Anti-corruption Summit

Baroness Hodge of Barking Excerpts

Tuesday 3rd May 2016 Westminster Hall

[Dame Margaret Hodge (Barking) (Lab)]

I congratulate the hon. Member for Amber Valley (Nigel Mills) and my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) on securing today’s debate.

I welcome the Government’s commitment to tackling corruption and the leadership shown by the Prime Minister, but for this to end up as more than a public relations stunt, the Government need to take serious action. I want to focus on three issues: tax havens and the proposals on beneficial ownership registers; properties that are owned in the UK through shell companies that have been established in tax havens; and Britain’s own record in stamping out corruption at home.

First, on tax havens, transparency about who owns assets—whether in companies, trusts or other entities—is absolutely vital if we are serious about stamping out corruption. Most tax havens are UK Crown dependencies and overseas territories, which are countries that carry the Union Jack on their flags and whose citizens are given British passports. Yet the secrecy that surrounds tax havens, which is at the heart of how they operate, results in massive corruption and money laundering throughout the world. I agree with what the Prime Minister said during his recent trip to the Caribbean in the autumn of 2015 that

“if we want to break the business model of…stealing money and hiding it in places where it can’t be seen: transparency is the answer.”

I have looked at a whole range of data, research and evidence. The World Bank review, to which the hon. Member for Amber Valley referred, looked at 213 cases of corruption over a 30-year period, from 1980 to 2010: 70% of the cases relied on anonymous shell entities, and the UK, the Crown dependencies and the overseas territories were second on that list. In the Mossack Fonseca papers, we find that of the 214,000 corporate identities exposed, half were registered in the British Virgin Islands. Of the world’s top 200 global companies, 90% have a presence in the tax havens. Tax havens are being used to hide money and to enable money laundering and corruption, yet the Prime Minister has failed to secure what I thought he was setting out to do: to ensure that the Crown dependencies and the overseas territories have registers of beneficial ownership that are open to the public. The commitment that he gave when he came to the House to give a statement arising out of his own position on the Mossack Fonseca papers failed to give us that assurance.

We only have to look at the words of one of the leaders of the overseas territories, the Premier of the Cayman Islands, to see that they saw the Prime Minister’s statement as a victory. Premier McLaughlin said that the UK had caved in:

“As previously indicated this is not a central registry as beneficial ownership details will remain with the service providers managing them, but rather information will be accessed via a central technical platform. And it certainly will not be available publically or available directly by any UK or non-Cayman Islands agency.”

I am sure that the Minister is familiar with these words. The Premier went on to say:

“This is what we wanted, this is what we have been pushing for three years for, a disaggregated system which leaves the beneficial ownership information intact with the service providers but accessible by the general registry and accessible by the law enforcement agents in Cayman.”

This is what they wanted. Indeed, what is almost worse is that in that interview, which was published in the Cayman press on the day following the Prime Minister’s announcement here in the House of Commons, the Premier said that having reached the agreement gave the Cayman Islands a greater sense of confidence about the UK’s endorsement of the business that is transacted there.

By agreeing to what is not really a register but a secret gathering of information, we have ended up giving a veil of legitimacy to the bad practices in overseas territories that allow money laundering and corruption. I say to the Minister that that is simply unacceptable. It is vital that such registers are properly compiled and public. Only then will we know who owns the assets that are at present in companies in the tax havens. Practically, until we know that, any idea that the odd collection of information in the tax havens will benefit us is false. Our own enforcement agencies are far too poorly resourced to be able to come up with evidence to justify why a tax haven should tell them who owns a company, and there will be unequal access to the data required to tackle corruption, because developing countries have even fewer resources and are less capable of seeing whether they can access such information.

I say to the Minister that it is perfectly possible for us to insist that the overseas territories and Crown dependencies compile public registers of beneficial ownership. We have intervened on other issues, and if we are serious about tackling corruption, we should intervene on this issue. In a previous time, the Conservatives intervened through an Order in Council to ban capital punishment, and Labour, when it was in office, intervened through an Order in Council to outlaw discrimination on the grounds of sexuality. The UK public will believe that the Government mean what they say about tackling corruption only if they choose to use the powers available to them through the Privy Council to enforce transparency. The first issue I ask the Minister to comment on is whether he will do that—and if not, why not?

