Sanctions and Anti-Money Laundering Bill [HL]

Earl of Kinnoull Excerpts

Ping Pong (Hansard): House of Lords
Monday 21st May 2018 Lords Chamber

[Lord Faulks]

My Lords, I think that the noble and learned Baroness is quite right with her mote and beam analogy. We must think about London, as my noble friend Lord Naseby, said. In 2016, David Cameron announced his intention in respect of anti-corruption and a register of beneficial interests. Since then we have had the Criminal Finances Act 2017 and this Bill. In both of those, my noble friend Lord Hodgson and I were keen to ensure that the Government did their best to stem the flood of dirty money, particularly into property money in London, by setting up a register of beneficial ownership which, when combined with unexplained wealth orders, might really do something to prevent what is a real obscenity about London property at the moment. So much money is flooding into the market yet so few people who start their work in London can afford to live. That is the mote that we have in London.

I wanted to press the matter to a vote, because our intention was to hurry this up, but I was met with formidable opposition from the Government, explaining how difficult the whole thing was. Finally, just before a vote might otherwise have taken place, I was reassured that there was much activity in this regard and there would be regular updates and a ministerial Statement. Sadly, the earliest the register would be legislation-ready was 2021—so five years after David Cameron’s summit. Here we have an amendment put down in the Commons after very little of the preliminaries, as has been quite rightly pointed out, with no consultation and nothing of the sort that one would expect with such a radical procedure. It states:

“The Secretary of State must, no later than 31 December 2020, prepare a draft Order in Council”.


It is a “must”, not a “may”. The only part of this amendment which is, perhaps, acceptable, is the very first part, describing the reasonable assistance to be given to the Governments of the British Overseas Territories. However, I apprehend that that is being—and has been—given for some considerable time. I disagree with my noble friend Lord Naseby on only one point: the Minister, not only today but in responding to the amendment so eloquently moved by the noble Baroness, Lady Stern, on Report, vigorously defended the position of the Government and of the British Overseas Territories in their attempt to comply with the natural desire that we all have to stamp out corruption.

This amendment goes on to require an Order in Council to be laid before Parliament, but then provides that it ceases to have effect,

“if not approved by a resolution of each House of Parliament before the end of 28 days”.

I wonder if a resolution of that sort would meet with the approval of both Houses of Parliament, having regard to the hasty way in which this amendment was introduced and to the real difficulties that it will cause to our friends in the British Overseas Territories.

This amendment is ill thought out, no doubt born out of an entirely proper desire to stem the flood of corruption. However, in so doing it damages our relationship with the British Overseas Territories at a time when we need all the friends we can get outside this country. The amendment asks them to do what is required in a timeframe which is much shorter than that for this country: the mote and beam analogy is entirely appropriate.

[The Earl of Kinnoull (CB)]

My Lords, I declare my interests as set out in the register of the House, particularly those in respect of financial services. I support Amendment 22A, in the name of the noble Lord, Lord Naseby. How well we know what a stramash would result if Westminster sought to legislate for Scotland, in a matter of devolved competence, without even consulting the Scottish Parliament. Parliament developed the Sewel convention to cope with this very situation. We have heard, in a very powerful speech, from the noble and learned Lord, Lord Neuberger, and others just how this convention now expressly extends to our overseas territories.

The overseas territories are proud and sophisticated countries and deserve our respect. Constitutionally, our respect includes conventions. Money laundering is, rightly, a devolved matter for them. Bermuda, the Cayman Islands and the British Virgin Islands are large and sophisticated financial centres with well-respected regulators. Accordingly, to legislate without even consulting these Parliaments is conventionally wrong. This is why I feel that the Sewel convention should apply. Westminster has the power to intervene and should exercise this only when things are badly awry. However, evidence of “awryness” is, in fact, the other way.

As other noble Lords have mentioned, Pierre Moscovici delivered a report last year, and this was adopted by the European Council on 5 December. On page 5 of that 35-page report, the Council affirms that,

“these actions collectively taken by EU Member States are in line with the agenda promoted by the G20, the OECD and other international fora”.

None of the overseas territories is on the blacklist.

