Financial Services Bill

Baroness Penn Excerpts

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

I really would like a commitment from the Minister to take up this issue, because if we are going to clean up this industry, we need that civilian army that the US has identified. We need a well-resourced enforcement system, but we also need that civilian army, and that could be delivered by the way that we structure the whole system available to whistleblowers.

[Baroness Penn (Con)]

My Lords, the Committee has heard about a range of issues relating to the importance of tackling economic crime. This is an area that the Government have taken significant action to address in recent years. As the noble Baroness, Lady Neville-Rolfe, noted, improved enforcement is crucial. That is why the Government have created a new National Economic Crime Centre, established the Office for Professional Body Anti-Money Laundering Supervision and, in 2019, launched the economic crime plan, which brings together government and the private sector to tackle this issue.

Amendment 49 would require the Treasury to commission a review of the penalties for market abuse offences. Market abuse undermines integrity and reduces public confidence in the financial system. That is why, in the Bill, the Government are increasing the maximum sentence for such crimes, to bring them into line with other types of economic crime offences. However, the Government recognise that, in other respects, the criminal market abuse regime has not been materially updated since these offences were introduced. That is why the Treasury and the FCA have committed to reviewing the criminal market abuse regime by July 2021, as part of the 2019-2022 economic crime plan. The review will consider whether updates are required to ensure that the UK’s regime for combating market abuse continues to work effectively in an evolving market.

Amendment 50 seeks to offer an additional defence to a bank that relies on information from a publicly accessible verified register of the beneficial ownership of companies. This Government are committed to ensuring that our anti-money laundering regulations support the identification of criminal and terrorist financing activity, without placing disproportionate burdens on the regulated sector. The UK was the first G20 nation to introduce a public beneficial ownership register. There are over 3.5 million companies registered in the UK, and over 5 million beneficial owners listed on the register at Companies House. In answer to the challenge from the noble Lord, Lord Eatwell, I want to be clear on the Government’s intention to introduce a package of reforms to limit the risk of misuse of companies, including by verifying the identity of people managing or controlling companies; providing the registrar with new powers to query and remove information; and investing in investigation and enforcement capabilities. This was set out in September 2020 in our response to a consultation on Companies House reform. We will legislate for this reform programme when parliamentary time allows. On the question of resources, the Chancellor made a further £20 million available to support these reforms in the spending review last year.

In answer to the question from the noble Lord, Lord Eatwell, the Government are bolstering the UK Financial Intelligence Unit with an uplift of over 70 additional staff, enabling more feedback to reporters and better analysis of SARs. However, the UK does not consolidate all resources and activity relating to suspicious activity reports in the FIU. The intelligence collected is also distributed to regional and local law enforcement.

Returning to Companies House, this information alone would neither represent sufficient customer due diligence, nor provide sufficient confidence that a transaction did not relate to the proceeds of crime. Central registers are not a “silver bullet”. Effective anti-money laundering regulation will still rely on the private sector playing its part. The regulated industry has significantly more exposure to, and interaction with, its clients and individual transactions than can be captured on a public register, and it is therefore well placed to identify and prevent suspicious activity by carrying out sufficient client due diligence. While I hope that I have reassured the noble Lord, Lord Eatwell, on his first two points—on the Government’s commitment to implement reforms to the Companies House register—I do not agree that we should remove the obligation on deposit-taking bodies to identify abuses by allowing them to simply rely on a beneficial ownership register. The Government cannot, therefore, accept the amendment.

I turn to Amendment 51. The “know your customer” or customer due diligence provisions are part of the money laundering regulations, which the Treasury is already required to review the effectiveness of at least every five years and to publish a report on its findings each time. This review will measure the impact of the existing regulations, assess the proportionality of duties and powers, the effectiveness of enforcement actions, and the interaction of the money laundering regulations with other pieces of legislation.

I also agree with my noble friend on the importance of financial inclusion. The Government are committed to working with a range of stakeholders to ensure that all consumers are able to access the financial services they need and that identification and verification are not a barrier to this, including by using innovations in technology to support this work.

