Sanctions and Anti-Money Laundering Bill [HL]

Lord Hain Excerpts

2nd reading (Hansard): House of Lords
Wednesday 1st November 2017 Lords Chamber

[Lord Hain (Lab)]

My Lords, it is a real privilege to follow the noble Baroness. I have been in the House for less than two years, but she has always struck me as a real star. I have marvelled at the way in which she has managed to make the Government’s case on Europe vaguely plausible, which shows expertise and charm. I have also noticed that the noble Baroness has always spoken and answered questions from the Front Bench, including from myself, with great courtesy, even giving the impression in her answers that she has listened to the questions. Her colleagues may well want to bear that in mind. I note that the casualty rate in the post that she has just left seems to be quite high. I wish her all the best in the future, and I am sure that the whole House does as well.

The noble Baroness made the case for sanctions against South Sudan and elsewhere compellingly. I do not refer to her specifically, but I remember the way in which this House opposed sanctions against the apartheid regime. If she had been in the Conservative Government at the time, perhaps that might have changed.

There have been no criminal prosecutions for money laundering of financial institutions, and very few of other “enablers” such as lawyers and accountants. There have been regulatory fines, but it is not clear that these are enough to deter banks and other financial players from making their anti-money laundering compliance regimes a tick-box exercise rather than a meaningful one. This Sanctions and Anti-Money Laundering Bill enables the Government to introduce regulations that would create new civil penalties and criminal offences for money laundering, but the threshold for the latter is low—a maximum three-month sentence for a criminal conviction.

As the noble Baroness, Lady Bowles, mentioned, using such powers to enable the Government to introduce criminal offences by regulation is against parliamentary convention. The noble and learned Lord, Lord Hope, also referred to this matter with his expertise. Surely it would be better for the Government to accept or introduce an amendment to the Bill to introduce a “failure to prevent” money laundering offence, like that in the Bribery Act and as there now is for tax evasion, which would ensure that such an offence was introduced by primary legislation.

As I said, the noble Baroness, Lady Anelay, made moving points about South Sudan and elsewhere from her experience. However, my main focus today is whether the Bill will deal effectively with the massive money laundering organised from the very top of the Government in South Africa, the presidency itself—the subject of my Oral Question on 19 October in your Lordships’ House and my letter to the Chancellor of 25 September. I beg some indulgence in speaking at greater length than the noble Baroness on this to spell it out. It is serious.

Corruption within and money laundering from a monopoly capital elite around the President’s family in South Africa and their close associates the Gupta brothers—which is painful for me to witness, having been active along with my brave parents in the anti-apartheid struggle—show that winning the war against financial crime will require co-ordination, influence, action and accountability between multi-jurisdictional law enforcement agencies. Money laundering is a key enabler of organised crime, allowing criminals to transmit multi-billion pound illicit funds into the legitimate economy, undermining its integrity and public trust. However, confronting it is difficult, partly due to the fragmented information-sharing arrangements across borders and between banks and law enforcement agencies. It is all very well to develop better protection for our own country, as this Bill purports to do, but, without simultaneously enhancing cross-border co-operation, we will not win the war against financial crime.

On regular visits to South Africa—most recently last month—I have been stunned by the systemic transnational financial crime network facilitated by an Indian-South African family, the Guptas, and the presidential family, the Zumas. If there had been more proactive and genuine co-operation between the multi-jurisdictional law enforcement agencies, and within and between the banks, which have been moving money for the Gupta/Zuma laundering network, the devastation wrought on South Africa could have been significantly reduced, and perhaps the financial institutions involved would have been able to better mitigate their exposure.

I had delivered by hand last night to the Chancellor printouts of transactions and named the British bank concerned, and I asked that he again refer these to the Serious Fraud Office, the National Crime Agency and the Financial Conduct Authority for investigation. This information shows illegal transfers of funds from South Africa made by the Gupta family over the last few years from their South African accounts to accounts held in Dubai and Hong Kong. The last columns of each sheet, now in the Treasury, show the relevant banks involved, and the records show all account numbers used. Many of the transactions are legitimate, but many certainly are not.

The latter illicit transactions were flagged internally in the bank concerned as suspicious, but I am reliably informed that it was told by the UK headquarters to ignore it. That is an iniquitous breach of legal banking practice in the UK, which I trust Ministers would never countenance, and it is also an incitement to money laundering, which has self-evidently occurred in this case, sanctioned by a British bank, as part of the flagrant robbery from South African taxpayers of many millions of pounds and many billions of their local currency, the rand.

Each originating transaction would start with one bank account and then be split into a number of accounts a couple of times to disguise the origin. Undoubtedly, hard questions will need to be asked of the facilitating banks, because they have aided and abetted the Gupta money laundering activities. Can the Chancellor please ensure that such evident money laundering and illegality is not tolerated and that the bank is investigated for possible criminal complicity in this matter? Urgent action is needed to close down this network of corruption.

Then let us consider an example of the devastation caused to South Africa by cross-border money laundering. The Free State, one of nine provinces in the country, is marked by miles of flat, rolling grassland and crop fields, and it is the country’s granary, responsible for 70% of total maize production. Britain played a defining part in the history of this province, as it marked one of the most contested spaces during the late 19th century/early 20th century South African wars involving the British imperialists, the Afrikaner nationalists and the Basotho people.

Today, the Free State is one of the poorest provinces in South Africa. Nearly one in two of the people is unemployed and nearly two-thirds live below what is called the “upper bound poverty line”. More than half of the people in that province survive on one meal a day, tens of thousands of children go to school hungry, if they are fortunate enough to be in school, and over half of the province’s children drop out of school before obtaining their matric—roughly equivalent to our A-levels—primarily because their daily focus is on survival.