The second issue is the scandal at our own doorstep of the way money is laundered into the UK property market. Again, the data and research here are substantial. In a 2015 paper, Transparency International found that £180 million of property that is thought to have been bought with laundered money since 2004 is currently being investigated. It claims that that is the tip of the iceberg and, to go back to the first point, says that in three out of four of those cases, an offshore structure was used to hide the owner’s identity.

Transparency International also found in March 2015 that more than 40,000 properties in London alone were held by foreign companies and that 89% of them were held in secret tax havens such as the British Virgin Islands, Jersey, the Isle of Man and Guernsey. In 2014 the Evening Standard found 700 “ghost mansions” as it called them, worth about £3 billion, uninhabited in London. The Guardian looked at one street in Hampstead and found £350 million of vacant properties all owned by shell companies in tax havens and the brilliant investigations carried out by both Private Eye and Tax Justice Network found not only massive properties held in tax havens but that 120 former Crown Estate properties had ended up being owned in 14 tax havens. They established that one in six homes sold in Westminster and in Kensington and Chelsea in the three years before their 2015 report had been bought by offshore companies.

That is a scandal, which hikes up property prices here in London and distorts the housing market. Because that is at the top of the market, I am not sure whether that is taking away from many people in real housing need, but we therefore become the centre and focus of money laundering and bringing money into the London property market through shell companies in tax havens. The Minister and the Government are consulting on this issue, but we should insist on a publicly open register of ownership of all properties in London.

In the Minister’s proposals, he talks about potential fines and imprisonment provisions for those who do not provide information, but of course that is no good if the owner is sitting in the Cayman Islands or the British Virgin Islands. He therefore needs powers to confiscate property and bring it back on to the British housing market. That would be a much stronger power. In those proposals, is the Minister talking about properties acquired in the future? If so, what does he intend to do about the many current properties?

My third and final point is about our seriousness in fighting corruption, which must start with fighting corruption at home. It is interesting—I am sure the Minister noticed this—that the first three prosecutions brought under the Bribery Act 2010 were all against UK officials: one in the courts; one a taxi driver bribing a local government official to get a licence; and one an overseas student bribing a lecturer. Whenever I talk to people in other countries, I always feel nervous about the patronising, complacent attitude we show that we have got it all right at home. We have not. If we are to be serious about fighting corruption, we should start by establishing our own anti-corruption strategy in Britain.

I am particularly concerned about the role of the financial institutions in the UK. Banks, advisers and all those people are focused here because of the strength of our financial sector, and they are the very institutions that are facilitating money laundering and helping the corruption that takes place internationally. We saw in the Panama papers that the UK was the second most popular place with which Mossack Fonseca did business. We saw that nearly 2,000 of the so-called enablers—the lawyers or advisers—were located here. We also saw that HSBC was one of the biggest banks involved in the transactions revealed in those papers and that Coutts was second to it. HSBC was used 2,000 times and Coutts was used 500 times. I have argued before, and will argue again, that if the Government are serious about fighting corruption and limiting the role of all those advisers and banks in facilitating it, they ought to introduce a new offence on the advisers and banks and not just look at the culprits. It is the advisers who devise the schemes, and if we could cut that off at the root, we would not have problems later.

The rumoured proposal for the Serious Fraud Office to come under political control via the National Crime Agency at the Home Office is another concern. If we are serious about setting an example in the fight against corruption, we should not allow the Home Secretary to direct SFO investigations. Of course, proper resourcing—whether of the SFO or HMRC—is vital.

I was disturbed at the recent accusation from David Normington about the politicisation of public appointments. Corruption may be too strong a word, but this example, which comes from the Minister’s Department, shows how much we need to do at home to get our own house in order. David Normington accused Ministers of seeking to dismantle the existing system for making senior appointments to public bodies. He specifically accused the Secretary of State for Culture, Media and Sport of trying to fill a prominent position in the National Portrait Gallery with a Conservative. None of the five applicants deemed suitable by Ministers for the job had been put through for interview, although four of the five had substantial connections with the Conservative party, and the Secretary of State therefore refused to accept officials’ recommendations.

It is very disturbing to see the ConservativeHome website actively encouraging Conservative supporters to apply for key public appointments. That may be a little thing, but it is symbolic. If the Government are going to lead the fight against corruption in the world, they have to start by putting their own house in order. The summit next week is an opportunity for action. I hope that it does not turn into an exercise in public relations. The decision on which way we go is in the Government’s hands.