Sanctions and Anti-Money Laundering Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

2nd reading (Hansard): House of Lords
Wednesday 1st November 2017 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will mainly speak on the anti-money laundering aspects of the Bill; other colleagues will speak on the sanctions part. I convey apologies from my noble friend Lady Kramer, who regrets not being available to speak today.

I am not entirely convinced that the two components of the Bill, sanctions and anti-money laundering, sit well together. Sanctions have generally come through an intergovernmental and ministerial channel, while the administrative money laundering requirements have come under the co-legislative procedure, with equal power for the European Parliament. I thank the Minister for explaining some of the web of where the various aspects reside, but it is also helpful to review this. The primary money laundering offences appear in the Proceeds of Crime Act, not referenced in the Bill, which also contains requirements for regulated businesses to report suspicious activity, with three secondary criminal offences for failing to report suspicious activity, tipping off or prejudicing an investigation. A similar set of primary and secondary offences appears in the Terrorism Act. The money laundering regulations of 2017, and their 2007 predecessor, cover further administrative provisions on businesses, including criminal offences for contravening a relevant requirement and for prejudicing investigations.

The EU directives in fact require only effective enforcement and deterrent: it is left open how that should happen, and the UK included criminal offences which appear to have been first introduced by secondary legislation in 2007 and added to in the 2017 regulations. Maybe it can be said that these offences derive from, or at least follow, the pattern of the POCA secondary offences. The money laundering definition in POCA is so wide as to cover use of money or any asset that has come from criminal activity, so in theory it covers use of a stolen paperclip, as some wag has suggested on Wikipedia.

With such a scope, it remains an insult that property bought with the proceeds of crime can hide under anonymity of the beneficial owner, enabling both the property and rental from it to evade any effective discovery.

I turn to today’s Bill. It is proposed that significant money laundering legislation is to continue to be made by unamendable regulation, and these may be substantial and manifold regulations all in one. This is legislation that impinges on the daily lives of everyone opening a bank account or transferring money, and who may become subject to—well, under this Bill, I would say almost anything.

The fourth money laundering directive is clear on issues of proportionality and other guidance around the nature of things that should be covered in risk assessments and supervisory behaviour, such as record-keeping. The 2017 regulations add further detail relevant to the UK, but I am not sure they are quite so hot on proportionality. In future, though, under Clause 41 of today’s Bill, we are to get the regulatory imposition of anything that the Minister of the day might fancy in the name of money laundering or terrorist financing, which, as I have said, are defined very broadly. It is a very strange way to take back control if instead of transposing EU legislation—which, whether or not you care for the system, has a full parliamentary process—we replace it with the omnibus rubber-stamping of standards from the Financial Action Task Force, which has no such scrutiny or accountability, and simultaneously paves the way for the exercise of generic powers and the creation of unspecified criminal offences, all by regulation.

We know what happens with regulations. A good example on this very subject comes up next Monday concerning the transposition of the fourth money laundering directive. There is to be a regret Motion, not least because the instrument was laid with three days’ notice. How much regret can we tolerate? It gets worse if there is a rejection because it results in threats to the existence of this House. Switching to an affirmative procedure does not make any difference in that regard, even if it is a bit more respectful.

Schedule 2 gives some 27 wide regulatory powers to amend all the administrative topics that are in the 2017 regulation, and it is far from clear what safeguards will continue. I have called them topics because that is what they are; they are headings. There are no checks and balances, no mention of proportionality, no policy relating to the type of risk factors to cover, all kinds of yet-to-be-prescribed measures against yet-to-be-prescribed customers, and no indications regarding the use of information and data by supervisors or the need for supervisors to keep proper records. I could go on. It may be a technical Bill but I am afraid that power without policy is a very dangerous instrument.

The Government may have wanted to keep the schedule to three pages but there is a reason why the fourth money laundering directive is longer: it contains balance because it had to stand up to proper parliamentary scrutiny. I declare an interest in so far as that directive came under my remit as chair of the Economic and Monetary Affairs Committee in the European Parliament. I could ask why I should have less say here than I did there. Further, Schedule 2 states that these 27 powers are:

“Without prejudice to the generality of section 41”.


So not only could every jot and tittle of the 116 pages of the 2017 regulations be changed or revoked, almost anything could be added under Clause 41 using the massively wide definitions of money laundering or terrorist financing.

Great things could be done with those powers. Paragraph 6 of Schedule 2 could be used to create the beneficial owner registers for property that David Cameron promised. Further headway could be made on transparency in overseas territories and Crown dependencies. Paragraph 8 could be used to consolidate the myriad money laundering supervisors—some 25 of them—to get something more effective. Under paragraph 15, which gives carte blanche to create new but unspecified criminal offences, a “failure to prevent” offence could be created. But it could also make it criminal to open a bank account on Tuesdays or to present the wrong kind of utility bill because there is no guidance. New criminal offences by regulation are also enabled in Clause 16(3) in the sanctions part of the Bill, in that case with far longer sentences.

If there is no policy constraint, alongside possibilities for good things, the opposite could happen: setting aside the absurd, everything could be weakened or revoked, depending on the Minister at the wheel. It has been suggested that regulations are needed to keep up with the regular updates to FATF standards and other matters. The far longer EU process manages to keep up, as the Minister has already explained, so surely this Parliament, which is much more nimble, can also keep up. Indeed, I thought that was part of taking back control, and it certainly does not justify rule by regulation.

