Financial Services Bill

Lord Eatwell Excerpts

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

Moved by

[Lord Eatwell]

49: After Clause 30, insert the following new Clause—
“Review of penalties for insider dealing and financial services offences
(1) Within six months of the day on which this Act is passed, the Treasury must commission a review of penalties for insider dealing and financial services offences (“market abuse”).(2) The review under subsection (1) must include statistics relating to—(a) the perceived level of market abuse,(b) the number of arrests for market abuse, and(c) the number of successful convictions for market abusein each of the last five financial years.(3) The review under subsection (1) must also contain a summary of steps being taken by Her Majesty’s Government to ensure market abuse offences are identified and punished. (4) Within one month of the review under subsection (1) being completed, the Treasury must—(a) lay the document before both Houses of Parliament, and(b) make a statement responding to the review, including a declaration of whether and how the Treasury will act to—(i) increase the resources available to those charged with investigating market abuse,(ii) modernise and reform the United Kingdom’s suspicious activity reporting regime, and(iii) ensure greater consistency in the intensity of supervision across different parts of the financial services sector.(5) After the requirements under subsection (4) have been met, the Treasury may by regulations enact such reforms of market abuse provisions that are identified in the review.(6) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This probing amendment seeks to understand what steps the Government is taking to improve identification and punishment of market abuse. It asks for the Treasury to outline proposals for enacting recommendations from a 2018 evaluation by the Financial Action Task Force, the global money laundering and terrorist financing watchdog.

[Lord Eatwell (Lab)]

My Lords, we now come to the section of the Bill that introduces measures to deter financial crime, whether insider dealing or money laundering. None of us in this Grand Committee can be content with this country’s attempts to limit financial crime. Headlines that cry that London is the “money laundering capital of the world” may embody journalistic exaggeration, but, sadly, they are not that exaggerated.

I will first speak to Amendment 50 in my name and then turn to Amendment 49 in the names of the noble Lord, Lord Tunnicliffe, and myself. I admit that Amendment 50 is constructed in a rather peculiar way, and I am grateful to the clerks for that ingenuity and for allowing me to make what I believe to be an important point concerning money laundering legislation.

The measures in Clause 31, to which Amendment 50 refers, derive from the EU fifth money laundering directive and the UK response to the examination of UK anti-money laundering measures by the Financial Action Task Force. An important outcome of the FATF examination was Her Majesty’s Government at last announcing measures to deal with the scandal of Companies House.

One of the political puzzles of the past 10 years is that Conservative Prime Ministers have regularly referred to the register maintained by Companies House as a gold standard, a beacon of openness and an example to the rest of the world. In fact, the manner in which the register is constructed is the key element in those headlines that describe London as the money laundering capital of the world.

The scandal derives from the fact that Companies House does not verify the beneficial ownership of companies registered there. Companies House is a library in which any shameful book can be deposited. There are so many shameful books that have been deposited, and that is a matter of record. Just to take a couple of the more colourful examples, the Mafia managed to set up one UK firm with a director named as Ottavio Il Ladro di Galline—Ottavio the chicken thief. His occupation was listed in Companies House as truffatore—fraudster. Another company had an address that translated as “Street of the 40 Thieves”. At the moment, the Companies House register includes almost 4.5 million UK businesses, but it operates in much the same way as it did 150 years ago. That means that criminals have been able to set up seemingly legitimate shell companies without even the most basic identity checks.

Consider the case of Mr Kevin Brewer. A few years ago, he launched a campaign to expose how easy it is to fake British company records. He decided in 2013 to register government Ministers, including Vince Cable—the then Business Secretary—and the noble Baroness, Lady Neville-Rolfe, as the directors and shareholders of fictitious companies. The idea was to prove how anyone could form a company in the UK in any name or address that they wished. He used an online service offered by—you guessed it—Companies House. He then owned up. As a result, he was prosecuted by Companies House and fined £12,000. The Government issued a triumphant press release, which is still available on the government website, headlined:

“UK’s ‘first ever’ successful prosecution for false company information”.

It is the only prosecution in 150 years.

A study published by Transparency International in November reported that British shell companies were implicated in nearly £80 billion of money laundering scandals. On top of that, the anti-corruption group Global Witness reported in 2019 that more than 336,000 companies did not disclose their beneficial owner. It also found that more than 2,000 company owners were actually disqualified directors—people who had previously failed to meet their legal responsibilities and were banned from directorships in the future. A further study by, among others, my colleague, Professor Sharman of Cambridge University, found that it was impossible to establish a shell company in the Cayman Islands, the Bahamas or Jersey but it was easy to do it in London.

