Sanctions and Anti-Money Laundering Bill [Lords] (Sixth sitting)

Alan Duncan Excerpts

Tuesday 6th March 2018 Public Bill Committees

My final case relates to the broad concerns that were raised about governance on the Turks and Caicos Islands. There had been rumours about those concerns for a long time, and the problems meant that the individuals living on those islands were having their due stolen from them because public resources were being dealt with corruptly. Unfortunately, it took a very long process, until eventually the Foreign Affairs Committee investigated the territories—including the TCI—and the FCO Minister at the time was forced to bring about change.

[The Minister for Europe and the Americas (Sir Alan Duncan)]

Unfortunately for the hon. Lady, she seems unaware that I was the Minister responsible for Turks and Caicos, as a Minister in the Department for International Development at the time. The reasons she cited for our intervention are completely inaccurate. There was a growing financial deficit of £30 million, forecast to be £60 million and then £90 million—it would have been half a billion pounds within a very short time. On that basis, we stepped in and parachuted in a chief financial officer to get the public finances back into shape. It was a great success and is a good example of us intervening in a perfectly proper way in co-operation with the Governor and the Government there.

[Anneliese Dodds]

I am grateful to the Minister for those comments; I might agree with the second half of them. I wonder whether his remembering of the time is the same as that of the relevant FCO Minister. I am terribly sorry; I do not know who the individuals were, but I was not in the House at the time. He or she commented:

“These are some of the worst allegations that I have ever seen about sitting politicians”

and

“when things go badly wrong…we need to act”.

I suspect that they were not talking simply about a budget deficit at that stage; they may have been talking about other matters.

[Sir Alan Duncan]

The hon. Lady is conflating two separate issues. There was a parallel legal issue over the plight and fleeing of Mr Misick, but that was not the basis on which we intervened.

[Anneliese Dodds]

Whether the intervention was due to alleged corruption in the activities of the former leader or budgetary matters, the arguments point in the same direction. When the British Government saw there was a problem, they decided it was appropriate to take action. We are lucky to have the Minister here. We are grateful to hear of his experience, and I hope he will inform us of how, in that regard, we can use that experience, in a consensual, respectful manner, to deal with our associated territories in relation to ownership registers.

[Sir Alan Duncan]

This has been a lively and interesting debate on an issue that we all agree is of importance. It boils down to how we think it appropriate for the Government to act. I am grateful to hon. Members for tabling new clauses, and I appreciate the desire for the overseas territories and Crown dependencies to adopt public registers. However, we should acknowledge the significant steps already taken by those jurisdictions in this area and continue to build on that progress.

While we continue to push for public registers to become the global standard, we should recognise that the arrangements that the territories and dependencies have concluded with the UK exceed the international standards set by the Financial Action Task Force, which do not require private registers, let alone public registers. Nevertheless, should public registers become the global standard, we would expect the overseas territories and Crown dependencies to meet that standard.

As the Committee knows, the overseas territories and Crown dependencies are separate jurisdictions with their own democratically elected Governments. We have therefore legislated for them without their consent only in exceptional circumstances—for example, to decriminalise homosexuality in certain territories, to ensure they were compliant with international human rights obligations. By contrast, financial services are an area of domestic responsibility for territory and dependency Governments.

Legislating for those jurisdictions without their consent effectively disenfranchises their elected representatives and risks harming our overall relationship with them. It also risks leading to a flight of business to other, less regulated jurisdictions, with the undesirable consequence that our law enforcement authorities would not have the same level of access to beneficial ownership information as under the existing bilateral arrangements. Imposing public registers of company beneficial ownership on the overseas territories would carry with it the risk that the territories would be less willing to work with us on this important issue.

[Dame Cheryl Gillan in the Chair]

I would like to draw parallels with the devolved Administrations and the Sewel convention. The hon. Member for Glasgow Central addressed the point on Second Reading:

“Much as I do not wish the House to legislate on Scottish matters, I do not want us to legislate for overseas territories or Crown dependencies without consent.”—[Official Report, 20 February 2018; Vol. 636, c. 92.]

I agree with her that that is the right approach.

The overseas territories and Crown dependencies have already made significant progress on beneficial ownership. Since we concluded our exchanges of notes with them in 2016, they have passed new primary legislation and delivered technological improvements to comply with the terms of the arrangements. They have committed to provide UK law enforcement authorities with automatic access to beneficial ownership information within 24 hours of a request being made, or within one hour in urgent cases. Those arrangements strengthen our law enforcement authorities’ ability to investigate serious organised crime, including money laundering and tax evasion.

The hon. Member for Oxford East asked about what are termed similarly effective systems. Some jurisdictions have opted under the bilateral arrangements concluded with the UK to establish an electronic search platform, allowing them to gain access to beneficial ownership information held by their authorities or by corporate service providers.

The exchanges of notes permit such similarly effective arrangements, provided that the following criteria are met. Law enforcement authorities can obtain beneficial ownership information without restrictions, and that information is available for use in both civil and criminal proceedings. Law enforcement authorities can also quickly identify all corporate and legal entities connected to a beneficial owner, without needing to submit multiple and repeated requests. Corporate and legal entities, or those to whom the beneficial ownership information relates, are not to be alerted to the fact that a request has been made or that an investigation is under way. We will monitor that arrangement to ensure that it does indeed provide the same results.

