary legislation made under the European Communities Act 1972 by the negative procedure. Every current sanctions regime involves offences that are set out in the secondary legislation relating to that regime. None of the maximum penalties that we are providing for in the Bill are new. They reflect maximums provided for in existing secondary legislation relating to sanctions. However, the new clause recognises that concerns were raised in the other place and ensures that Ministers do not use the powers without good reasons, and that Ministers inform Parliament about the use of the powers so that they can be properly held to account.
The new clause will require the appropriate Minister to lay a report in Parliament whenever a sanctions regime includes criminal offences. The report will confirm that Ministers consider there are good reasons to do so and will set out what those reasons are. The clause specifies what elements should be included in the report, and I will address those in more detail in a minute.
I am sure that we all agree, as was the consensus in the other place, that sanctions are crucial to fulfilling our UN obligations and are a useful foreign policy and national security tool. To be effective, they must be enforced robustly, and those who breach sanctions must face the consequences—for example, it seems appropriate that those contributing to North Korean weapons proliferation should face financial penalties and criminal prosecution for their actions. In April 2017, the UK used the Policing and Crime Act 2017 to increase, using secondary legislation, the maximum sentences available for those who breach sanctions. We drafted this Bill with a view to continuing that practice, but were met with resistance in the other place on constitutional grounds. On Report, Lord Judge tabled an amendment that removed criminal offences provisions from the Bill, asking the Government to think again about the appropriate level of parliamentary oversight on criminal offences.
We accept that the powers of the Executive to create criminal offences and regulations should be subject to appropriate parliamentary scrutiny and we have carefully considered what we can do here. One option we considered was putting all criminal offences in the Bill, but that is both difficult and impractical, as was recognised by the House of Lords Delegated Powers and Regulatory Reform Committee. Setting out the detail of the criminal offences in the Bill solely by reference to the powers under which sanctions regulations will be made would risk producing the wrong results. We would be creating criminal offences about prohibitions and requirements that have not yet been set.
Trying to set out the offences in primary legislation would risk producing offences and penalties that are defective or disproportionate, or both. That would also run counter to the general principle that provisions creating criminal offences should be precisely drafted and clear in their effect, and would not provide the necessary flexibility to respond to fast-moving international events and changing sanctions regimes. For example, we may need a new criminal offence if the UN adopts a new type of sanction to curtail the North Korean regime, which is entirely plausible as the North Korean sanctions regime has gone significantly further than any regime has gone previously, and it is entirely possible that it will continue on that trajectory. It is important that we can implement the sanctions without gaps in our ability to enforce them.
We also considered whether criminal offences relating to breaches of sanctions could be dealt with in their own separate regulations, which could be considered by Parliament in slower time than regulations that contain the sanctions themselves. However, I am sure that Members will appreciate that that is also unworkable because it would mean that, for a period of time, there would be no criminal penalties for breaches of sanctions and people could breach them with impunity.
After much consideration, including meetings with Lord Judge, we proposed that the Government should have to consider whether there were good reasons for creating offences and setting penalties and explain their rationale to Parliament in relation to every offence and penalty in every individual sanctions regime. The new clause and the resultant reports will ensure that the Government must properly consider that there are good reasons for any offences and penalties and justify those decisions in detail to Parliament.
As I said, the new clause indicates what should be included in the report to Parliament: first, the offences and the prohibitions or requirements to which they refer; secondly, the good reasons that the Minister has considered that justify why breaches of those prohibitions or requirements need to be criminal offences; thirdly, the maximum prison terms for any offences created that are punishable by imprisonment; and finally, the good reasons that the Minister considers justify setting the maximum sentences of imprisonment at the level they have been set. That will largely involve replicating the offences and penalties that currently exist in relation to existing sanctions. Where the Minister is using offences and penalties that already exist in law as a precedent, the report must identify the existing offences to Parliament.