It should be clear that an open register, as we have in the UK, is no protection against financial crooks. Protection is provided only by verification and regular reverification of beneficial ownership by skilled forensic accountants. At last, in September of last year, under continuing pressure from the Financial Action Task Force, the Government published a document entitled Corporate Transparency and Register Reform. The Minister, the noble Lord, Lord Callanan, wrote in his foreword to the document that Companies House procedures, or lack of them, resulted in,

“Shell companies … set up for no other purpose than to launder the proceeds of crime – committed both here and overseas.”

The noble Lord, Lord Callanan, recommended verification of company data. However, the document contained an ominous sentence:

“This document sets out the actions the Government intends to take in response, subject to funding being agreed”.


Amendment 50 would simply require the Government to keep Parliament up to date with what is happening. After all, this is the biggest money laundering scandal to which the UK has been subject. When will this country acquire an honest register? How much funding has been agreed? Is it enough? When will the entire Companies House register—the whole register—be fully verified? I hope that the Minister will be able to tell the Grand Committee that initial funding has already been agreed, that future funding will be forthcoming and, to ensure that the momentum is sustained, that the Government will be happy to accept this amendment and report regularly to Parliament on the progress towards a fully verified register of beneficial ownership. The Government owe that to everyone who has been betrayed by the lax approach to money laundering.

I now turn to Amendment 49, which takes a wider perspective, seeking a thorough review of Her Majesty’s Government’s efforts to limit insider trading and market abuse, so providing a firm foundation for the measures outlined in Clauses 29 and 30 of the Bill. The rationale for such a review can be stated in brief as this: what is the point of Clause 30; what is the point of increasing the penalties if there are almost no convictions? Hundreds are prosecuted every year for fiddling a few quid from social security; you can count the annual number of prosecutions for crimes in high finance on the fingers of one hand. Consider this comment, published in the Financial Times on 3 November 2019:

“The FCA has previously been accused of taking a light touch approach to white collar crime. A freedom of information request showed the regulator prosecuted just eight cases of insider dealing, securing 12 convictions, between 2013 and 2018.”


There were 12 convictions in five years.

It is not as if there is no financial crime about. Consider this further story, published in the Financial Times on 10 September last year:

“Britain’s financial regulator”—


the FCA—

“is still working on a high volume of investigations into potential wrongdoing by firms and individuals, but delivering a relatively low proportion of clear outcomes at an increasing cost, according to new data.”

The Financial Times continues:

“the Financial Conduct Authority’s annual report provided details of its enforcement actions in the year to March 31 2020, and showed 185 cases were concluded in that period, leaving another 646 ongoing. In the previous year, 189 cases had been closed, leaving 647 open. However, despite this persistently high caseload, only 15 investigations resulted in financial penalties being handed down in the latest 2019-20 period — down on the 16 cases that led to fines in the two previous years.”

So what is going wrong? An important clue is to be found in the section of the 2018 report of the Financial Action Task Force dealing with the substance of UK measures to deal with money laundering and the financing of terrorism. The report states that, with respect to the UK Financial Intelligence Unit, which is the financial division of the National Crime Agency:

“The UK has pursued a deliberate policy decision to limit the role of the UKFIU in undertaking operational and strategic analysis. The UKFIU suffers from a lack of available resources (human and IT) and analytical capability which is a serious concern considering similar issues were raised over a decade ago in the UK’s previous FATF mutual evaluation. The limited role of the UKFIU calls into question the quality of financial intelligence available to investigators.”


Is it not the case that the surest way to deter criminal behaviour is to increase the likelihood that the criminal will be caught? I ask again: what is the point of increasing sentences while, at the same time, reducing the capacity to catch the criminals? When the Minister replies to this debate, will she explain why:

“The UK has pursued a deliberate … decision to limit the role of the UKFIU in undertaking operational and strategic analysis”?


Surely now is the time for a thorough investigation into the Government’s persistent failure to prosecute crime in our financial services industry. Accepting Amendment 49 will be a start. I beg to move.

--- Later in debate ---

[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.

Amendment 49 withdrawn.