Sanctions and Anti-Money Laundering Bill [HL]

Debate between Baroness Bowles of Berkhamsted and Lord Davidson of Glen Clova

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.

Sanctions and Anti-Money Laundering Bill [HL]

Debate between Baroness Bowles of Berkhamsted and Lord Davidson of Glen Clova

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.