Therefore, when in February 2013 the Free State Government announced that they would spend £18 million —approximately 340 million South African rand —to build, in a small Free State town called Vrede, a dairy farm which would be part-owned by 80 impoverished beneficiaries, the local community felt a sense of hope. Indeed, this kind of public/private partnership is a commendable and deeply necessary model of economic empowerment to redress the profound racial inequalities generated by the apartheid state, which continue to reverberate throughout South Africa.

What the people of Vrede did not know was that this project, and therefore their village, would become the scene of a transnational money laundering crime committed by collaborators from within the Free State Government on the one side and the now notorious Guptas on the other. In essence, this criminal network used these 80 people and their families as pawns in a swirl of international money laundering, which involved some British and other financial institutions.

The laundering operation went like this. Step 1: in May 2013, three months after the Free State Government announced the dairy farm project, a company called Estina—ostensibly the vehicle for the 80 beneficiaries but which was actually linked to the Guptas—was handed a farm to begin building the dairy. Estina’s sole director was an IT salesman with no farming experience. The project was not put out to public tender. Step 2: the Government almost immediately transferred about £6 million to Estina. Step 3: instead of investing this in the farm, Estina transferred most of the money to a Gupta company in the United Arab Emirates called Gateway Ltd. Gateway is registered in Ras al-Khaimah, RAK, which is one of seven emirates making up the UAE and a highly secretive offshore company jurisdiction. At the time, Gateway held its account with the British bank Standard Chartered, which the bank has subsequently closed.

Step 4: once the funds were in Dubai, the Guptas engaged in a classic laundering cycle, transforming illicit money into ostensibly legitimate assets. In arguably the most eye-watering example, they transferred over £2 million of the Estina dairy money in two separate tranches through two shell companies, ultimately consolidating it in their Standard Chartered account for another of their UAE-based companies, called Accurate Investments. The bank has since closed this account too. Step 5: they then transmitted this money into an entity called Linkway Trading, banked with the State Bank of India, back into South Africa.

Step 6: once in Linkway, the Guptas used these funds to pay for a lavish four-day family wedding where, among other extravagances, over £1,000 was spent on chocolate truffles, £120,000 on scarves for guests and £20,000 on fireworks. At about the same time that the Guptas were celebrating at the wedding, veterinarians in the town of Vrede were called to the dairy farm because of the reeking stench of dead animals. According to their report, they found at least 30 cows that had been buried in a ditch having died from,

“an unknown condition that could be caused by malnutrition”.

I have detailed the Vrede dairy example because many of us do not appreciate the destitution caused by money laundering. It almost always requires the complicity, whether witting or unwitting, of financial institutions. In this case, some of those are headquartered in Britain, such as Standard Chartered. I am grateful that the bank is now being investigated, along with HSBC and the Bank of Baroda, by the Serious Fraud Office, the Financial Conduct Authority and the National Crime Agency following my Question in your Lordships’ House on 19 October and my request to the Chancellor.

The success of these criminal networks relies also on the action or inaction and co-operation or non-co-operation of the relevant law enforcement authorities. Always, it is the poorest who bear the brunt. In my letter to the Chancellor on 25 September requesting that he investigate UK bank exposure to the Gupta/Zuma network, I listed the 27 entities and individuals who were, among others, involved in the Vrede dairy farm tragedy. It is by no means the only example of the devastation wrought on South Africa by the Zuma/Gupta network.

The Vrede dairy criminal catastrophe proves that the laundering was effected through a transnational triangulation between South Africa, the UAE and British and other global banks. Therefore, the success of our law enforcement authorities in protecting our country from the proceeds of ill-gotten gains entering our financial system, as this Bill seeks to do, and by association protecting more vulnerable developing nations from falling victim to extractive criminal networks, depends on genuine and proactive co-operation and collaboration between the relevant law enforcement agencies in the concerned jurisdictions. Frankly, this Bill falls well short of what is required to do that.

Familiarising myself with the Vrede dairy farm tragedy—and taking some time in this House to explain it—what struck me time and again is why an internationally respected bank such as Standard Chartered would open bank accounts for shell entities registered in a free trade zone such as Ras al-Khaimah, whose primary attraction is as a highly secretive offshore jurisdiction. What was it doing this for? Shell companies, by virtue of their ownership anonymity, such as those used by the Guptas in the Vrede dairy tragedy, are generally classic vehicles for money laundering and other illicit financial activity. According to the Financial Crimes Enforcement Network, shell companies,

“typically have no physical presence other than a mailing address, employ no one, and produce little to no independent economic value”.

The Financial Action Task Force, established in July 1989 at the G7 Paris summit, has consistently warned that free zones could be used for illicit trade and money flows that fall below the radar of regulatory authorities. We know that free zones have become an increasingly popular mechanism for the UAE and other countries looking to lure international investment and boost foreign trade. However, the question for us is whether we are ensuring that our financial institutions are facilitating, inadvertently or not, misuse by those interests attempting to move their illicit funds from one part of the world to another in order to facilitate money laundering, mafia crime, terrorist activity and financing, as the Minister said, and robbery from taxpayers, as in the South African case.

There are disturbing questions around both the complicity, witting or unwitting, of UK global financial institutions in the Gupta/Zuma transnational criminal network, and these institutions’ wilful blindness to the reality that the laundering process most often necessitates financial systems with lax regulation and controls. Unless we urgently find ways to leverage our respective capabilities to co-ordinate and influence action between the law enforcement and banking sectors—domestically here in the UK and globally—we cannot win this battle.