The Minister will know from my contributions during the passage of the Criminal Finances Bill that I am not a shrinking violet about money laundering criminal offences. The issue is that they need definition in an Act, along with the relevant defence. Noble Lords may recall that due to the ongoing call for evidence about “failure to prevent” offences, I explored an arrangement where both the offence and defence were defined in the Bill but not activated until later by an individual and specific statutory instrument—one not buried in a sheaf of other regulatory adjustments—and not to sunrise it through a statutory instrument until the result of the call for evidence was known. Even then, several noble Lords were very uncomfortable with the idea of any new criminal offence by statutory instrument.

Given that new offence by regulation is enshrined in Schedule 2 to the Bill and in Clause 16(3), I ask the Minister to explain the Government’s policy on criminal offences introduced by secondary legislation. I shall be considering two strands for amendments: one to limit the perpetuation of legislation by regulation, and the other to add to the Bill the things I have mentioned—in particular, issues around transparency and beneficial ownership, which have been criticised frequently in the European Parliament and by the OECD.

There is some urgency over this. The House of Commons Home Affairs Committee Proceeds of Crime report put estimates of at least £100 billion being laundered in the UK every year. In addition, failure to be seen to address those known weaknesses—well known in the European forums—could jeopardise equivalence or other arrangements made for financial services with the EU if we are outside the EU.

Sanctions and Anti-Money Laundering Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 21st November 2017 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I shall speak to the whole of this group of amendments. I gave notice of my intention to oppose Clause 16 standing part of the Bill. From the debate we have had it is quite clear that there is a little bit of an earthquake going on throughout the whole of the Bill. In a sense, its epicentre, as has been rightly explained by the noble and learned Lord, Lord Judge, comes to a climax with the criminal sanctions. Deleting the criminal sanctions parts would not provide a solution because they build on all the other wrongs, if I may call them that, that exist in the other clauses—throughout the sanctions part debated today and the powers contained in Schedule 2, which we will debate. We may eliminate those criminal sanctions, but we would still have an awful lot of other powers that will still do an awful lot of wrong. The fact that the criminal sanctions are laid on top of them is what makes it so egregious.

I move on to the transposition of the fourth money laundering directive and the issue of precedents. It has been said that there are precedents for creating criminal offences by statutory instrument and that in the past as well as now constitutional committees and delegated powers committees of this House have objected. In the earlier debate, the noble and learned Lord, Lord Judge, explained that those criminal offences might be buried among many other regulations. I have a good example here; it is a pretty thick one. It is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017—that is, the fourth money laundering directive. I think that there are 116 pages of dense type there, together with the schedules, and 109 other articles—sorry, we are not in Europe any more, or we will not be, or we may not be, or maybe we are. There are 109 other regulations contained within that. One of those is new—we have just dealt with it again recently—but in terms of the precedent, they derive from things that happened in the Proceeds of Crime Act. They reflect what has happened to the primary offence of money laundering, on to the secondary or derived offences where banks or other financial institutions have failed to have the right procedures in place. So there are kinds of precedents, even though I do not agree with the way that it has been done.

If we turn to what we have both in Clause 16 and Schedule 2, we see that there are no limitations at all. There are very open powers—they are even more open in Schedule 2 than in the sanctions part of the Bill. There may have been a failed attempt to create a framework for those criminal offences by referencing alongside them that the Minister will look to the matters of defences and evidence, but that has created other problems. As was again elaborated by the noble and learned Lord, Lord Judge, how can we tell that those will not be the right kinds of provisions? What do we know about the future?

The noble and learned Lord, Lord Falconer, said earlier that, ultimately, the only thing that matters is what is in the Act; it does not matter what the Minister’s intentions are, even if he says what they are—it is the words of the Act. We do use legislation for purposes that were not intended. In 2008, at the height of the financial crisis, the UK used anti-terrorism legislation to freeze £4 billion of assets of Landsbanki. It caused us a great loss of reputation in some circles, which is not to say I endorse what Landsbanki was up to. When the Anti-terrorism, Crime and Security Act 2001 was going through Parliament, I do not think anybody said, “We’re going to use this to freeze the assets of banks because they were a bit too laissez-faire in their financial regulation”. Something that was done for one purpose was used seven years later for another. Who is to say that there are not many other examples—I am sure if I dig I can find them—or that we may not get examples like that in the future? One cannot have new offences that are unpredictable as to how the rule of law, the defence and due process will operate. One has to have those safeguards, and this Bill does not do any of that.

I refer to what the Minister said in the debate on Clause 2 on whether one should wind up a company or disqualify directors. This was in the context of a company that would have been breaching sanctions and doing things such as arms trading. The Minister said that those amendments would not do because all the Bill aims to do is to replicate sanctions and the amendments went over and above that—the sanctions provisions that are already in existence, he meant—and we do not want to go further than other countries on sanctions and do what the UN and the EU are not doing. I can tell noble Lords that they do not do unlimited, undefined, potentially abolish-the-defence type of criminal sanctions. Actually, they do not have the powers to do that, but I doubt that they would do it anyway.