Putting offences in secondary legislation is nothing new. The report would give Parliament the opportunity to scrutinise offences and regulations to a greater extent than currently. Importantly, it would give Parliament greater opportunity to scrutinise sanctions regimes than it has while we are in the EU. The new clause would hold the Government accountable to Parliament, ensuring that new criminal offences for sanctions can be questioned following the report.
To clarify, and in response to comments from the hon. Member for Bishop Auckland on the first day in Committee, the enforcement provisions in the Bill do not create Henry VIII powers. Henry VIII powers would allow the Government to alter primary legislation by statutory instrument. The enforcement provisions in the Bill just enable the Government to provide appropriate criminal penalties in secondary legislation. For example, the North Korea regime statutory instrument may say something to the effect that a person who contravenes any of the prohibitions or requirements and regulations commits an offence.
Helen Goodman
That was an extremely useful explanation. We feel that the new clause is a significant step forward, and deals well with some of the issues raised in the other place. We are happy for it to be added to the Bill.
Question put and agreed to.
New clause 3 accordingly read a Second time, and added to the Bill.
New Clause 4
Duties to lay certain reports before Parliament: further provision
(1) In this section “a reporting provision” means section 2(4), (Report in respect of offences in regulations)(2) or 40(2) or paragraph 20A(2) of Schedule 2 (duties to lay before Parliament certain reports relating to regulations).
(2) Where more than one reporting provision applies in relation to particular regulations under section 1, the reports to which those provisions relate may be contained in a single document.
(3) If a reporting provision is not complied with, the appropriate Minister who should have complied with that provision must publish a written statement explaining why that Minister failed to comply with it.
(4) Subsection (5) applies where a reporting provision applies and—
(a) a statutory instrument containing the regulations concerned, or
(b) a draft of such an instrument,
is laid before the House of Commons and House of Lords on different days.
(5) Where this subsection applies, the reporting provision in question is to be read as requiring the laying of a copy of the report to which that provision relates—
(a) before the House of Commons at the time the instrument or draft mentioned in subsection (4) is laid before the House of Commons, and
(b) before the House of Lords at the time that instrument or draft is laid before the House of Lords.—(Sir Alan Duncan.)
This new clause enables certain reports relating to regulations to be combined in one document, requires a written statement to be made by the Minister if certain reporting requirements are not complied with, and clarifies how those requirements apply.
Brought up, read the First and Second time, and added to the Bill.
New Clause 1
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 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 by 1 January 2020.
(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).—(Helen Goodman.)
This new clause would require the Secretary of State to take steps to ensure the governments of specified British overseas territories introduce public registers of beneficial ownership of companies.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 8—Public registers of beneficial ownership of companies in the British Crown Dependencies—
(1) For the purpose of preventing money laundering, the Secretary of State must consult with the authorities of governments in each Crown Dependency on establishing a publicly accessible register of the beneficial ownership of companies registered in their jurisdictions.
(2) Within 6 months of this Act being passed, and every 12 months thereafter, the Secretary of State must report to Parliament on progress within the Crown Dependencies on establishing registers as referred to in subsection (1).
(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).”
This new clause would require the Secretary of State to consult with the governments in each Crown Dependency about introducing public registers of beneficial ownership of companies in the Crown Dependencies, and to report to Parliament on the progress of establishing such registers.
Helen Goodman
The issue of the secret jurisdictions of the Crown dependencies and the overseas territories is extremely vexed. The Opposition are disappointed by what has happened, because we felt that considerable progress was made under David Cameron’s Administration on this matter. There are no Liberal Democrats on the Committee—they normally take credit for anything positive that happened when David Cameron was Prime Minister—but my impression from talking to Conservative Members is that many of them were strongly supportive of what the then Prime Minister promised.
I will remind hon. Members what was promised, go through what has happened and the current state of play, say something about why it matters, and then say something about both the counter-arguments and what we are proposing. The Government of the day committed to implementing a central registry of company beneficial ownership information at the G8 conference in Lough Erne in June 2013. It was truly a British initiative; I was criticised on Second Reading for not giving David Cameron credit, but I am not going to fall into that trap today.
