EU: Money-laundering Directive

Lord Dykes Excerpts

Thursday 3rd April 2014 Grand Committee

[Lord Dykes (LD)]

My Lords, I am tempted to think that the noble Lord, Lord Willoughby de Broke, is a little overanxious about this matter. That will perhaps come out later on in this debate. However, he made some points that I am tempted to agree with on the background to this. It is a very complex and vast area, and it has dragged on for quite some time.

The latest manifestation is the massive vote in the European Parliament in favour of really significant action in this regard. All member Governments are obliged to respond, and there will be meetings in May and subsequently. Eventually, I presume, the new directive will come from the Commission. That will take time to unfold. Most countries already have some clusters of cultures in these matters of declaration, tax information and all the rest of it. However, once again there is obviously a difference between the UK and Ireland and the others in these general matters relating to trusts. The trust is a particularly Anglo-Saxon vehicle, so one has to bear those things in mind when trying to formulate coherent legislation.

The will of the European Parliament cannot just be laid aside, as it were. The vote was very emphatic. It was not only the numbers but also what was said in both the committees and the debate in plenary, with great emphasis that there was now a need to take action in this field and to establish coherence and equivalence between what the EU does as a collective, the worldwide anti money-laundering legislation of one kind or another and the international move to try to get everybody dealing with these matters in a similar way. It is a vast world problem. The noble Lord, Lord Willoughby de Broke, spoke quite rightly of the very honourable trusts that there are, particularly for young people, and all the rest of that paraphernalia we have of legal protection and that background. None the less, the worldwide money-laundering offence is vast, as we know. Member Governments of the EU, as well as authorities elsewhere and the world institutions, are trying to deal with these matters and work together. It is understandable that new legislation is needed.

The United Kingdom already has strong legislation on this. To my mind, it would be very reasonable and essential for HMG to say that the directive provides the broad outline of background permissibility of the legislation, and then each country will introduce its own Bill, becoming an Act after that, in its own way. I live in France as well, so I declare that interest. The law there is extremely different, but none the less aims for the same things. The French have a deep suspicion of this offshore money that is laundered by criminals, terrorists and gangsters of one kind and another in highly organised large international movements of people, moving large amounts of money. That has to be taken care of and followed up vigorously and with energy.

I believe that trusts must be included. However, the Government, in one of the recent ministerial letters on the subject, said with some justification, rather along the lines of the Prime Minister’s letter, that the Government do not believe that trust registries would necessarily be an effective option in addressing the risk associated with trusts. So I think there is a case, to some extent. Not being an expert I have to put in phrases such as that to limit my own operational ignorance of the details of these matters, although I was a City person for many years and saw the nasty side of some of these things from a distance from time to time.

That is an important question and perhaps the Minister will be able to help us in this debate by saying how the Government would deal with the specific question of trust registries—in the sense already implicit in the draft legislative proposal from the European Parliament, with its massive vote backing it up, as we know, that one should provide in public the minimum amount of detail to give satisfaction in the sense of revealing that it is not laundered illegal money, if that can be done.

Equally, to leave out trusts would be wrong, because obviously lots of villains would immediately switch from companies to trusts. You have only to go to some of the many tax havens that our own empire, rather more than others, unfortunately left as a legacy—rather more than France, which quite rightly takes a very dim view of tax-exile territories. That is where these things occur. The banks themselves have worked on an international comparison and co-operative effort, which is gaining strength all the time, and now includes Switzerland, Luxembourg and Lichtenstein, to try to deal with illegal, laundered money. This is gangster and terrorist money and illicit illegal money of other similar kinds. That background is helpful, too, and I wish the Government well in eventually dealing with this matter in terms of domestic legislation.

Will the Minister help us with one or two points that arise from this legislation? On the question of trusts, it says:

“If the beneficial ownership information of companies but not trusts is made public, the latter will become—

as I suggested earlier—

“the default alternative means to undertake the same criminal activities which the new company rules seek to prevent”.

Is a specific mechanism possible to deal with that particularly immediate problem?

I agree very much with the MEP Judith Sargentini when she says that:

“If we had decided to leave trusts out of the scope of the new legislation, then it would immediately have made them the perfect vehicle for criminals wishing to avoid taxation and launder their illegal money through the financial system”.

When considering the eventual directive that will come out of this legislative proposal, which will take some time, it is necessary to deal with that important problem.

I am also concerned about the phenomenology of the risk assessment procedure and I would be grateful if the Minister could help us there, too. The Explanatory Notes state that the risk assessment should cover at least the following aspects: the overall extent of money laundering and the areas of the internal market that are at greater risk; the most widespread means used by criminals to launder in illicit proceeds; as well as the recommendation to the competent authorities on the effective deployment of resources. The evaluation, by the way, should be done every six months. That may be quite difficult to keep to, although I do not wish to sound complacent about this desperate international problem—we will see.

The document further asserts that, to keep everything in proportion and targeted, member states could adopt, or retain in force, stricter provisions in the field covered by this directive to prevent money laundering and terrorism financing, provided that such provisions are in full compliance with Union law. There will, of course, be variations in the national legislation of each member state.

I exclude the two Irelands from my next comment because they, again, would need different treatment, and there is a historical British taxation background in both those countries. However, the culture of the member states that came in in 2004 will be somewhat different in many cases from that of member states which joined the Union prior to 2004.

Finally, I quote again from the Government’s response contained in the excellent House of Lords Library briefing pack, for which I thank the Library staff. It states that,

“while the Government remains broadly supportive of the Commission’s proposals, there are a limited number”—

[The Deputy Chairman of Committees (Baroness Andrews) (Lab)]

I am so sorry to interrupt, but there is a Division in the Chamber. We will adjourn for 10 minutes.

--- Later in debate ---

[Lord Dykes]

I was just about to finish by asking the Government three quick questions. In the Minister’s letter of 13 December 2013, which I was referring to, the Government broadly supported the Commission’s proposals but a limited number gave cause for concern. I am deliberately not including the gambling points; I am leaving those out because I think that they are empirically rational and sensible. First, what does the Minister estimate will happen when the ECOFIN meeting takes place? What will be agreed? Presumably it will need far longer than that to agree the total package.

Secondly, would the Commission’s proposal discontinue third-country equivalence listing as established under the third money-laundering directive? That needs further explanation.

Finally, the Commission intends—this is in the Explanatory Memorandum of the European Parliament’s legislative proposal—to complement the current proposal by strengthening the EU’s repressive response to money-laundering. Consequently, there is a plan to propose criminal law harmonisation for this offence based on Article 83(1) of the TFEU. That also needs more explanation because there are arguments for and against that concept.