I have received new information, which is still being corroborated, that the Gupta/Zuma network may be using the global metal recycling sector—some of the company names I have received have a UK presence—to launder the proceeds of their corruption. Indeed, this preliminary information suggests that, as South African banks, including British headquartered ones there, have shut down Gupta accounts in response to the financial crime risk they pose, so the family has simply shifted its laundering machine into the metal recycling sector, using intermediaries within these companies in South Africa, the Middle East, possibly the UK and Hong Kong to move their funds for them.

My question, therefore, to British-based financial institutions and to the Government is: are their compliance departments applying the necessary forensic eye to this secondary-layer threat—as primary accounts are shutdown, so the illicit funds must find alternative channels—and are law enforcement agencies and their regulators applying their minds, sharing information and, in so far as they can, acting on it?

My latest information, supplied as before by South African whistleblowers deep inside the system and disgusted by the corruption at the heart of the state, suggests metal recycling is the latest conduit. However, there may be other sectors these criminal networks are penetrating and I ask the Minister to investigate this.

Unless we use the opportunity before us to crack down meaningfully on these criminals, they will always be one step ahead. Over the past few months, several multinational companies have either fallen or been massively contaminated as a result of their complicity in the Gupta scandal, including Bell Pottinger, McKinsey, KPMG and SAP. The US Justice Department and the US Securities and Exchange Commission are now investigating German multinational SAP after it apologised the other week—“wholeheartedly and unreservedly”—to the people of South Africa for paying over £6 million in kick-backs to Gupta companies as part of their network of corruption headed by President Zuma and his family.

I believe that it is a matter of time before financial institutions in South Africa, in the Middle East, in Hong Kong, here in the UK and in the US will be forced to answer hard questions about their own complicity, and they must. I am today sending a copy of this speech, together with my letter of 25 September to the Chancellor, to the US Ambassador to London formally asking the US regulatory authorities to intervene, as the FBI has already begun to do. I am also asking the Government—I would be grateful if the Minister could respond on this point—to press the financial authorities in Hong Kong and Dubai to cut all links with the Guptas and Zumas. My Labour MEP colleague Neena Gill is raising the matter in the European Parliament, and Commissioner Pierre Moscovici has agreed to her request to investigate European banks which may be involved. In parallel, I wrote to the President of the European Commission, Jean-Claude Juncker, on 25 September asking him to act, but have not yet had a reply.

It is not only financial institutions and Governments which need to ensure that they are above reproach. A number of other global firms, whether legal, auditing, forensic or advisory in nature, have provided professional services to some of these complicit individuals, companies and institutions. These include UK-based firms such as Grant Thornton and Hogan Lovells, which have conducted forensic investigations at the South African Revenue Service under the brief of its Gupta-aligned head, Tom Moyane. Norton Rose Fulbright and Morrison & Foerster have assisted in the internal investigation at McKinsey into that company’s links to the Guptas. There are other examples. I am not suggesting that these firms are necessarily complicit in the corruption, because in most cases they have been employed by the complicit companies—for example, Norton Rose and Morrison & Foerster by McKinsey—to try to surface the corruption.

In conclusion, I am suggesting that it is absolutely critical that all professional firms cut their contacts entirely with any individuals or entities associated with the Gupta and Zuma families or their associates. At the very least, whatever pressure they may come under from their clients and whatever the cost is to their commission or fees, they must conduct themselves according to the highest professional standards, which most if not all have palpably failed to do so far, as we saw with KPMG, McKinsey and SAP. To its credit, the law firm Cliffe Dekker Hofmeyr recently upheld the highest professional values by boldly exposing corruption and dishonesty by senior executives at the country’s power utility, Eskom.

As I stand here today, the 80 individuals who were supposed to benefit from the Vrede dairy farm are destitute. The complicity of our financial institutions in this, as well as the responsibility of law enforcers and regulators in all the concerned jurisdictions, should make UK Government Ministers and UK parliamentarians hang their heads in shame. Just as they were complicit in sustaining apartheid, so today they are complicit in sustaining the corrupt power elite in South Africa which is now betraying the legacy of Nelson Mandela and the anti-apartheid struggle.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Hain Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 6th December 2017 Lords Chamber

[Lord Hain (Lab)]

My Lords, it is a pleasure to follow such an expert and impressive speech from the noble Baroness, Lady Bowles, in moving Amendment 69B. The amendment is supported by my noble friend Lord Collins, and I have put my name to it. It introduces a failure to prevent offence.

In June 2011, the then Financial Services Authority found shocking inadequacies in UK banks’ anti-money laundering controls, with one-third of banks accepting,

“very high levels of money-laundering risk”,

and three-quarters of banks failing to take adequate measures to establish the legitimacy of the wealth they were handling. The then acting head of financial crime at the FSA, Tracey McDermott, said publicly:

“The banks are just not taking the rules seriously enough”.


Yet, after all these strong words, what happened? Instead of the FSA—now the FCA—getting tough with the banks, since 2010 there have been only 10 convictions under the money laundering regulations, not one of them of a bank. It is therefore hardly surprising that there have been repeated money laundering scandals involving UK banks. There is simply no adequate deterrent or serious regulatory risk to make UK banks turn away profitable business that they are offered, and there will not be until the FCA starts prosecuting people and banks for failing to apply the regulations.

By chance, I met a business analyst this morning. Although I did not know it beforehand, he happened to be an expert in this area, and he described London as the money laundering capital of the world. If he is right, that is shameful. The UK is woefully behind where it should be on holding banks and financial institutions to account for money laundering. HSBC was fined $1.2 billion in the US in a criminal settlement for money laundering, and just a few weeks ago it was fined $352 million in France to settle criminal charges for money laundering. Despite being a UK-headquartered bank, and despite being under investigation since last December by the FCA, HSBC has not yet faced regulatory sanction in this country, even though it has been named repeatedly in corruption cases, for example in Nigeria in 2012 and during the 2000s. No UK action was taken against HSBC in any of those cases. Earlier this year, HSBC was again implicated, with other British banks, in laundering ill-gotten money out of Russia.