The Companies House register contains information on people with significant control, meaning individuals who hold more than 25% of a company’s shares or voting rights. The Department for Business, Innovation and Skills published details of its intention to create such a register in a discussion paper called “Transparency and Trust” and then made a call for evidence. The Government passed the relevant primary legislation—the Small Business, Enterprise and Employment Act 2015—at the end of March 2015 and the new register went live in 2016.
The new register is very interesting. Searching for information at Companies House used to involve trolling through lots of papers without finding anything of interest, but now that we can see who is controlling companies, we can spend a very interesting hour finding out who owns what—we are all interested in companies in our constituencies. The register is not perfect, as will become evident when we debate other Opposition new clauses—there is no process for checking information, and 10% of the 4 million companies have not submitted the information—but it is a big, helpful step forward none the less.
In parallel with the new register, the then Prime Minister wrote to the overseas territories to encourage them to consult on a public registry and look closely at what we were doing in this country. Whereas progress in this country has been good, albeit not perfect, progress in Crown dependencies and overseas territories has been extremely limited. Let me explain the very different situations in each place.
In the British Virgin Islands, legislation is in place and a registry exists, but it is not public—a big weakness. There is information sharing with five or six regulatory or prosecuting authorities in this country, including the National Crime Agency, the Serious Fraud Office and Her Majesty’s Revenue and Customs. Those organisations can phone up and say, “We are suspicious about Bloggs, the Member for Salisbury South.”
Helen Goodman
Yes, indeed. Our authorities can ask the BVI registry to check what is going on, which I understand has been quite helpful. However, unlike our register, the BVI registry is not public, which means that our authorities are not allowed to go on fishing expeditions; they need a reason to ask for information. The problem is that they cannot see the full pattern of ownership. That can make it very difficult to work out what is going on, because people involved in money laundering set up extremely complex structures and relationships. In other areas of organised crime, the NCA maps nodal interconnections, which helps it to find criminals, but a secret register makes that impossible.
Another relevant point is which EU list people are on—whether they are on the greylist, or whether they are not on the list, for lacking transparency. The BVI were given more time in order not to be on the greylist.
The situation in the Cayman Islands is similar. We have an exchange of beneficial ownership information—a central register—but it is done in secret. They are on the European Union’s greylist. The Turks and Caicos have a private register. Like the British Virgin Islands, they were given more time by the European Union because they were affected by the hurricanes. Bermuda has a private register and is on the European Union greylist. The legislation is in place for Montserrat, but no register has been set up. Mind you, Montserrat does not have any particular financial expertise, so it does not matter very much.
Sir Alan Duncan
The hon. Lady is trying to paint a picture of the OTs and we all understand what she is trying to do. She said a moment ago that progress in the Crown dependencies and Overseas Territories was “extremely limited”. However, I think it is undeniable—and I would ask her to confirm that she admits this—that progress in these areas is steps ahead of all the other G20 countries, except the UK. Can she put it on the record that she admits that that is the case?
Helen Goodman
I was going to come to that point at the end, because I anticipated that that was an argument. If the Minister will be a little patient, I will stick to the structure of my speech. In the case of Gibraltar, we have exchange of beneficial ownership information. Gibraltar is in a different situation because it is subject to European legislation. In Anguilla, we have exchange of beneficial ownership information. Like the BVI, it was given more time due to the hurricanes.
In the case of Jersey, Guernsey and the Isle of Man, there is exchange of beneficial ownership information legislation in place, but all three are, unfortunately, on the greylist. This is obviously a matter of regret and it is also extremely damaging to our reputation.
Sir Alan Duncan
It is very important that some of the basic facts are established as either true or false, and I hope the hon. Lady will not object to my pointing out another thing that she has got wrong. She spoke about the greylist. There is no greylist. The EU Council conclusions, which I could explain at length, set out the jurisdictions that have been cleared. She is wrong on the greylist in the way she explained it earlier.