Amendment 51A would replicate a power to amend the money laundering regulations 2017 under the Sanctions and Anti-Money Laundering Act 2018. That means that through statutory instrument the Treasury can, if it chooses, already amend the list of professional body supervisors, or PBSs, in Schedule 1 to the regulations. The remit of the UK’s anti-money laundering supervisory authorities set out in Regulation 7 can also be amended in this way.

On professional body supervision, the Treasury already works closely with the Office for Professional Body Anti-Money Laundering Supervision, known as OPBAS, to ensure high standards of effectiveness and consistency among PBSs. The noble Lords, Lord Rooker and Lord Sikka, spoke about transparency. The Government have introduced a requirement for the 22 professional body supervisors mentioned to publish annual reports on their AML supervision activity. This will support transparency and accountability and ensure consistency.

A report setting out the findings of the first review of the money laundering regulations to which I have referred will be published no later than 26 June 2022, with a call for evidence planned for this summer. That review will consider the effectiveness of the UK’s AML supervision and whether any reform is needed. It will also cover the OPBAS regulations.

Amendments 81, 82, 83 and 84 all propose to create a new criminal offence for corporate bodies or partnerships of facilitating, and of failing to prevent, economic crime or financial crime. First, I thank my noble and learned friend Lord Garnier for his focus on this important issue, echoed by other noble Lords who have signed the various amendments. The Government are committed to ensuring that under UK law corporate bodies and partnerships are properly held to account for criminal activity that takes place within them or is conducted by others on their behalf. The Government take these proposals seriously and are committed to considering whether there is a need to introduce such an offence. However, this is a complex area that requires careful consideration before acting. As noble Lords have noted, the principle of a “failure to prevent” offence is not opposed by the Government, as long as it is supported by a strong evidence base and addresses perceived gaps in the legal and regulatory framework. That is why in 2017 the Government issued a call for evidence on whether corporate liability law for economic crime needed to be reformed. Those findings were inconclusive and, subsequently, the Government commissioned the ongoing Law Commission review of this issue. That is expected to report by the end of this year.

I appreciate that this is a long-running issue, but before any broader, new “failure to prevent” or facilitation offence for economic crime is introduced, there needs to be strong evidence to support it. A new offence will also need to be designed rigorously with specific consideration given to how it sits alongside associated criminal and regulatory regimes and to the potential impact on business. Unlike with bribery and tax evasion, there are already extensive regimes, both criminal and regulatory, to hold both individuals and corporates to account for money laundering. Further, the “failure to prevent” offences introduced in respect of bribery and facilitation of tax evasion are both formulated to tackle very specific and precise circumstances. Wider economic crime offences present more complications. Fraud, for example, covers a much wider range of activity and business areas. The complexity of a broader economic crime offence is why the Government want to await the conclusions of the Law Commission’s review.

I also note briefly that the proposed new offences would only apply to activity undertaken,

“in the course of using or providing financial services”,

in keeping with the scope of the Bill. However, the 2017 call for evidence did not provide any evidence to suggest that financial services businesses should be specifically targeted with a new offence. Therefore, I believe it is best that this issue continues to be considered within the broader context, rather than focusing on financial services firms.

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[Lord Sikka (Lab) [V]]

The group of amendments which we just discussed focused primarily on economic crime. Matters such as tax avoidance and tax evasion have also been mentioned, which are often the domain of the accounting law firms, banks and others. The noble Baroness, Lady Noakes, is absolutely right in that accountancy trade associations, such as the Institute of Chartered Accountants, also carry out a variety of other regulatory functions; but the question is how well such functions are actually carried out. There have been a number of court cases brought, by HMRC, where the judges have held that the tax avoidance schemes were unlawful. I hope the Minister can help us by telling us whether, after those court judgments, even one big accountancy firm has been investigated, fined or disciplined by the Institute of Chartered Accountants or any other accountancy trade association. Even one example from the past 10, 20, 30, 40, 50 or 100 years will do.