A failure to prevent offence for money laundering, as provided for in Amendment 69B, would make it significantly easier to hold large global banks such as HSBC to account for poor procedures and for turning a blind eye to handling corrupt wealth. Without this reform, as Jonathan Fisher QC, a money laundering expert, has explained, it would be difficult and clumsy for the FCA or any other agency to prosecute a bank such as HSBC because it would have to show that a director or some other controlling mind in the parent company in London knew about the alleged misconduct. Indeed, it would have to show that that director intended the misconduct to happen. This is an exceptionally high bar which makes it virtually impossible to hold large global financial actors such as HSBC to account in the UK.

In my speech at Second Reading on 1 November 2017, I described a vivid context for this Bill: the massive money laundering organised from the very top of government in South Africa—the presidency itself—and the systematic transnational financial crime network facilitated by an Indian/South African family, the Guptas, and the presidential family, the Zumas. British-based financial institutions such as HSBC, Standard Chartered, the Bank of Baroda and other international institutions have been conduits for laundering hundreds of millions of pounds or billions of rands, mostly through Dubai and Hong Kong.

The South African Parliament itself is in the process of holding a public inquiry into large-scale state capture involving even larger-scale corruption and looting of state-owned enterprises. On 21 November 2017, Mr Zola Andile Tsotsi, erstwhile chair of the state-owned electricity generator, Eskom, gave evidence under oath. What resulted is the first smoking gun implicating the President of South Africa, Jacob Zuma, who exerted shadow control over state-owned enterprises which have been exploited through large-scale looting and money laundering, from which his family and friends have benefited. He did this by deploying one of his nominees, Ms Dudu Myeni, a person near and dear to him—he fathered a child by her. Educated as a primary school teacher, in 2012 she was appointed chair of Africa’s largest state-owned airline, South African Airways. In early December 2015, the then Minister of Finance, Nhlanhla Nene, rejected her request to renegotiate a fleet renewal deal for SAA, because it smacked of corruption. Within days, the President sacked Minister Nene.

Evidence before the South African parliamentary public inquiry showed that, as chair of the state-owned airline, Ms Myeni not only facilitated looting by the Zuma and Gupta families, but also sought to control, instruct and manipulate the running of another state-owned power utility, Eskom, from which the Gupta family, through an intricate network of companies, have siphoned off billions of rands, via various banks, including London-based banks which I am asking the British authorities to investigate. I am grateful to the FCA for the contact it has had with me to pursue this.

First, Eskom chair Mr Tsotsi was ordered by the government Minister for Public Enterprises in February 2015 to refrain from “interfering” with the management of Eskom. He only chaired the Eskom board, after all—why on earth should he bother himself with holding to account the executives underneath him? This ministerial instruction, to put it simply, was aimed at stopping him scrutinising the decisions and behaviour of Eskom and instead ensuring he turned a blind eye to the corrupt award of multibillion-rand contracts to the benefit of the Gupta and Zuma families.

According to the evidence at the parliamentary inquiry that same day in February 2015, Mr Tony Gupta phoned Mr Tsotsi, accusing him of not “helping us with anything”, adding: “We are the ones that put you in the position you are in. We are the ones who can take you out!”. A few days later, on the eve of the newly appointed Eskom board’s first meeting, President Zuma called Mr Tsotsi, instructing him that the board meeting be postponed, without even giving reasons. Less than a week later, Mr Tsotsi was instructed by South African Airways chair Ms Dudu Myeni to attend the presidential residence on 7 March 2015, where she unlawfully ordered the suspension of three of Eskom’s key executive members. President Zuma arrived late to the meeting and ordered that Mr Tsotsi go along with the plan, resulting in one of the most notorious examples of looting in South Africa’s recent history. This Zuma-Gupta conspiracy then left the door wide open for the appointment of Gupta stooges, who in less than 18 months had bled the power utility dry. It now faces bankruptcy and has been downgraded by international financial institutions due to governance failures. I am explaining the background before coming to the point about money laundering and the responsibility of UK authorities.

Eskom has more than 471 billion rands in outstanding debt, the majority of which is guaranteed by the South African Government and owed mainly to funders outside the country. In October 2017, Eskom revealed to its largest shareholder, the South African Government, that the power utility only had 1.2 billion rands left in its cash reserves until the end of November 2017, when it should have had 20 billion rands. It is estimated that by the end of January 2018, Eskom will be running a deficit of 5 billion rands. Eskom’s virtually giving billions to the Gupta-Zuma syndicate through nonsensical consulting contracts, tenders for fictitious goods and services, and advances to allow them to buy the coal mines from which they then sold back overpriced, poor-quality coal is the underlying cause of what went wrong.

Similarly, in September 2017, South African Airways was given emergency Treasury funds to help it repay loans of 3 billion rand to Citibank, again diverting precious money from taxpayers into the pockets of the Zumas and Guptas. The bill is being picked up by taxpayers when there is a shortage of the decent schools, hospitals, housing and job opportunities those billions should be spent on.