Helen Goodman
I am interested that that is the Minister’s perception, but I think there might be a competing perception.
Anneliese Dodds
I regret to contradict the Minister, but perhaps there is a slight information gap around the procedure operated by the EU in regard to these matters. There is a blacklist of jurisdictions that have definitely been viewed as beyond the pale by the EU. That has followed a very intensive process of consultation through ECOFIN, which is obviously an intergovernmental mechanism. Countries that are not yet on the blacklist, but about which there are concerns, are on the greylist. I suggest that it would be helpful to look at that list.
I am grateful to my hon. Friend for enabling me to intervene. I made a freedom of information request to the UK Government to find out what they had done to try to remove jurisdictions from the blacklist, and the lobbying they had done in that case, which appeared to reveal that our Government had been active on this matter. So I hope Ministers will update us on what the Government have been doing in relation to this issue.
Helen Goodman
Now I turn to why this issue matters. I am extremely grateful to Christian Aid for its very thorough briefing. The problems fall into three categories: tax losses, corruption and crime, and the impact on the least developed countries.
On tax losses, the problem is that people are basically using secret jurisdictions to hide both capital and income, and, in doing so, avoiding tax. A particularly powerful example is the case of Bywater Investments. In November 2016, an Australian federal court found that two anonymous Cayman Islands companies controlled by an Australian accountant had facilitated multimillion-dollar tax evasion schemes, leading to 300 million Australian dollars of repayments and fines. The scam relied on the accountant being able to pretend that the companies were owned and controlled by someone else, thanks to beneficial ownership secrecy in the Cayman Islands. Despite the existence of a legally binding tax information sharing agreement between Australia and the Cayman Islands, Cayman courts and laws had blocked both Australian and UK tax authorities from access to information about the real owner of the companies—and these laws still exist. In that particular case, the tax losses were to the Australian Revenue, but I think that everybody is conscious that we, too, are losing tax in this country.
On corruption, crime and money laundering, I will talk about the problem of the Azeri Government. The first time that I came across Azeri money laundering was about seven years ago, when the hon. Members for Bridgwater and West Somerset (Mr Liddell-Grainger) and for Na h-Eileanan an Iar (Angus Brendan MacNeil) and I all became very concerned that some students had been locked up for putting a video on the internet about some donkeys. Those donkeys had been bought from the Germans and each donkey was worth $250,000. The students made a video and they found that the reason the donkeys were so valuable was that they could play the violin like Menuhin, and there were photographs of them doing so. That kind of creative sarcasm would get somebody a television award in this country, but in Azerbaijan those students were locked up. The hon. Members for Bridgwater and West Somerset and for Na h-Eileanan an Iar and I tabled an early-day motion and we got the students released.
That is not the sort of money laundering that usually goes on in Azerbaijan. My hon. Friend the Member for Oxford East spoke about the laundromat case. When discussing money laundering cases, we may use one example to illustrate a multitude of problems, because there is not just one problem. My hon. Friend, for example, has mentioned Scottish limited partnerships. Secret jurisdictions were also part of the problem, because the beneficial ownership secrecy gave the Azeri politicians the opportunity to circumvent money laundering laws. Two of the four UK-registered partnerships whose control and ownership was concealed were registered in the BVI.
Crime and corruption cases often involve a great deal of violence in the initial corruption and the initial crime. It is easy to take the view that these are white-collar crimes and that nobody really gets hurt, and that it is just about moving money from one bank account to another and clicking on a computer. What is really going on, however, is that people are stealing from weak and fragile states and running big organised crime gangs. For example—this relates to an earlier point made by the Economic Secretary—kidnappers in Mexico requested that the ransom be paid in bitcoin. The Mexican authorities said that they had never come across that before, although they had certainly come across kidnappings before: 70 people a day are kidnapped in Mexico, which is linked to drug running.