[Baroness Penn (Con)]

My Lords, I would be happy to write to the noble Lord on his question. The debate focused on the role of these organisations in respect of their anti-money laundering supervisory functions. As I said to the noble Lord in my response, a review of the AML regulations will be published no later than 26 June 2022, with a call for evidence this summer. If he feels the need to input to that review, that would be very welcome.

[Baroness Bowles of Berkhamsted (LD) [V]]

I want only to point out to the Minister that I believe she said in her reply that the “failure to prevent” offences were targeting financial services firms. That is not the case. They were targeting use of financial services. The difference is quite important because it is much more generic, and I would not like anybody to think that I was targeting only financial services firms. The point is that it is quite difficult to do a lot of the things that are economic fraud without touching financial services. That is why it falls so full-square within what the Treasury is responsible for and why, as I said previously, it is particularly relevant to the Bill. I know the Minister has to have a “Hands off, do nothing and do not amend this Bill” attitude, but I hope that this issue will be taken to heart and that reasons to do something, rather than reasons not to, will be looked at. I was generic about the use of financial services, not financial services firms.

[Baroness Penn (Con)]

My Lords, I happily acknowledge that point. The point I was trying to make is that even with that slightly broader definition of the use of financial services, a “failure to prevent” offence for broader economic crime is one that people would want to apply in a broader context. I appreciate that the scope of the Bill defines how amendments may be written, and that takes me back to one of the reasons that my noble and learned friend Lord Garnier predicted I might give for resisting this amendment: that this is not the right Bill for it.

[Lord Eatwell (Lab)]

My Lords, this debate has evidenced considerable concern from all sides of the Grand Committee at the level of financial crime and the apparent inability to tackle it in this country in a consistent manner. I am afraid that the Minister’s reply did not provide any reassurance. Indeed, there seemed to be an enormous amount of long grass in evidence into which various reviews and considerations were being kicked.

Before commenting on the Minister’s reply to my amendment, I shall comment on the amendment by the noble Lord, Lord Holmes, on KYC. I entirely sympathise with his point about a modernised means of identification, but I am afraid he will come up against what seems to be a most peculiar British national aversion to any comprehensive means of identification. Therefore in KYC we rely on documents such as utility bills that were never designed for this purpose. The debate over a vaccine passport is running into the same national aversion. However, I wish him well because he is on the right track in what he is attempting to do.

I was also enormously impressed by the amendments in the name of and the speech made by the noble and learned Lord, Lord Garnier. I cannot understand why the notion of failure to prevent, which he described so clearly that even a non-lawyer such as myself could understand it, can apply to bribery and tax evasion but not to other financial crimes. The Minister did not really address that lacuna in her reply.

Turning to my two amendments, first, the UK’s approach to measures against financial crime is underresourced, scatter-gun and generally ill directed. The evidence is clear in the extraordinarily low number of prosecutions. I therefore feel that there is an urgent need for a major reconsideration of this matter. I hope that the review referred to by the Minister, to be conducted by Her Majesty’s Treasury and the FCA, will produce something concrete and effective—for a change, I must say.

On beneficial ownership, I was amused by the point made by the Minister that, because of the peculiar structure of my amendment, I was somehow letting the private sector off the hook. That was not my intention, of course; it was about the necessity of getting the argument in the Bill. However, I was really disappointed to hear her repeat the discredited support for Britain’s so-called wonderful public beneficial ownership open register. This public register is inaccurate, misleading and shelters criminals, and I am surprised that she is so enthusiastic in her support for it. I hope that the committee that scrutinises financial matters, which we discussed earlier in this Committee, will be able to keep an eye on developments in the prosecution of financial crime and the provision of a proper, verified beneficial ownership register. I hope that it will push these matters forward and not let them disappear into further reviews.

In the meantime, I beg leave to withdraw Amendment 49.