Each South African state-owned enterprise has been looted using the same modus operandi by the same elite individuals at the very top of the chain—namely President Zuma and his family, and the now infamous Gupta family. They have placed cronies such as Ms Myeni in key decision-making positions in these public enterprises to ensure that all valuable tenders are siphoned off to the Guptas, and in return a cut is then given to the Zuma family. Hundreds of millions of pounds have been siphoned off these important public companies in a process that has been described by the South African media as “state capture”. What is more, well-placed South African whistleblowers inform me that UK financial and banking institutions have been used for the systemic transnational financial crime network run by Gupta and Zuma families.

Then there is the shadowy figure of Mr Nick Linnell, a “Mr Fixit” who, in the late 1970s, operated in the illegal racist white minority regime of Ian Smith in then Rhodesia. He was unlawfully hired by Eskom, on Ms Myeni’s instructions, to assist in unlawfully getting rid of certain executives, thereby clearing the way for the corrupt capture of Eskom. It has now emerged that South African Airways, through dubious unauthorised payments to Mr Linnell, and working hand-in-glove with the remnants of South Africa’s notorious apartheid police, has deliberately targeted well-known anti-corruption activists. This has resulted in unlawful arrests, detention and torture, as part of a desperate attempt to silence these courageous men and women, to stop them exposing systemic state-sponsored corruption. By the way, last weekend it was announced that Dudu Myeni had been appointed as the special adviser to the Transport Minister and that she came “highly recommended”.

I therefore hope not only that this amendment will be supported by the Government but that there will be an immediate investigation by the City of London Police, the Metropolitan Police and the financial regulatory authorities into all bank accounts held in London by any South African state-owned company. Can the Minister, in replying to the amendment, please give me an assurance that this investigation will proceed? Because of the South African Airways chair’s patently unlawful involvement with the Zuma and Gupta families, the authorities should start their investigations with the airline, which is known to bank here in London, to ensure that its UK accounts have not been used for the illegal laundering of moneys from the proceeds of financial crime in South Africa, and that payments from it into UK banks have not been used to pay off stooges who have unlawfully targeted corruption whistleblowers.

The British Government must not permit any UK-based financial institution to be complicit in the plundering of state-owned companies in foreign lands, especially when that plunder affects the poorest of the poor. South Africa suffered enough repression over the apartheid years, and we cannot stand idly by while economic repression replaces racial oppression, serving the greed of corrupt leaders, when we have the ability to help stop it.

The exposure of HSBC, Standard Chartered and the Bank of Baroda to the parasitic Gupta financial crime network is currently the subject of international law enforcement investigations from the FBI to our own FCA. Inevitably, when dirty money from a global criminal network infects one financial institution, it will sequentially infect a number of others. This is the result of what is known as “correspondent banking”—a term that I have just been educated in—which by its complex nature is often misunderstood. Correspondent banks are international banks that clear smaller, generally domestic banks’ foreign currency transactions through large financial centres. In practice, this means that one transaction can move through a chain of financial institutions from the point of payment before it reaches its intended beneficiary. This creates significant money laundering and terrorist financing risks because each bank in the chain has to rely on the other to correctly identify the customer, determine the real owner and monitor the transaction. In essence, the correspondent bank is only as strong as the weakest link in the chain.

--- Later in debate ---

[Lord Hain]

Perhaps I may press the Minister to respond to my request on red flag warnings to the British domestic banks. I am happy for him to write to me about it, but some government response on this matter is important to try to deal with this infection of our own banking system by a disease that is spreading throughout the South African economy.

[Lord Bates]

The noble Lord, as an experienced Member, will know that when there is an ongoing investigation, to which he referred, it is often dangerous for Ministers, who are supposed to be detached from the process, to comment. However, I recognise the seriousness of the allegations—as does the Chancellor—and they have been passed to the appropriate authorities. I am pleased that they are being investigated.

[Lord Hain]

I apologise to the Committee for probing this point. I am grateful for the Minister’s response but I have named other banks as well as those to which I previously referred—namely, HSBC, Standard Chartered and the Bank of Baroda. I hope that he or the Chancellor will send me a letter in the manner in which the Chancellor responded to my earlier request—even if the Minister cannot respond this evening, for reasons that I totally understand.

[Lord Bates]

I am happy to undertake to write to the noble Lord in response.

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister for his responses to the amendments in my name and that of my noble friend. I am conscious that there are issues of due process around consultation, but forgive me if I also think that there was a bit of fancy footwork going on with the alacrity with which a call for evidence went out during the progress of the Criminal Finances Bill, when some distinguished Members of the other place started to take a great deal of interest in including an offence of failure to prevent. It is the best part of nine months since then and probably three months since I was contacted and asked whether it was okay to publish my submission to the call for evidence. I said yes, but still nothing has been published. I do not know why we cannot see some of the responses separately from the response of the Ministry of Justice.

However, one thing that has been established is that we have a pretty rubbish criminal regime on corporate liability. Something has to be done. In that context, it would be good to know how long the Minister thinks it might take for the Government to analyse whether any good has been done by having a second failure-to-prevent offence on tax evasion. I gave an exposition of how good it is to have one, and it will not be shown to be any weaker vis-à-vis tax evasion than it is vis-à-vis bribery. Therefore, to require specific evidence within the economic crime sphere is probably overegging it.

The Minister referenced fines, and there will potentially be more fines under the money laundering regulations 2017. I accept that, as well as what he said about the senior managers regime—but ultimately you have to be able to bet to board level. It is, importantly, board members who ultimately control how much resource goes to internal audit. That is behind the director disqualification point. It is always somebody further down, not the people at the top—the people who are able to pass the buck to some junior person who may not necessarily have been given the resources. They are the ones who carry the can, mainly in the senior managers regime.

I therefore hope that the Minister will listen to and think about these points, and consider how much use the Secretary of State is making of the potential for director disqualification when it is discovered that procedures have not been in place in the regulatory environment. The Secretary of State could still say, “Right, I want investigations of whether the directors are fit and proper because they have allowed these things to go on within the companies for which they are ultimately responsible”.

