Money Laundering and Tax Evasion (Azerbaijan)

Debate between Baroness Hodge of Barking and Nick Smith

Thursday 19th October 2017 Commons Chamber

[Dame Margaret Hodge]

I welcome that suggestion and will do that.

Ilham Aliyev remains President to this day, and in February this year he appointed his wife Mehriban as First Vice-President, in effect anointing her his successor. According to Human Rights Watch, the ruling élite

“continues to wage a vicious crackdown on critics and dissenting voices”.

But the Azerbaijani Government do want to be respected by the international community, in part because they want to sell us their oil and gas. That is why they worked to become full members of the Council of Europe, why winning the Eurovision song contest mattered and why hosting the European games in Baku was important. The so-called Azerbaijan laundromat that we are discussing today was a scheme designed to launder money out of Azerbaijan—money used to curry influence and bribe European politicians, lobbyists and apologists, and further to line the pockets of the Aliyev family and their cronies.

The scheme was revealed by the Organized Crime and Corruption Reporting Project, working internationally with newspapers, including The Guardian. The leaked documents covered payments over a two-year period from June 2012 until the end of 2014. The payments amounted to €2.9 billion.

[Nick Smith (Blaenau Gwent) (Lab)]

I congratulate my right hon. Friend, who has shown her usual great resilience in identifying financial skulduggery whenever she can; we worked together on looking at financial chicanery as fellow members of the Public Accounts Committee. Does she agree that much more detailed research is needed on this topic so that every angle and element of this huge finagle is properly understood?

[Dame Margaret Hodge]

I completely agree with that important point.

Money came out of Azerbaijan—nearly half from an account held at the International Bank of Azerbaijan through a shell company linked to the Aliyev family. That bank recently filed for bankruptcy. The other main contributors were two offshore companies with direct connections to a regime insider. It is hard to believe that the money was held legitimately in Azerbaijan.

The money was transferred to a small Estonian branch of Denmark’s largest bank, which is where Britain comes in. The money went into the bank accounts in Estonia of four shell companies, all of which were incorporated here in the UK. Our laws that allow such companies to be established were at the heart of this nefarious scheme. Much of the money then went into the pockets of European politicians, journalists, prominent individuals in international organisations and powerful political Azerbaijani families.

The leaked data show, for instance, that Luca Volontè, an Italian politician who led the European People’s Party group in the Council of Europe, received over €2 million. We know that he was instrumental in lobbying to ensure that a report criticising Azerbaijan’s human rights record was rejected by the Council of Europe in 2013. Several months after the country achieved that veneer of respectability from the Council of Europe, the European Commission announced the construction of the controversial gas pipeline from Azerbaijan to Europe. Volontè is now facing charges of corruption and money laundering in Italy.

Eduard Lintner, a former German MP, founded the Society for the Promotion of German-Azerbaijani Relations. That organisation received €819,000 over the two years covered, and Lintner got a €61,000 cash payment two weeks after returning from observing the elections in Azerbaijan and praising them for being up to German standards. The Council of Europe said the elections marked a

“step forward taken by the Republic of Azerbaijan towards free, fair and democratic elections”.

The reality was that the opposition alliance boycotted the elections, there was voter intimidation and the press was gagged. Lintner has denied any wrongdoing.

Kalin Mitrev, a Bulgarian who lives in London, received €390,000 for so-called consultancy for Azerbaijan. He now sits on the board of the European Bank for Reconstruction and Development that only yesterday agreed a loan to the Azerbaijan Government for €500 million to build a gas pipeline. While he recused himself from the decision and has denied any wrongdoing, his presence as a board member having received money from Azerbaijan makes it very murky and uncomfortable. He is being investigated by the Bulgarian authorities. At the same time, his wife, Irina Bokova, is Director-General of UNESCO. She bestowed one of UNESCO’s highest honours, the Mozart medal, on Azerbaijan’s first lady, the wife of the President, for:

“merits in strengthening the intercultural dialogue.”

I suppose that is an innovative way of describing the use of bribes to stifle criticism and secure international support.

Those people were paid from companies incorporated in the UK: Polux Management LP, Hilux Services LP, Metastar Invest LLP and LCM Alliance LLP. All were registered at Companies House. They are shell companies, sometimes incorporated through our tax haven overseas territories, that are deliberately used to disguise the origin of the money they receive. They are set up by shady and unregulated formation agents. They can engage in transactions while hiding the identity of the real beneficial owners of the company, yet because they have the UK stamp on them they command a respectable status. Our lax controls allow them to prosper and our corporate system allows money to be moved around and used without any questions being asked. That is simply shameful and it is taking place right here, right now in our country.