Another thing that the Minister said was that the sanctions need to be reversible. I fear that there is nothing very reversible about 10 years in prison. There is something seriously wrong here: it needs a lot more structure around it if they are even going to make the case that we can have sanctions, for instance, if they are going to follow, or punishment for sanctions, if they are new ones. The circumstances that give rise to requiring sanctions might be unpredictable, but the general nature of the sanctions that are imposed are not. You stop people trading or stop people having access to financial services: you can certainly put a framework around those. No effort whatever has been made, yet if you turn to something such as the fourth money laundering directive—and, indeed, the very regulations that have just been made to transpose it—all those safeguards are already there. There is absolutely no reason why they should not be replicated in the Bill.

[Lord Thomas of Gresford]

My Lords, I emphasise everything that has been said up to now about how unacceptable Clause 16 is. If someone is a designated person, sanctions are imposed upon him and he wilfully and deliberately breaks those sanctions, there is perhaps room for criminal offences which can be defined and can carry sentences of up to 10 years’ imprisonment. However, these regulations are concerned not with that so much as with trying to create a system of regulation of banks and providers of financial services to encourage them to report and to follow what is required in order to prevent money laundering or the busting of sanctions. These are banks and institutions which are not acting wilfully and deliberately and so are not criminal in that sense.

It might be proportionate in those cases—this is what has happened with other regulations—to have a small criminal sanction for a breach of the particular regulation which requires that you report on a client. That is one thing, but here there seems to be a confusion; the two types of criminality are put together. The serious criminality of breaching the sanctions is looked at in the same way as a failure to report what a client may be doing which could amount to a breach of sanctions. It is wrong that that should be subject to serious criminal sanctions of the nature described in the Bill.

What really offends me about it, however, is that the Minister has power to stipulate where the burden of proof should lie: for example, whether hearsay evidence could be introduced or whether a particular defence can or cannot be run—“It shall not be a defence to do” whatever it may say. That is the sort of thing you see in statutes from time to time. It is not Parliament deciding that; it is the Minister. He creates his criminal offence and then makes it almost impossible for a person to defend themselves.

It is one thing to face a charge where you know that the burden of proof is on the prosecution—and there are strict rules of evidence which apply across the board in criminal cases. It is something else if a Minister has power to create his own form of criminal law. That is really what this is all about. It is wholly unacceptable and must be defeated.

Sanctions and Anti-Money Laundering Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

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

[Lord Davidson of Glen Clova (Lab)]

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

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

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

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

[Baroness Bowles of Berkhamsted (LD)]

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

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

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

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

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

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

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

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

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

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

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

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

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

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

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

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

The first requirement there is:

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


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

[Lord Ahmad of Wimbledon]

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

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

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

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

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

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

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

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

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

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

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

[Baroness Bowles of Berkhamsted]

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

[Lord Ahmad of Wimbledon]

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

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

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

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

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

[Baroness Bowles of Berkhamsted]

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

[Lord Ahmad of Wimbledon]

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

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

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

[Baroness Bowles of Berkhamsted]

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

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

[Lord Rooker (Lab)]

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

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

He said that,

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

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


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


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


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


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

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

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

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

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

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

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

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

“the Land Registry this autumn”,

that is, autumn 2015,

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

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

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

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

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Moved by

[Baroness Bowles of Berkhamsted]

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

[Baroness Bowles of Berkhamsted]

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

No wonder it was called “humiliating”.

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

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

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

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[Lord Bates]

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

[Baroness Bowles of Berkhamsted]

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

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

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

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

[Lord Hain]

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

[Baroness Bowles of Berkhamsted]

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

Amendment 69B withdrawn.

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Moved by

[Baroness Bowles of Berkhamsted]

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

[Baroness Bowles of Berkhamsted]

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

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

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

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

“to take account of international developments”.

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

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[Lord Bates]

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

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

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

[Baroness Bowles of Berkhamsted]

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

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

Amendment 69D withdrawn.

Sanctions and Anti-Money Laundering Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

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

[Lord Davidson of Glen Clova (Lab)]

My Lords, the Opposition are sympathetic to many of the points that have been made, and I single out Amendment 69H. The capacity to carry out UK company formation from outside the UK is a real lacuna in the current money laundering regime. Monitoring within the UK is difficult enough, as is evidenced by the use of, for example, Scottish limited partnerships in Russian and former eastern-bloc bank fraud and money laundering of gigantic proportions. This vulnerability is of course magnified when the company information provider eludes the UK’s money laundering oversight.

Amendment 69J provides, we respectfully suggest, a useful additional hurdle for any prospective money launderer to negotiate. While the provision of the requisite materials for opening a bank account no doubt seems irksome to many, it none the less provides an additional external check on the background of those seeking to operate via a UK company.

The amendment of the noble Lord, Lord Naseby, offers a clear and useful mechanism for combating money laundering and I share his observation that it would be surprising if the Government did not support this measure with considerable force.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, there are two issues here. The first is to make sure that money laundering checks are carried out somewhere in the chain. There could be various mechanisms to do so, some of which are suggested in the amendments. Then there is the issue of how Companies House itself will get the money to conduct the checks. That is the point of the provision in Amendment 69L for a mechanism to levy a fee. Obviously, there could be other mechanisms. As to Amendment 69J, if there is no bank account, the fee could be levied at that point. Ways in which to tighten up and get the money are the objectives of this family of amendments.