[Lord Hain]

I would be grateful if the noble Baroness and my noble friend Lord Collins would consider putting this amendment to a vote on Report. I worry that the consultation will go on for so long that the Bill will have passed through this House—and possibly the Commons as well—before we have a chance to vote on this important failure to prevent offence.

[Baroness Bowles of Berkhamsted]

I thank the noble Lord, Lord Hain, for his support. It is certainly a matter to which we will return—not least because the other place has shown interest in this subject. There are problems with the timing; it may be on the never-never, as he suggests. But for now, I beg leave to withdraw the amendment.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Hain Excerpts

Committee: 4th sitting (Hansard): House of Lords
Tuesday 12th December 2017 Lords Chamber

[Baroness Sheehan (LD)]

My Lords, I wish to speak to Amendment 75A, which is also in my name. I agree with all that the noble Lord, Lord Collins, said. The Bill allows such sweeping powers to future Ministers that we on this side of the House seek to put in place safeguards which will enable Parliament greater scrutiny over the regulations made under Clause 16—namely, that they are made by the affirmative procedure.

Clause 16 is the enforcement clause which includes not only the creation of criminal offences punishable by up to 10 years in prison but makes provision for matters in relation to those offences, including defences and evidentiary matters. The Constitution Select Committee has recommended that Clause 16 should not remain part of the Bill, stating its opinion that such regulation-making powers are constitutionally unacceptable. Indeed, we heard arguments to that effect from the noble and learned Lord, Lord Judge, and my noble friend Lady Bowles on the first day of Committee. I agree with the noble and learned Lord, Lord Judge, that this clause should not disfigure our statute book, as he said. Therefore, this amendment is purely an attempt to create a safety net should Clause 16 remain part of the Bill.

[Lord Hain (Lab)]

My Lords, I added my name to this group of amendments and I support my noble friend Lord Collins in pressing for greater safeguards and extra parliamentary scrutiny, not least because, as I detailed last week in Committee, the banks and London have an appalling record on money laundering—it gives me no great pleasure to say that. We pride ourselves on having one of the best centres of finance in the world, and it is a tremendous source of employment, which is important. However, there is a record of money laundering that simply requires extra parliamentary scrutiny, which is why this group of amendments is so important. That gives me the opportunity briefly, as noble Lords will be relieved to know, to comment on today’s news that HSBC has been relinquished of the penalties that could have applied in the United States of America for similar allegations. That is good news for a British bank that has a global footprint, and for its many employees here in Britain.

I will make two points on this. I caution all our banks which face allegations of money laundering—the Minister may care to comment on this point. Usually, their initial response is to deny it. Then, for example, HSBC, discovered several accounts held by the Gupta brothers, who are South African associates of President Zuma’s family, and it has closed them down, which is welcome. However, we have had a steady stream of allegations against mainly British companies: Bell Pottinger and KPMG, and then McKinsey, which is an American-based company with a presence here. Their initial stance is to deny, then admit, and then apologise. I caution them that with this disease of money laundering it is better not to deny in the first instance.

My second point is to thank the Financial Conduct Authority for the way it has engaged on this issue. I can report to the House that at least one whistleblower who has been supplying me with information from South Africa has engaged directly with the FCA—it has been a positive experience. I say to the financial institutions involved that I named in your Lordships’ House, including HSBC, Standard Chartered and the Bank of Baroda, that if I find that there is any witch-hunting of those responsible, or of the brave, courageous people in the South African governmental system who have also been supplying me with information, I will name the institutions involved and identify the individuals as having suffered that persecution. I say this before your Lordships because it is important that as we take the Bill through we arm it with the instruments necessary to stop this kind of practice.

[Lord Judge (CB)]

My Lords, I will not say anything that would diminish what we just heard from the noble Lord, Lord Hain, and I do not believe in repetition. However, if I have to repeat it at the next stage of this process, I shall be as vehement as I was before. I support this amendment.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Hain Excerpts

Report: 1st sitting: House of Lords
Monday 15th January 2018 Lords Chamber

[Baroness Northover]

My Lords, I too am very glad that the Minister listened to the debates in Committee and engaged, with his team, so effectively with the noble Lord, Lord Pannick, and others. I was slightly amused that, in his letter to us, the Minister described his amendments as technical in nature. I thought that was a phrase he might have avoided, given the trouble he ran into on it before. That aside, I welcome the amendments.

[Lord Hain (Lab)]

My Lords, I shall speak to these amendments, on which the noble and learned Lord, Lord Judge, and the noble Baroness, Lady Northover, made some persuasive and consensual points about how we uphold our international obligations. I will focus on sanctions in the related context affecting UK-based companies. I would be very grateful for some leeway from your Lordships in this so that we can make progress on the whole Bill, especially on Wednesday, when time will be short.

It should be a matter of shame that companies headquartered here in the UK have so far evaded sanctions for aiding and abetting money laundering, corruption and state capture in South Africa, including Bell Pottinger, KPMG, McKinsey, SAP and banks such as HSBC, Standard Chartered and Baroda, in total betrayal of Nelson Mandela’s legacy. I have just referred Hogan Lovells, the international law firm headquartered here in London, to the Solicitors Regulation Authority—the SRA—for enabling a corrupt money launderer to be returned to his post as second-in-command of the critically important South African Revenue Service, SARS. I have asked the SRA to withdraw Hogan Lovells’ authorisation as a recognised body and to examine what other disciplinary action can be taken against its leading partners, including withdrawing their permission to practise as solicitors.