Large international organised crime syndicates are involved in extremes of violence and the destruction of societies. Stealing taxpayers’ money from former Soviet Union states or getting involved in big drug deals in Latin America is worth their while only if they can one day get that money and spend it; otherwise, why would they bother? Although these crimes might not seem very serious, they have horrendous consequences for other people. I am not saying that everybody who puts their money in a secret jurisdiction in the British overseas territories is doing so for criminal purposes—that is obviously not the case—but some people are doing that and we need to end the secrecy in order to identify them and track them down.
Last week we discussed sanctions busting and the selling of weapons of mass destruction and their components and materials to North Korea, which also involves shell companies. United Nations investigators and the American courts showed that the North Koreans had used networks of shell companies to evade UN sanctions and to help conceal the origins and destinations of the money that they needed to do so. A significant proportion of those shell company networks have been registered in the BVI and Anguilla. It is unfortunate that the BVI is mentioned a lot, but that is because their specialism lies in this type of registration. It does happen in the other places, but it happens a lot there because it is a world leader in the provision of offshore companies, whereas the Caymans specialise in hedge funds, and Bermuda in captive insurance.
Christian Aid is concerned about the issue because of its impact on developing countries. The former president of Zambia stole $25 million, which he put through an anonymous BVI company and bought property in Brussels. Zambia’s per capita income is $4,000 a year. The Nigerian dictator, Sani Abacha, used a BVI company to hold at least $450 million of the $2 billion he is believed to have stolen from the Government during his time in power. Nigeria has a per capita income of below $6,000 a year. The case of Equatorial Guinea is tragic. It has a much higher average income because of its oil reserves, but those reserves have not been used for the benefit of the people, because the President’s son, Teodorin Obiang, and others have stolen $38 million of their country’s money and spent it on private jets and other luxuries.
The United Nations Conference on Trade and Development estimates that the overall loss to developing countries is some £100 billion a year, which is more than the aid flows going into those countries. If we could sort this out, we would be doing something as useful as all of DFID’s efforts. [Interruption.] I can hear the Minister saying from a sedentary position, “Yeah, but the real fundamental problem is corruption.” He has a point, but we facilitate it. We make it easy, but why? It makes no sense.
We want the Government to set up public registers of beneficial ownership of companies in the British overseas territories. For the purposes of preventing money laundering, the Secretary of State should provide all reasonable assistance to the Governments of the countries we have listed, to enable them to establish a publicly accessible register. The Minister is concerned about the constitutional niceties of making a distinction between the constitutional arrangements in the overseas territories and those in the Crown dependencies. To respect that distinction, we tabled new clause 8, which requires the Secretary of State to consult the authorities of Governments in the Crown dependencies.
The Minister said again this morning that we do not intervene directly. I have two points to make about that: first, we run the foreign policy bit, and secondly, we also run domestic legislation from time to time. We have intervened on gay rights and capital punishment. There was a suspicion that Royal Assent was given to the change to gay marriage laws in Bermuda because it was felt that that was a price worth paying for not having the counter-example of us debating, within a month, these tax privileges—
Sir Alan Duncan
No, no, the hon. Lady cannot allow that to lie on the record. The decision on Bermuda was taken—
Sir Alan Duncan
I meant lie in the sense of nestling into its duvet on the record.
Sir Alan Duncan
Bermuda introduced a gay marriage Act that gave no particular rights. When it introduced civil partnerships for everybody, it gave proper pension and equality rights, which was in itself a good step, even though it is not called gay marriage.
Helen Goodman
I am grateful to the Minister for that interpretation. I will come now to the counter-arguments. The first is the one the Minister put to me a few minutes ago, that the overseas territories are ahead of others and we should not focus on them.
The problem with that argument is twofold. First, everybody else will catch up soon: there is the EU anti-money-laundering directive, and other countries across the world are introducing public registers. Secondly, we are responsible for what happens, to some extent, and we can influence it. We can make a change if we want to. I will end by asking why Ministers are not making a change. Furthermore, these secret jurisdictions are the most used: the BVI was by far the most popular tax haven in the Panama papers and Bermuda ranked as number one on Oxfam’s list of worst corporate tax havens. So we are talking not about obscure little operations, but about the centre of this financial secrecy problem.