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

My Lords, I thank the noble Baroness, Lady Kramer, for leading a short but interesting debate on these matters. I shall put some remarks on the record to see whether they satisfy her and my noble friend.

Amendments 69H and 69J would prohibit trust or company service providers, known as TCSPs, that do not carry on business in the UK from incorporating UK companies, unless overseen by a UK anti-money laundering supervisor. The amendments would also require UK companies to establish a UK bank account and evidence this to Companies House. The money laundering regulations 2017 require TCSPs carrying on business in the UK to be fit and proper. We will also shortly formally establish the office for professional body anti-money laundering supervision, or OPBAS, which will work to ensure consistently high standards of anti-money laundering supervision by professional bodies, including TCSPs.

If there are factors that make it unclear whether a trust or company service provider could be regarded as acting by way of business in the UK—in which case it would fall within the jurisdiction of a UK anti-money laundering supervisor—HMRC considers on a case-by-case basis whether registration for supervision is necessary in order to combat attempted evasion of supervisory requirements. I therefore agree with the intention behind the amendment. However, given the pending establishment of the office for professional body anti-money laundering supervision, it is right that we establish this body first and then take proper account of its conclusions around TCSP supervision before taking further action in this space.

Additionally, the problem that the noble Baroness, Lady Kramer, and my noble friend Lord Naseby correctly identified ultimately results from trust or company service providers exploiting the comparative weakness of anti-money laundering supervision in certain overseas jurisdictions. In order to comprehensively address this, our emphasis should not be solely on expanding the scope of our anti-money laundering regime, particularly given the practical difficulties that would arise from UK supervisors seeking to exercise effective oversight over trust or company service providers established outside the UK and with no physical presence within the UK.

Such circumstances would present significant challenges for effective supervision, which typically includes measures such as on-site visits to firms that present higher risks of money laundering. The most effective way of addressing the problem which the proposers of the amendment have highlighted is through effective international co-ordination to drive up standards of supervision in jurisdictions with weaker anti-money laundering regimes than we have here in the UK. This is the agenda which we promote with international partners through the Financial Action Task Force, and it is this agenda which will offer a durable, long-term solution to the problem of weak overseas supervision of trust or company service providers.

Amendment 69J would amend the Companies Act 2006 to require UK companies to establish a UK bank account and evidence this to Companies House on an annual basis, or otherwise pay a fee or financial penalty. The wider purpose behind this part of the Companies Act is to provide a simple mechanism for companies to confirm that corporate information registered with Companies House as required under other obligations is accurate and up to date. The amendment would significantly change the purpose of the annual confirmation statement. As drafted, it would additionally require all UK companies to demonstrate annually that they hold a UK bank account; otherwise, they would have to pay a financial penalty. This would mark a significant increase in the reporting burden on the 3.9 million entities registered with Companies House, the majority of which are small, local businesses which would have to provide evidence of a UK bank account every year.

Amendment 69K would require company formation agents—defined for these purposes as including the UK registrar of companies at Companies House—to conduct customer due diligence. I appreciate my noble friend’s remarks about the consultation which has taken place, led by my noble friend Lord Ahmad, with colleagues and officials. I understand and sympathise with my noble friend’s intention; it is quite correct that we should take steps to avoid corporate vehicles being used for money laundering. However, I hope I can convince him that his amendment is not the best way to do that—although he prefaced his remarks by saying that it was a probing amendment. He will probably want to reflect on my remarks in response to it.

The amendment would represent a fundamental change in the principles under which the UK’s company law system has long operated. The UK registrar of companies has a statutory duty to incorporate and dissolve limited companies. This is carried out by Companies House, which registers company information and makes it available to the public. Companies House is not—unlike trust or company service providers, which are already supervised for anti-money laundering purposes under the money laundering regulations—a private-sector profit-making business. The registrar has no discretion in law to refuse or decline a request to incorporate a company. Companies House therefore cannot decline to establish a business relationship in the way that firms regulated for anti-money laundering purposes must when they cannot discharge their customer due diligence obligations. Because of the registrar’s statutory obligations, Companies House is not considered to be a company formation agent. If approved, the amendment would require further substantial revision to UK company law to allow Companies House to operate in the same fashion as company formation agents.

Approximately 600,000 new companies are registered each year at Companies House. The customer due diligence measures required under the money laundering regulations are significant, and are required to be applied by regulated firms on an ongoing, risk-sensitive basis to prevent illicit actors making use of the financial system. They are not intended—either by international standards, EU law or UK law—to be applied by a public body to all companies that are incorporated within the UK. Were these measures to be adopted, they would be a significant, unfunded burden upon Companies House and would fundamentally alter its relationship with the company formation process. They would also unnecessarily delay the process of company formation. The overwhelming majority of UK companies are set up for legitimate commercial purposes. Applying this amendment as drafted would not address or identify higher risks of money laundering or terrorist financing, but would instead impose an across-the-board administrative burden on Companies House and individual companies.