Hogan Lovells spared two of the most notorious perpetrators of state capture in South Africa, Tom Moyane, head of SARS, and his deputy, Jonas Makwakwa, from accountability for their complicity in and cover up of serious financial crimes. In so doing, Hogan Lovells are complicit in undermining South Africa’s once revered tax-collection agency and thereby effectively underpinning President Jacob Zuma and his business associates, the Gupta brothers and others, in perverting South Africa’s democracy, damaging its economy and robbing its taxpayers. When Hogan Lovells was engaged by the corrupt Moyane in September 2016, it was well known that he and Makwakwa were synonymous with President Jacob Zuma’s capture of the state. Hogan Lovells could therefore not plead ignorance as they walked right into that web of corruption and cronyism for a fat fee.

To help protect himself from 783 counts of corruption, fraud, racketeering and money-laundering levelled against him when he came to power in 2009, President Zuma systematically dismembered and manipulated the once highly functional South African Revenue Service and the National Prosecuting Authority. Zuma’s key man in this process was his long-time comrade, Tom Moyane, whom he appointed as head of SARS, as commissioner, in 2014 and who, from day one, loyally set about obliterating all its investigative capacity, with the assistance of his deputy, Jonas Makwakwa. These two turned the institution, which under the leadership of the highly respected Pravin Gordhan had consistently overdelivered on revenue collection, into one now facing a 51 billion rand, or £3 billion, revenue shortfall.

Makwakwa’s unethical behaviour was quickly exposed in May 2016 when South Africa’s financial crime regulator, the Financial Intelligence Centre, ordered SARS to establish whether several “suspicious and unusual cash deposits and payments” into the accounts of Makwakwa and his lover, a low-level SARS employee, Kelly-Ann Elskie, were “the proceeds of crime and/or money laundering”. About 1.7 million rand—about £100,000, a lot in South African purchasing power—had been paid into their bank accounts over a six-year period. The FIC noted that the amounts flowing out of Makwakwa’s account,

“are of concern as they originate from unknown sources and undetermined legal purpose”.

However, when the FIC reported these suspicious transactions to Moyane, he tried to ignore the request by keeping it a secret. At the same time, the FIC reported the suspicious transactions to the police, known as the Hawks, to investigate the alleged criminality associated with the transactional flows and they opened a case.

Four months later, in September 2016, news of the FIC’s report to Moyane was exposed by investigative journalists and he begrudgingly suspended Makwakwa and later Elskie. This is when Hogan Lovells entered the picture. Moyane appointed the law firm to conduct “an independent investigation” into the Financial Intelligence Centre’s allegations to ensure “transparency, independence and integrity”, and then to recommend and independently facilitate necessary action, including disciplinary action. Hogan Lovells was therefore appointed to investigate the allegations contained in the FIC report and to conduct disciplinary proceedings against Makwakwa on behalf of SARS. To that effect, Hogan Lovells drafted the terms of reference for the engagement, a seven-page roadmap signed and adopted by SARS. However, Hogan Lovells failed to investigate the very reason the firm was appointed; the allegations contained in the FIC report. Hogan Lovells deviated so materially from its own terms of reference, allowing itself to be blindly led by Moyane, who redefined the terms of reference as and when it suited him, that a respected investigative journalist described the outcome as being,

“so tailored that it borders on the realm of being cooked”.

What an indictment of a leading international firm, Hogan Lovells, and its role.

The allegations against Makwakwa involved layers of possible transgressions; these being, first, tax law breaches, linked to whether he declared the transactions; secondly, criminal breaches, linked to whether the suspicious transactions were predicated on corruption or money laundering; and thirdly, whether internal SARS policy breaches had occurred. Moyane also mandated PricewaterhouseCoopers to analyse Makwakwa’s tax compliance, with regards to the “suspicious and unusual” money flows through his accounts. The Hawks were simultaneously investigating the criminality. Hogan Lovells’s mandate was, according to its terms of reference, to institute an independent investigation, partly using the findings of these other processes, to assess the veracity of the FIC allegations against labour and administrative law, and institute a disciplinary process.

But then two things happened. First, SARS declined to provide Hogan Lovells with the PricewaterhouseCoopers investigative report into Makwakwa, citing taxpayer confidentiality—an inaccurate interpretation of the law, which Hogan Lovells accepted without question. Secondly, Hogan Lovells never made contact with the Hawks to assess the status of their investigation—information which would logically be crucial to its assessment of Makwakwa’s fitness as a senior SARS employee. Equally puzzling is that around that time, South Africa’s Parliament got interested in Moyane’s puppet mastery of Hogan Lovells, prompting a parliamentary question about the nature of the engagement between the two organisations.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Hain Excerpts

3rd reading (Hansard): House of Lords
Wednesday 24th January 2018 Lords Chamber

[Baroness Northover (LD)]

My Lords, I thank the Minister for the amendments he has tabled. I support the noble and learned Lord, Lord Judge. One has to think that the continued inclusion we have just heard described was inadvertent and that the Minister will make sure that it is cleaned up immediately in the Commons—otherwise we will have to address the issue when the Bill returns to this House so that it is consistent throughout.