I am particularly concerned by the trend for unscrupulous people to use Scottish Limited Partnerships—SLPs—to launder money, and to evade and avoid tax. SLPs were invented to help agricultural tenancies in Scotland. Creating an SLP allows the partnership to hold property and enter into contracts, because it gives them a legal personality. But SLPs do not need to name any “natural person”—an actual person—as partners. They can just name companies. They have limited reporting requirements —for instance, they do not need to file accounts at Companies House unless one of the partners is a UK limited company, and while they are supposed to file returns with HMRC, they do not need to pay UK tax and they do not need to have a UK bank account. Of course, HMRC does not check whether accounts are filed.

Our laws allow a secret vehicle to be created to smuggle unexplained wealth into the system, money that is then used for a variety of illegitimate as well as legitimate purposes. SLPs have become a byword for corruption, tax evasion and organised crime. Just look at the facts. There was a 430% increase in the creation of SLPs between 2007 and 2016. In 2016 alone—in that one year—more SLPs were registered than had been registered throughout the 100 years after they were introduced. Bellingcat has looked in detail at the 5,214 SLPs registered in 2016. Ninety four per cent. were controlled by corporate partners, not individuals, and 71% of those corporate partners were based in tax havens. Seventy per cent. were registered to just 10 mailbox addresses in Scotland. They are anonymous and untraceable obscured structures linked to corrupt jurisdictions.

Life Expectancy (Inequalities)

Debate between Baroness Hodge of Barking and Nick Smith

Thursday 3rd March 2011 Westminster Hall

[Margaret Hodge]

I have a rather depressing example from my own area. We have had an effective smoking cessation service, but the regional health body looked at the expenditure both there and in Waltham Forest, which is spending far less, and instead of considering the impact and effectiveness of that expenditure, asked, “If Waltham Forest can do it for less, why can’t Barking and Dagenham?” That very effective intervention is now being cut because the comparison made by the regional health body was on the basis of inputs rather than outcomes, and that is a depressing trend that we will see mirrored elsewhere in the country.

Thirdly on resources, we need to ensure that there are the right GPs in the right areas. All the statistics that were provided to the Committee on that make for extremely depressing reading. The least deprived areas of the country have on average 64 GPs per 100,000 people, and the most deprived have 57. In Barking and Dagenham we have only 40 GPs per 100,000 people. I hope those statistics are right—I got them only the other day—because it is shocking if they are. The previous Government tried to tackle that issue locally, and the Committee was given evidence about what they did nationally. For example, in 2007 we had the £250 million programme to establish 112 new practices and 150 GP-led health centres in areas with the fewest primary care clinicians. I assume that that programme is coming to an end and that most of those facilities have now opened, but perhaps the Minister can confirm that.

In my borough, we have had a paucity of GPs, and a concentration of single-person practices and very poor environments and, try as we might, we still have this very challenging problem. Over the past 10 to 12 years I have been engaged in encouraging innovation, including having salaried GPs, and linking our GPs to universities as an incentive, and we were the first borough to try to encourage private providers to come in. One of them was successful, but the health authority has, I think, closed the other one’s contract. We have new health centres and practices, but the problem is that GPs are essentially independent providers and can choose to work wherever they wish. That is a hugely important point, and not just in tackling health inequalities, because if the Government cannot make the situation better, there will be much greater pressure on accident and emergency units and hospitals, and resources will be driven into the acute sector at the expense of community services.

[Nick Smith (Blaenau Gwent) (Lab)]

When we discussed the role of GPs in public health, I was disappointed to discover that they were not incentivised by GP contracts to treat public health issues seriously and put resources into them. If they had been, that would have made a difference.

[Margaret Hodge]

I agree entirely with my hon. Friend. I understand that the Government have said in their Treasury minute that they intend to try to renegotiate the GP contract, and to increase the focus of the quality and outcomes framework on prevention, with 15% of the outcomes centred on it. I am really interested in hearing what the Minister has to say about that. We have to provide incentives in the system, but we also need to ensure that GPs do not cherry-pick. There must be incentives to ensure that GPs focus on the hardest-to-reach groups—on those people who do not automatically go to their doctor when they feel ill.