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[Baroness Bowles of Berkhamsted]

My Lords, my noble friend Lady Kramer and I gave notice that this schedule should not stand part of the Bill. I would like noble Lords to take a few moments in private to give the schedule the “read it out aloud” test. Let us try one bit of it now. Paragraph 4 says:

“Require prescribed persons to take prescribed measures in relation to their customers in prescribed circumstances”.


All the prescribing is yet to be defined. I am sorry to appear light-hearted, but I can imagine that coming out of the mouths of comedians. Truly, I do not know whether the schedule is sinister or whether it just fails to understand how the money laundering regulations 2017 work. It is sinister if you look at the scope of the powers, which gives opportunity for boundless increase in who can be covered and ignores any proportionality or safeguards that are included in the current law.

It is no use pointing to the reference to the current regulations, which appears in paragraph 20, because that is basically there only to give power for them all to be rewritten, amended or revoked—so there are no guarantees for anything. It is worth having a quick look at paragraph 20, which starts:

“Without prejudice to anything in section 41, paragraphs 1 to 19 or section 44(2), regulations under section 41 may”.


We have to remember that Schedule 2 starts:

“Without prejudice to the generality of section 41”.


So we have a paragraph that starts with three mentions of “without prejudice”, reinforcing that a whole lot of other stuff is expected to be going on. Paragraph 20 then says:

“(a) subject to any modifications the appropriate Minister making the regulations considers appropriate, make provision corresponding or similar to any provision of the Money Laundering Regulations 2017, as those Regulations have effect immediately before they are saved by section 2 of the European Union (Withdrawal) Act 2017; (b) amend or revoke the Money Laundering Regulations 2017”.

It says that you can make provisions corresponding or similar to, or revoke. If that, together with the three references to “without prejudice” is not giving notice that you intend to completely rewrite them, then I really do not know what is. This is, as I have said before, a big part of the problem. It is sinister when looked at that way.

There is also a failure to understand, or at least to commit to, how the money laundering regulations 2017 work. That misunderstanding or failure to acknowledge is there by virtue of the very structure of Schedule 2. It is upside down, starting with the person, moving on to supervisors and leaving out duties of government. It does not seem to appreciate the cascade of risk assessment that drives automatic updating of the nature of risks from the Treasury and Home Office, to supervisors and then on to the persons. The list of powers seems to have been composed by lifting a short part-sentence here and there from individual sub-regulations, ignoring any safeguards including, as I said, the surrounding cascade methodology. The part-sentences are then turned into a list of naked powers that have already received criticism from the Delegated Powers Committee in paragraph 36 of its report. I commend reading that paragraph to noble Lords; it highlights and criticises the unrestricted power over persons, the powers to create supervisors with investigatory powers, the powers to prohibit the carrying on of business and power to impose unlimited fines and criminal offences—all without limit save for the sentencing limits.

It would stretch your Lordships’ patience, especially at this hour, if I went through each paragraph to show its origins and what is missing—although I could do that, if noble Lords wanted. I will just illustrate the pattern with one paragraph but, as I have said, it is a repeating pattern. Paragraph 2(1) requires “prescribed persons”—the yet to be defined prescribed persons—

“to identify and assess risks relating to money laundering, terrorist financing and other threats to the integrity of the international financial system”.

That actually sounds like a pretty good definition of what the Financial Action Task Force was set up to do. The Minister can by regulation make anyone—some small accountant, lawyer or bookkeeper, you, me, the doorkeeper, a schoolteacher—do it all, not forgetting unlimited fines for getting it wrong. Am I being ridiculous? Well, no, because there is no mention of the category of person or it being about their own or a relevant business. Where does this wording come from? Let us look at Regulation 18(1) of the 2017 regulations, entitled:

“Risk assessment by relevant persons”.


It starts:

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


Spot the missing bits. It has to be “appropriate steps” relating to its own business. The “relevant person” is not open-ended either, because there is a list of relevant persons in Regulation 8.

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[Lord Ahmad of Wimbledon]

The noble Baroness says “everyone”. I know that she and the noble Baroness, Lady Bowles, made that point but I do not agree. She has made her point and I have listened; perhaps she should listen to the point that I am making in response.

As the noble Baroness says, Schedule 2 ignores the cascade of information. The power in Clause 41 will enable us to update and amend existing legislation that does this, as we did when the regulations were replaced this year, as I have already mentioned. This should not be viewed in isolation, which I fear is what the noble Baroness is doing. When new categories of risk manifest—the noble Baroness, Lady Bowles, talked about virtual currency exchanges—new legislation will be needed, and this power helps to fill that gap.

In sum, Schedule 2 sets out examples of the scope of the anti-money laundering and counterterrorist financing power contained in Clause 41, and it defines the limits of this power in relation to criminal penalties. The noble Baroness, Lady Bowles, ignores proportionality. However, this issue must be looked at in the wider context, not in isolation. Ministers are bound to use these powers proportionately, taking account of people’s human rights, and they are bound by Section 6 of the Human Rights Act 1998. I therefore contend that Schedule 2 should stand part of the Bill.