[Lord Hain (Lab)]

My Lords, I rise briefly to thank your Lordships’ House for allowing me to speak at length on three occasions to spell out the corruption and money laundering involving some British companies. I am told by those involved that, when the leadership change took place in South Africa just before Christmas, these interventions had some effect on the margin, and I am grateful for that. I thank in particular the Minister. When last Monday I spoke on Report, I think that I may have strayed outside order, narrowly—or not, as the case may be. I am grateful to him and to those involved for their tolerance. I have thanked him personally but I wanted to put it on the record.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Hain Excerpts

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

[Baroness Northover (LD)]

My Lords, we, too, welcome Amendment 1 and the consequential amendments, which are the concession made by the Government in the Commons explicitly to include gross human rights abuses in the Bill, recognising the vote in the House of Lords led by the noble Lord, Lord Pannick, and others. We also welcome Amendment 16, which deals with the concern raised by the Independent Reviewer of Terrorism Legislation and the Joint Committee on Human Rights. We also welcome Amendment 17, requiring the Government to make periodic reports on the use of powers to make sanctions. How frequently may those occur and what form may they take? Most of all, I thank the Government for listening to the views expressed here and hope that we can take heart in relation to other legislation and votes we have seen in recent times.

[Lord Hain (Lab)]

My Lords, I, too, welcome government Amendment 1 and its associated amendments and applaud the Minister for the way he has spoken forthrightly on the human rights agenda and stewarded the Bill, which is a case study in how a Government and a Minister should and can respond to amendments from the Opposition, the Liberal Democrats and Cross-Benchers.

At the same time, I crave the indulgence of the Minister, the Whip sitting next to him and your Lordships’ House in returning to a subject which I have raised before—which, I am authoritatively told, has had some impact on the welcome change in the leadership of South Africa. This week marks South African President Cyril Ramaphosa’s first 100 days in office. I will be brief, but the official state money laundering and corruption virus he inherited from President Zuma is significantly more virulent and pervasive than even Ramaphosa could have anticipated, made immeasurably worse by the complicity of UK-based global corporates.

Take Hogan Lovells, the international law firm headquartered here in London and in Washington, its role starkly exposed in documents recently released to the parliamentary finance committee in South Africa. In your Lordships’ House, Report on the Bill on 15 January, I first criticised its role for whitewashing corruption by Tom Moyane, chief of the South African Revenue Service, now suspended by the new President. According to these documents, Hogan Lovells kept silent even when its findings related to money laundering and corruption by Moyane’s former deputy, Jonas Makwakwa, and even after Moyane misled the South African Parliament. Through its despicable, fee-grabbing complicity, Hogan Lovells spared these two notorious perpetrators of state capture in South Africa from accountability for their complicity in, and cover up of, serious criminal behaviour, including money laundering and corruption.

At the same time, Hogan Lovells has been undermining the criminal justice system in a series of other cases, as proven by the fearless Forensics for Justice NGO investigator, Paul O’Sullivan. Effectively, Hogan Lovells was acting as former President Zuma’s legal fudger-in-chief.

Brave investigative journalist Pauli van Wyk has exposed lies by the senior partner of Hogan Lovells in South Africa, Mr Lavery Modise. In the Daily Maverick, she pointed out:

“Despite having the benefit of the report by Price Waterhouse Coopers (who actually conducted the investigation), Modise and his team ultimately charged Makwakwa with everything he could explain, and with exactly nothing that he previously struggled to explain, or simply refuse to account for”.


Indeed, the more serious allegations in the PwC report were carefully filtered out of Hogan Lovells’s report, and the firm did not point out that Moyane was preventing critical evidence from being given to PwC.

Hogan Lovells’s most specious piece of lawyer sophistry was to claim that it could look only at the employer-employee issue involved and not at any criminal issue, giving the excuse that the employee, Makwakwa, could otherwise implicate himself. Surely all good employers, and indeed employees, should report on any criminality at their workplace, and surely even more so in the vital state revenue agency when the crime relates to money laundering and tax evasion. Effectively, Hogan Lovells turned a blind eye to the looting of the tax agency. It took a fat fee and ignored the truth. Most astonishing to me is that Hogan Lovells still refuses to acknowledge, let alone apologise for, its complicity, thereby actively supporting those still trying to undermine President Ramaphosa’s reform programme.

The behaviour of Hogan Lovells in South Africa is a classic example of a British-based company obfuscating its behaviour, using the complexities afforded by the law, including client confidentiality, to conceal the crimes of money laundering and corruption. Hogan Lovells fits exactly the behaviour exposed by investigator Pauli van Wyk when she concluded:

“The tale of State Capture ... co-exists in a mutually parasitic relationship where the public purse is the feeding ground and corporates are the enablers and agents of whitewash”.


British based corporates such as Hogan Lovells should be supporting, not thwarting, President Ramaphosa’s anti-money laundering agenda.

The Solicitors Regulatory Authority has now declared that Hogan Lovells South Africa is a “connected party” to its UK firm and I therefore request—I hope that I will have the Minister’s support—that the SRA withdraws recognition from Hogan Lovells UK and suspends its UK senior partners from practising here for its scandalous activities in South Africa. I also ask British Ministers to ensure that Hogan Lovells UK receives no more UK public sector contracts until it at least apologises for its shameful and shameless South African role. Additionally I can report that, after I raised this matter at Second Reading in November, the Financial Conduct Authority has recently informed me that it is engaging with the whistleblower who has supplied evidence that I believe should see HSBC prosecuted for conspiracy for facilitating money laundering.

I conclude: unless Ministers ensure that there are penalties for UK-based corporates like Hogan Lovells, HSBC, the Bank of Baroda, Standard Chartered, Bell Pottinger, KPMG, McKinsey—and who knows how many others?—for their complicity in protecting criminals engaged in money laundering in the South African case, I am afraid this legislation will not be worth a candle.

[Lord Pannick (CB)]

The Minister was asked about safeguards. Can he confirm that the safeguards in the Bill, which we debated at great length in its various stages to ensure fairness to those listed, will apply in exactly the same way to those persons accused of human rights violations as they apply to all those listed for other reasons under the Bill?