Finally, what will the Government do to support the health service to do what works? One of the most depressing findings in our report was in this area. We know that most health inequalities arise because of issues that are outside the control of the NHS, but 15% to 20% of them come about because of the quality of the health service that people experience, and their access to it. We also know that two thirds of the difference in life expectancy is due to people dying from respiratory and circulatory illnesses, and from cancer. I have no doubt that the hon. Member for South Norfolk will want to draw attention to the report on cancer that we published this week, which talks a lot about the fact that if we got better at early identification of cancer, particularly in poorer areas, we would be more successful in reducing health inequalities. We also know, from the Marmot review, that if we do not get better at reducing people’s propensity to develop such illnesses, the additional associated treatment cost to the NHS, and therefore the cost of dealing with health inequalities, will be £5.5 billion. There is a fantastic financial incentive as well as an ethical incentive to spread practice that we know works in a much better, more structured and more defined way.

Our inquiry found three cost-effective interventions. They are so simple that we were all slightly gobsmacked that they are not more widely used. The first is giving anti-hypertensive drugs to lower blood pressure, the second is giving statins to lower cholesterol levels and the third is dealing properly with smoking cessation. There is probably a class bias involved. I cannot think of middle-class people who are not aware of those preventive interventions for respiratory and circulatory illnesses and who do not take them almost before they need them. However, poorer communities lack the same understanding and self-advocacy, which would support a reduction in health inequalities. Our inquiry also found that it would cost a mere £24 million—I say “mere,” but it is relatively small in NHS expenditure terms—to ensure that those three interventions were properly implemented in the spearhead areas. At present, those spearhead authorities spend £3.9 billion each year on treating people who develop the illnesses that arise through lack of preventive action.

We also found that our record on reducing health inequalities varied across the country. London, for a change, did relatively well, whereas Yorkshire and Humberside did particularly badly. However, the Department of Health had not developed any proper understanding of why such differences existed, and therefore had not decided how to use the data to lever action.

Probably the most shocking graph in our report involved smoking cessation. There is a lot of evidence that one-to-one sessions do not particularly help people to stop smoking, whereas putting them into groups where they are influenced and encouraged by their peers tends to have a better impact, yet PCTs were putting nearly all their money into one-to-one sessions and very little into group sessions. That seemed an absurd waste of investment and a failure of those empowered to take decisions to do the right thing with their money, which could have had much more impact.

What are the good and bad things that we know so far about how the country will perform on health inequality under the reforms? The Government have said that reducing health inequality remains a key priority, and I welcome that, as we all should. I welcome the fact that the NHS commissioning board will have a duty to reduce inequality, but that in itself is not enough; we must understand how the board will focus on it. I welcome the fact that central Government will make information about good practice available, but I worry that the implementation of that good practice will not be directed more from the centre, if not mandatory. What does the Minister have to say about that?

I worry that there will be no central benchmarking of cost-effectiveness in reducing health inequalities. I welcome the commitment to move towards fairer funding between areas, but I worry about the rate of change. Will the Minister comment on that? I welcome the fact that the Government are seeking to renegotiate the GP contract and are minded to give greater weight to local health needs in that regard. I welcome the fact that they wish to change the quality and outcomes framework, and that health premiums will be available to local authorities that reduce inequalities.

However, there are risks, to which my hon. Friends have alluded, in relation to the public health proposals and local authorities’ capacity properly to meet their requirements for reducing inequalities. I worry that the health premium will reward disadvantaged areas only if they make progress, and will disadvantage such areas further in the distribution of resources if they fail to do so. That would mean that people living in poor areas, who are likely not to live as long as people elsewhere, will be disadvantaged by a failure of the institutions that we have established.

How do the Government intend to ensure that local bodies work cost-effectively to reduce inequalities and provide value for money in their work? What powers, if any, will the Department, the NHS commissioning board or local health and well-being boards have to direct local GPs and providers who are not reducing health inequalities or are doing so in a way that gives bad value for money? What measures, if any, will be taken to ensure that the £20 billion in savings will not lead to short-sighted cuts to prevention budgets?

If the Minister can answer some of those questions, hopefully the good report that we as a Committee have put together can support the shared national endeavour to tackle this hugely difficult problem, which is so important in the life of our society.