Perhaps I may briefly mention Amendment 71A, which I understand is related to the opposition of the noble Baronesses, Lady Kramer and Lady Bowles, to Schedule 2. To give an example, the reference in paragraph 2 of Schedule 2 to regulations, mentioned by the noble Baroness, being capable of requiring,

“prescribed persons to identify and assess risks relating to money laundering, terrorist financing and other threats to the integrity of the international financial system”,

corresponds with regulations 16 to 18 of the money laundering regulations 2017. These require the Government, supervisors and regulated firms to assess the risks of money laundering and terrorist financing at a national, sectoral and business level as appropriate so as to inform the nature and extent of any due diligence measures applied by regulated firms.

Perhaps I may give a further example. The reference to “prescribed persons” in paragraph 4 of Schedule 2, which again the noble Baroness quoted, corresponds to Part 3 of the money laundering regulations 2017. This establishes a framework giving effect to the standards of the Financial Action Task Force relating to simplified and enhanced customer due diligence, which I am sure we all welcome. Again, this is not about the UK going it alone; it is about how we are part and parcel of the FATF.

Therefore, the amendment would not remove the Government’s ability to designate categories of business as regulated for anti-money laundering purposes, or designate supervisors. These purposes are already permitted under Clause 41 and are referred to in Schedule 2.

There may also be a number of areas where we want to confer functions upon persons to assist with the implementation and enforcement of sanctions. I think that the noble Baroness, Lady Bowles, startled the doorkeepers when she quoted various examples. Captains of ships and harbour masters, for example, might need to exercise functions in order to comply with shipping sanctions. We might also need to confer functions to help enforce sanctions on border officials, agents of Her Majesty’s Revenue and Customs, or law enforcement agencies, such as the National Crime Agency.

I know the noble Baroness. She is well versed in the money laundering issue, and I respect that. That is why I said at the outset that I will listen again, or read, I should say—listening to Hansard may be stretching it a bit—her contribution very carefully and see if there are aspects that need further amplification and explanation from the Government. I hope that through my practical examples I have addressed some, if not all, of her concerns and that at this point, she will be minded to withdraw her amendment.

[Baroness Bowles of Berkhamsted]

I thank the Minister for his reply. I fear that a large part of it merely proved my point that small extracts have been turned into powers. I maintain that without the surrounding framework to give proportionality, you do not need everything that is in there. It is difficult—

[Lord Ahmad of Wimbledon]

I was merely giving a few illustrative examples. Like the noble Baroness mentioned, I think she and I would be the only ones here if we carried on in this respect. What I was doing was merely illustrating, but it is dealt with comprehensively.

[Baroness Bowles of Berkhamsted]

That is the point. It is converted into a power very comprehensively but it just takes the first section. For instance the one I quoted does not even point out that they are responsible only for what goes on in their own business. That makes it very difficult. A lot of this could be dealt with by putting in those proportionality statements and a few more things.

The other source from which this list of powers has been obtained—which I think the Minister was referring to—is the FATF recommendations. However, you have to bear in mind that the FATF is an organisation meant to look at risks to the financial system, terrorist financing and those kinds of things. It is not set up with a branch to deal with civil liberties or even human rights. It leaves that to the nation states which are then going to implement. I could probably find it in the FATF but it is too late in the evening to do that. You cannot just put the list of powers or of things that the FATF wants you to do into powers without acknowledging that there has to be a framework.

Yes, there may be human rights elements that we have not abolished, nevertheless there are more things—

[Lord Ahmad of Wimbledon]

To clarify, I said that we need to look at this in the wider context. That is why I referred to the obligations that Ministers are bound by in the Human Rights Act. That is part of our statute, so we are obliged to follow that.

[Baroness Bowles of Berkhamsted]

Unfortunately, it seems that that ends up in the courts from time to time, which is very difficult for the sorts of people that might find themselves entangled in this. My plea is really that we just make an effort to get this a little bit more right. In that spirit, I will not be pressing Amendment 71A, which was linked to the creation of supervisory powers, which was why it was in the same group. This issue is one that we will wish to return to in general on Report.

Schedule 2 agreed.

Sanctions and Anti-Money Laundering Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

Committee: 4th sitting (Hansard): House of Lords
Tuesday 12th December 2017 Lords Chamber

[Lord Collins of Highbury]

My Lords, we may get the same response from the Minister to this amendment, but Clause 41 deals with more than simply bringing EU law into domestic law. We have a clause on anti-money laundering that basically says that we already have primary legislation, so we have no need for more and will deal with all this through regulation. I want to hear clearly from the Minister why that is the case. These probing amendments are about the Minister having to make the case. What is deficient in our existing legislative framework? Why is it not sufficient to deal with the problems that have already been identified or may be around the corner? It is up to the Minister to say why existing primary legislation is not sufficient.

If it is not sufficient, why are the Government not bringing forward primary legislation to deal with it, or making the case for primary legislation? I am tempted to use the terms “known unknowns” and “unknown unknowns”. What are we leading ourselves into? We have tabled this amendment to ask, if the Government have the powers of the super-affirmative procedure, what is the bare minimum? If we will not have scrutiny through primary legislation, let us ensure that on this clause the Government have to say what they intend to do, are required to consult on it and are required to respond to that consultation before any regulations are brought into force. That is the bare minimum.