Annexe 2 of the adopted conclusions, which was updated twice in March this year, lists countries in various categories that have agreed to make changes by the end of this year; it is a large list. In other words, provided that changes are made by those countries, in the EU Council’s view they will be fully compliant with EU, G20 and OECD thinking in this area. Only four of the 14 overseas territories feature on the list of co-operative countries. The other 10 do not; in other words, they are absolutely clean in the eyes of Pierre Moscovici and his very substantial and hard-working staff. In that respect, the 10 that are clean are doing rather better than Switzerland or Hong Kong, which both appear on the list. Indeed, 29 countries are making changes to improve transparency; none of the overseas territories is listed. Twenty-seven countries are making changes to anti-BEPs measures, which are sophisticated corporate tax dodges; none of the overseas territories is listed. Twenty-eight countries, including Switzerland and Hong Kong, are making changes to amend or abolish harmful tax regimes. None of the overseas territories is listed. Nine countries, including Bermuda, Anguilla, the BVI and the Cayman Islands, have agreed to,

“address concerns relating to economic substance”.

Among those nine countries are Guernsey, Jersey and the Isle of Man, the only time their names appear in the annexe at all. Those three islands do not appear in the Commons amendment and, as other noble Lords have observed, I cannot believe that is fair.

Sanctions and Anti-Money Laundering Bill [HL]

Earl of Kinnoull Excerpts

Wednesday 17th January 2018 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, I declare my interests as set out in the register of the House, particularly those in respect of financial services.

I greatly respect the noble Baroness, Lady Stern, and the other noble Lords who have signed the amendment, but I wholly disagree with it. If we in this Chamber sought to legislate for Scotland in a matter of devolved competence without consulting or without the consent of the Scottish Parliament, all of us know what a hullabaloo would be raised immediately. We would be reading about it in every newspaper; the media would be full of it. Indeed, the media are fairly full of warnings from the Scottish Government. I know the same to be the case in Wales. I was with the EU Select Committee recently. We visited the Welsh Parliament and, in the course of the day, the same point was made to me by, I think, every political party.

As a Parliament, we developed the Sewel convention to cope with this very situation. That has been put in the memorandum of understanding, and the October 2013 version of it states that,

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

Indeed, we put it into statute in, for instance, the Scotland Act 2016, which has of course now been litigated. I have here the Miller judgment. In his outstanding judgment, the noble and learned Lord, Lord Neuberger, rather elegantly reminds us in paragraph 144 that the Sewel convention was not invented recently but that its substance was in effect between, for instance, the UK and Southern Rhodesia in the 1960s. The Sewel convention represents something that this Parliament has had for a long time, and it stretches out to our overseas territories as well as to our devolved Administrations here.

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

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


I repeat all that and make a meal of it because I have to say that the six countries named in the amendment are proud and sophisticated places. Money laundering is rightly a devolved matter for them. Bermuda, for instance, is especially highly developed. Its GDP per head is much bigger than that of the UK, and it was not mentioned once in the Panama papers. Therefore, were we to legislate without even consulting these parliaments, let alone asking their consent, it would be deeply wrong. Just as with Scotland and Wales, our overseas territories would feel angry, which is why the Sewel convention is and has been a good thing. Westminster has the power to intervene and should exercise it were things badly awry. However, I have to say that evidence of “awryness” is in fact the other way. I looked yet again at the Wikipedia article on the Panama papers; about halfway down a long and extensive article, there is rather a good league table of banks that have been involved in the affair. Four of the top 10 banks listed in the league table were based in Luxembourg; none of the top 10 banks was based in any of the countries listed in this amendment. Therefore, there appears to be a bit of work to do at home, in the EU.

A second and much larger piece of evidence comes very recently from the EU itself. On 5 December last year, the EU adopted Council conclusions concerning non-co-operative tax jurisdictions. On page five of the adopted 38 pages I have in my hand, the EU Council affirms that,

“these actions collectively taken by EU Member States are in line with the agenda promoted by the G20, the OECD and other international fora”.

None of the six countries named in this amendment is on the black list.

Annexe 2 of the adopted conclusions lists countries in various categories that have agreed to make changes by the end of this year. It is a large list of countries. In other words, provided that changes are made by those countries, in the EU Council’s view they will be fully compliant with the EU, G20 and OECD thinking in this area. Only two of the six countries in this amendment are even part of that list of co-operative countries. Anguilla, the British Virgin Islands, Montserrat and the Turks and Caicos are not. In that respect, they are doing rather better than Switzerland or Hong Kong, which are. Indeed, 23 countries are making changes to improve transparency. None of the six countries of this amendment is listed. Twenty-two countries are making changes to anti-BEPS measures. Those are sophisticated corporate tax dodges. None of the six countries in this amendment is listed. Twenty-six countries, including Switzerland and Hong Kong, are making changes to amend or abolish “harmful tax regimes”. None of the six countries of this amendment is listed. Six countries, including Bermuda and the Cayman Islands, have agreed to,

“address concerns relating to economic substance”.