The next counter-argument is that we should wait until public registers of beneficial ownership become a global standard, and then expect swift change. I will not be able to speak as eloquently as the right hon. Member for Arundel and South Downs (Nick Herbert) did on Second Reading, but he put the kibosh on that argument very effectively. We do not say about other crime or problems that we are not going to deal with that thief over there until we have caught this one somewhere else. That is not a sensible way to run policy. The fact is that the UK is at the centre of this problem. Post-Brexit we could do so much to regain leadership on anti-corruption.
The third counter-argument is that the overseas territories’ economies are heavily reliant on financial services. There are a number of things to say about that, but first being that, were we to have more tax revenues, we would be able to support the overseas territories better in trying to shift their economies from where they are now to where we would like them to be. Examples of alternatives include tourism and the geothermal resources in Montserrat. There are a number of ways in which we could support a better and more balanced development of their economies.
Another reason is that, in the long run, people want to use financial services in jurisdictions that are trustworthy, have a high reputation and where the rule of law is enforced. The rule of law is one reason why London is such a successful financial services centre. Some of the overseas territories’ activities—for example, the insurance market—are perfectly legitimate and reasonable, and they can get an income from that. Leaders of large businesses are now calling for that, including at HSBC—notorious for its involvement in the Mexico problem.
We then have the argument that trying to intervene in the overseas territories is neo-colonialist. I think that is a problem of missing the wood for the trees, given that it cannot be neo-colonialist to want to ensure that African countries are not ripped off and lose their tax revenues and the value of their assets. That is not neo-colonialist; it is supportive of their development. That is why, for examples, the South Africans were very pleased with the information they got from the Panama papers, and they used it.
The next argument is that public beneficial ownership registers degrade the quality of information available to law enforcement. I am puzzled by that argument, as that does not seem to be the case, given that the more people are scrutinising something, the more likely it is that the quality of information will be improved.
Another argument is that such a policy threatens the privacy and security of people using the secrecy jurisdictions. There are two things to say about that: first, we seem to be extremely worried about the privacy and security of a very small number of rich people, but not at all worried about the massive and violent crimes inflicted on people who are suffering from human trafficking, drugs gangs or other kinds of violence. Even if we say that we need to address that, though, it is adequately addressed in the British regime; and we are suggesting that they run a similar publication regime. An analysis commissioned by the Government found that the UK register would actually save our law enforcement authorities £30 million a year; so I think that that argument is also extremely weak.
When David Cameron was in power we were making progress on this. I do not know what has changed or why this Government seem to be in a different place. Perhaps it is because there are too many people influencing the Government who keep their money in these offshore havens. For example, the hon. Member for North East Somerset (Mr Rees-Mogg) was referred to in the Paradise papers because of a $680,000 payment he received when the BVI-based investment firm he worked for was bought by a Canadian bank. Everybody knows that the hon. Gentleman is extremely rich and his finances are complex, but his stake in Somerset Capital is managed by subsidiaries in the tax havens of the Cayman Islands and Singapore. Or are we seeking to protect the interests of Philip May, who works for an investment management firm—
Sir Alan Duncan
On a point of order, Mr McCabe, I think these ad hominem attacks are highly inappropriate for this stage of the Committee, or indeed any stage in our Parliamentary proceedings.
The Chair
That is not strictly speaking a point of order. Perhaps we can stick with the detail of the new clause, though.
Helen Goodman
I know what the rules of the House are and I wrote to the hon. Member for North East Somerset yesterday, telling him I would be mentioning him in the Committee today. However, the rules and courtesies of the House do not apply to people who are not Members of the House. It is perfectly reasonable to tell the Committee that Philip May works for an investment management firm, Capital Group, which reportedly used offshore-registered funds to make investments in a Bermuda registered company.