So far, in all the Committee days, I have not heard that there is a case to be made on this anti-money laundering. By the way, I think it was on the last Committee day that I raised the question of the anti-corruption strategy. I am really pleased that that was published yesterday; I brought it with me and I hope, if we go on for long enough this afternoon, that I will have the opportunity to read it. One of the things about the strategy that concerns me is: who is leading on it? I understand that John Penrose has been given the responsibility, but when the then Prime Minister David Cameron talked about that need at the anti-corruption strategy summit, we were talking about a Cabinet Minister having responsibility. We were talking about the Government taking these issues seriously. We know that money laundering is the key element in most corruption in the world, where people secretly get money out, get it all cleaned up and buy property et cetera.

I hope the Minister will explain why we seem to have had a downgrade on corruption—and not only that. If it is a priority, why are we not getting primary legislation to address these issues? Why are we seeing this being done, in effect, through the back door? I strongly believe that if the clause remains as it is we must have the super-affirmative procedure to ensure not only that we have only proper parliamentary scrutiny but that the people who put the House of Commons there can see and comment on what is being proposed so that there is proper accountability. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I welcome the comments that have just been made on this group of amendments on the super-affirmative procedure. When I went to bed last night I was thinking of commenting only that this enhanced procedure was interesting and worth exploring further, particularly to see whether it goes far enough. We are entering new territory. If a procedure such as this gives sufficient consultative and amendment power to Parliament, it might work—but it is still, as has been emphasised, a big downgrade from participating in an Act of Parliament and therefore should not in any way be a “new normal” to replace what could, or should, be done more fully. Having said that, coupled with the sunset clause that noble Lords have proposed in the last group this evening, it is perhaps even more interesting as a backstop and a temporary measure.

However, this morning—I did not have an inspirational dream and I do not want to retract anything that I have just said—I replied to an email from a lobbyist seeking amendments to the withdrawal Bill to change some things in EU financial services legislation while it is being transposed. As part of my reply I explained that the issue concentrating my mind was far more the division of power between government and Parliament—how changes such as the one they sought to address by lobbying me might be addressed in future—and that there would be legislation following on from the withdrawal Bill. We could say that the Sanctions and Anti-Money Laundering Bill is an advance guard of that follow-on legislation. I ended up by saying that if the Government got their way on the division of power then the lobbyist need never lobby Parliament again. What a statement that is about lack of power and the place of Parliament, yet that is what the Government seek to do to what we proudly call the mother of Parliaments.

Now, “need never lobby Parliament again” is not entirely true. Lobbying would become concentrated solely on getting regulations voted down—in full. I wonder whether the Government have thought through how that would play out. For example, divide and rule—a tactic well used when lobbying and suggestions are varied—would no longer apply. Everyone would be as one, even if for different reasons. I have seen concerted naysaying on issues in the European Parliament—and it is both powerful and very unpleasant.

It is important that Parliament has not just negative but positive power to seek amendments, including to make additions that are significant, not just tweaks. That is what I am looking to preserve, even for any interim measure.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

77: Clause 47, page 32, line 13, leave out subsections (1) to (3)

[Baroness Bowles of Berkhamsted]

My Lords, Amendment 77, which is in my name and that of my noble friend Lady Kramer, takes your Lordships again to the issues of the Ahmed case. The amendment would delete the first three subsections of Clause 47, which repeal the Terrorist Asset-Freezing etc Act 2010, so would stop that Act being revoked. We do not agree with the repeal of that Act and its replacement by a general power to do anything, which is what the Bill does.

There have already been significant contributions from noble Lords, and especially noble and learned Lords, in respect of powers in Clauses 10, 11, 16 and 32 which reach into the same issues. If anything, the amendments proposed already have not gone far enough. The rights of appeal as well as review that are contained in the Terrorist Asset-Freezing etc Act 2010 should not be dispensed with.

The Supreme Court struck down the Treasury’s previous regime as an oppressive one that had devastating effects on families, which led to the 2010 Act. It looks like the Government are giving themselves power to do that again. We come back to worthy intentions, but the safeguards must be there. Under the current law, the court hears appeals against designation decisions, not just reviews. That should be maintained.

This amendment revisits issues debated at the time of the 2010 Act, such as who decides questions of fact and the scope of error allowed to the administrative decision-maker. There will be noble and learned Lords who have a better grasp of the issues than me, and as I mentioned, we have already been around that loop in previous debates on other clauses. However, to me, it is a question of principle: to seek to increase power and simultaneously reduce defences is not acceptable, all the more so when there is no relevant change in circumstances or threats brought about by Brexit. It is no excuse to ravage what have previously been just defences. I beg to move.

[Baroness Kramer]

My Lords, I will speak briefly. I am no expert on the relevant legislation that is being repealed under this clause, but I have spoken to those who are, and the response I have had is one of shock. Legislation that went through both Houses of Parliament, with great care, debate, consideration and amendment, is now being swept away, to be replaced by a regulatory power, which, again, is not bounded in any way. It could be identical or it could be completely different, but it is not discussed or laid out anywhere in this legislation.

In the past we have talked primarily of powers that have come through a democratic process in Brussels: through the European Parliament’s scrutiny, consultation and voting processes, and through votes of the Council. In this case, we are talking about sweeping away, to be replaced by regulation, significant legislation that came through this Parliament in a democratic process. I do not understand, nor have I heard any explanation, why the Government are choosing to take this route.