Among those six are also Guernsey, Jersey and the Isle of Man, the only time the Crown dependencies appear in the annexe. But, of course, they do not appear in the amendment.

Thus, after all the work of Pierre Moscovici and his officials—and he is no great friend of our overseas territories—and work aligned with that of the G20 and OECD, we are presented with this amendment. Six of the 14 British Overseas Territories have been singled out. Four do not appear on the definitive list at all; two do, and have agreed to take a very small amount of corrective action—the same corrective action that the Crown dependencies are taking, yet their names do not appear. I cannot fathom how this list of names was arrived at. To me, it looks unjust. I leave it to others to comment on mechanical aspects of the amendment, which also look problematic to me—but time is pressing.

The Government and the overseas territories, and indeed the Crown dependencies, have discussed these issues around the table regularly and, over the years, there has been continual incremental progress on this very important issue. The success of this approach can be seen in the work of Mr Moscovici and his very thorough 38 pages, with not one on the blacklist, and only a very small amount of agreed work to be done by a small number. We should continue to take this road, and the amendment is constitutionally wrong and unjust in casting unwarranted aspersions on a number of our loyal overseas territories.

[Lord Leigh of Hurley (Con)]

My Lords, I will not reiterate the many arguments made in Committee on the ineffectiveness of foisting public registers on the overseas territories for tax or law enforcement, but rather pay tribute to the noble Earl, Lord Kinnoull, and my noble friend Lord Naseby for making similar points to those that I would have made. Instead, I rise to make a different point.

I spoke in response to an identical amendment tabled by the noble Baroness, Lady Stern, to the Criminal Finances Bill on 3 April, memorably, as she said, one year after the Panama papers. That amendment was ultimately not moved but it has appeared by and large in the same form today. A similar amendment to the same Bill was moved in the other place regarding the Crown dependencies, which the Opposition Front Bench stated it was keener to legislate for than the overseas territories. The amendment was defeated by the substantial majority of 301 to 180. The interest of the UK, and the interest of fairness, is to achieve a level playing field between the members of the British family of territories. Clearly, it is also the intention of the Opposition Front Bench to legislate for the Crown dependencies, so that clear steer from the other place should be noted and the impact on the Crown dependencies considered. Still, much has changed even in those few months to make the call for public registers possibly less compelling.

Since then, both Crown dependencies that have been assessed by the OECD’s Global Forum—the world’s standard-setter for beneficial ownership, retention and international exchange—have been rated as among the few jurisdictions fully compliant with international standards. Indeed, they have a better rating than the UK. Moreover, since then, the overseas territories’ 2016 exchange of notes with the United Kingdom, under which they agreed to introduce government central registers of beneficial ownership, have come into effect. Those registers are accessible by UK tax and law enforcement on a same-day basis, giving the UK access to information that is unparalleled by any other jurisdiction in the world.

Even more so, partly in response to the debate in this House last year, the Criminal Finances Bill was amended to introduce mechanisms to review the effectiveness of the overseas territories’ and Crown dependencies’ registers and their exchange agreements with the United Kingdom. That amendment, now Section 9 of the Criminal Finances Act, requires the Government to prepare and lay before Parliament a report by July 2019 on the effectiveness of these new systems. This will allow your Lordships’ House to have the full evidence in front of it before taking any further steps. That was most wise. It buttresses the systems that have been adopted in the overseas territories, rather than undermining them; it meets international standards, rather than conflicting with them; and it gives the UK oversight of the overseas territories, rather than pushing them around. David Cameron was quite right and prescient in setting out tax evasion and counter-fraud legislation as a priority, and I pay tribute to him for that prescience—long before “McMafia” was aired.

To legislate now would be to pre-empt that report, which has already been legislated for and which would greatly inform your Lordships’ House on the strengths and weaknesses that might require improvement. Moreover, by legislating now—before evaluating the overseas territories’ systems, as the Government are now required to do—the United Kingdom may jeopardise the good will and unparalleled relationship that it has with those overseas territories and Crown dependencies. I therefore urge your Lordships to show caution in the approach adopted to avoid undermining the progress that has been made. Even in difficult times, with some of the overseas territories named in this amendment having been devastated by recent hurricanes, they have made progress to remain at the fore of international standards. Let us not pre-empt the evaluation that Parliament has already compelled the Government to conduct by approving this amendment.