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[Baroness Bowles of Berkhamsted]

I thank the Minister for his response. I am sure he appreciates that this is, if I may use the words of the noble Lord, Lord Collins, a backstop amendment. The point is that satisfaction has to be achieved somewhere in the Bill in respect of the clauses I named, particularly Clauses 10, 11, 16 and 32, and so far we do not appear to have that. This is of a package with that. Something has to be done, so while for the moment I am prepared to withdraw the amendment, I expect this whole issue to be revisited with considerable force on Report. I beg leave to withdraw the amendment.

Amendment 77 withdrawn.

Sanctions and Anti-Money Laundering Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

3rd reading (Hansard): House of Lords
Wednesday 24th January 2018 Lords Chamber

These amendments follow the careful discussion and, as I referred to at the start, collaborative engagement that has taken place since Committee. They are a testament to the proficiency and collegiate work of your Lordships’ House, and I urge noble Lords to accept them. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I start by thanking the Minister, the Bill team and other officials, who have all played their part in getting this suite of amendments to Clause 43, as it now is, and Schedule 2 on to the Marshalled List. We had a flurry of meetings following the Recess and, once we got down to detailed discussion with papers and checklists, good progress was made. As has been said, I have added my name to the amendments because they deliver the understandings reached in our meetings—and that is also the view of my noble friend Lady Kramer.

I thank the noble and learned Lord, Lord Judge, and the noble Lords, Lord Pannick and Lord Collins, who on Report added their names to my amendment, which paved the way for today’s amendments and for the undertaking given on Report regarding tighter language in the potential modification of the definition of terrorist offences. That yet-to-be amendment depends on achieving resolution in the other place on how to deal, on the face of the Bill, with any necessary extension of criminal offences. I remain ready to assist with that on the anti-money laundering aspects.

When we started out with the Bill, there was no policy in Part 2, yet it gave sweeping powers to amend, rewrite or revoke the anti-money laundering legislation. There were no safeguards, save for the Minister saying, “Trust me—and all my successors—in all circumstances”. Clause 43—Clause 41 as it then was—could have resulted in too little in future, and Schedule 2 could have allowed too much. It took a bit of a journey to elucidate that the problems lay as much with what was not in the Bill as with what was in it, and I thank your Lordships for bearing with me in my endeavours to explain and then distil the main essence of the missing parts.

The words “enabling or facilitating” in Amendment 1 to Clause 43 will further define the detection or investigation of money laundering and terrorist financing purposes for which regulation may be made. This means that the scope and effectiveness of the present rules cannot be undermined—that would hardly be “facilitating”—but it gives some leeway for change, such as updating thresholds or removing redundant measures that perhaps other vocabulary such as “maintaining” or “strengthening” would have prevented.

My concerns with Schedule 2—apart from criminal offences by regulation—were that it was not at all limiting, potentially covering anyone and everyone, with unlimited scope to the burden imposed and no provision for relevance or guidance. Now, Amendment 6 narrows the scope of who can be covered and reflects far better that it is a shared process where the assessments are made at the three levels of Home Office and Treasury, supervisors and relevant businesses. Along with the protective effect of amended Clause 43, this provides the framework we sought and that, in the context of the current regulations, I described as the cascade of responsibility. No longer can it be read that an individual or business takes on the whole burden.

Amendment 7 is now clearer in its drafting and, very importantly, businesses will be subject only to a burden that is appropriate having regard to the size and nature of the business that the person carries on—now defined as “relevant businesses”—and those businesses also have to be of a kind that entails risks relating to money laundering, terrorist financing or other threats to the integrity of the financial system, which now appears in Amendment 8 and was part of the Report stage concessions.

Together with other amendments from Report, with the statement by the Minister that, despite the without prejudice wording, Schedule 2 is limiting, and with the agreed pending matters to be dealt with in the other place, I hope we can all agree that this is a much improved Bill with regard to the administrative anti-money laundering aspect of Part 2.

More generally, I hope that the Government will take note, as other Brexit power-transferring Bills come along, that they do require policy to be stated or restated alongside empowerments, especially when they give sweeping powers to redo everything by regulation. In particular, the twin spectres of permissions to do too much and permissions to do too little need laying to rest.

[Lord Judge (CB)]

My Lords, I had not intended to speak again—your Lordships have been patient with me already—but there is a slight problem. Someone in the Minister’s office must have had a Homeric nod, because Clause 43 makes the express provision that regulations under subsection (1) may not make provisions that create new criminal offences. That was consequent on the vote in the House last week. Unfortunately, criminal offences remain in Schedule 2. Regulations under Section 43, in paragraphs 18 and 19, provide for the creation of criminal offences. Something has gone wrong and I look forward to the Minister telling the House how he proposes to deal with it.

A similar point arises in connection with Clause 17. The original clause made provision for the creation of criminal offences punishable by up to 10 years’ imprisonment. That proposal was defeated in this House and does not appear in Clause 17, which is the former Clause 16. However, in Clause 17(6) there is a provision that:

“Regulations may provide that a particular offence which is … created by virtue of this section”.


There is no such power, so I wonder whether the Homeric nod extended to both parts of the Bill.