I hope that hon. Members agree that the overseas territories, in some cases in the most challenging circumstances, and the Crown dependencies have made significant efforts to move forward on this agenda. The effective implementation of the exchanges of notes will put them ahead of many G20 countries and many individual states of the USA, and demonstrates what can be achieved through working co-operatively.

[Alex Chalk (Cheltenham) (Con)]

Does my right hon. Friend agree that, as a result of the steps that have been taken in the Crown dependencies, there is a far greater degree of transparency in Jersey and Guernsey than in Delaware in the United States, for example?

[Sir Alan Duncan]

My hon. Friend is absolutely right. It is exactly that comparison that we need to see in the round, in order to understand that there could be unforeseen detrimental consequences of any kind of imposition proposed for the overseas territories.

[Luke Graham]

I understand the Minister’s point about overseas territories and the challenges faced by other jurisdictions such as the United States. Britain leads in a number of global reporting initiatives. Without compelling overseas territories to change their ways, we could still lead the conversation with the United States and the overseas territories in the round, to ensure that we progress this reporting and show the benefits that we have already recognised on the mainland. I urge my right hon. Friend not to draw parallels between the devolved settlement in the UK because we have Scottish MPs in this House, and they are there making laws in Scotland, whereas the overseas territories do not have MPs in this House.

[The Chair]

May I remind the hon. Gentleman that interventions should be shorter than that?

[Sir Alan Duncan]

You have been transformed, Dame Cheryl. The second point is within the constitutional settlement with the devolved Assemblies that has been reached in the United Kingdom. On the first point, I would have no objection to any hon. or right hon. Member urging the Government to take a lead in such areas. I hope that, at least by example and in international forums such as the UN, we do just that. I hope the UK’s leadership role will continue.

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[Sir Alan Duncan]

The hon. Lady is not being unreasonable; there are some arguments where some people say compel, and others say urge and consult. My argument would be that we are consulting—we do it all the time. We have a regular dialogue, and in that, we are urging them in the right direction. Anything that smacks of us in any way telling them what to do is counterproductive, because rather than imposing new requirements on these jurisdictions, it is better that to continue to focus our efforts on the consolidation of the existing arrangements.

The exchange of notes provide for the operation of these arrangements to be reviewed six months after they come into force. We are working very closely with the territories and dependencies on this review, and plan to conclude it by the end of March. That is a very good example of the sort of consultation we are engaging in on a regular basis.

[Anneliese Dodds]

When the Minister those letters are exchanged, will it include the logistics of this operation? I am trying to get my head round how we can genuinely say that contacting potentially myriad trust and company service providers and getting information from them is equivalent to having access to a register. How are the Government truly going to assess that in this exchange of letters? Will it be a question of time? We could be talking about hundreds of TCSPs.

[Sir Alan Duncan]

I am not directly involved in this, but as I have said frequently, I am very happy to offer the expertise of officials to the hon. Lady so that she can fully get to grips with the intricate detail of the question she has asked.

Hon. Members will recall that the Criminal Finances Act 2017 provides for a review of the effectiveness of the bilateral arrangements. That report must be prepared before 1 July 2019, and it will then be published and laid before Parliament. The reviews will provide a clear understanding of how the jurisdictions are meeting their commitments. At that point, we will be in a better position to consider what more might need to be done. I stress once again that we will engage with the overseas territories and dependencies; we do so already and we will continue to do so on a regular basis, with the clear objectives in mind of wanting consistent and constant improvements in the way in which their finances are organised.

A key feature of the Government’s approach has been to maintain a level playing field between all the overseas territories with financial centres and the Crown dependencies. As I have described, we have robust review processes regarding the implementation of these arrangements. If these reviews demonstrate that the full implementation of the exchanges of notes is not taking place in any individual jurisdiction, it would be right for hon. Members to consider this issue further. For the time being, however, we should continue to focus on the full implementation of the existing bilateral arrangements. We are on a good and solid track; therefore, I urge hon. Members to withdraw the new clause.

[Helen Goodman]

It is nice to see you in the Chair, Dame Cheryl. I wish to remind members of the Committee of two things: first, the Government’s own statement in 2012 that, as a matter of constitutional law, the British Parliament can legislate for Crown dependencies and overseas territories. Secondly, the current approach, where the authorities in London have to ask individual questions, is not as effective in tracking down and deterring illegality as having a transparent approach. That was demonstrated by the fact that, when the Panama and Paradise papers were leaked, they were able to initiate more inquiries and take more action against people because, as I was trying to explain this morning, they were able to see the overall pattern.

I am disappointed in the Minister’s response—not surprised, but disappointed—because he has not shown any flexibility at all. However, I do not wish to put the hon. Member for Ochil and South Perthshire on the spot. I think we will come back to this on Report, so I do not wish to put the motion to a vote. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 2

Public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK

“(1) In addition to the provisions made under paragraph 6 of Schedule 2, for the purpose of preventing money laundering in the UK property market and public procurement, the Secretary of State must create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts.

(2) The register must be implemented within 12 months of the day on which this Act is passed.”.—(Helen Goodman.)

This new clause would require the Secretary of State to create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts, within 12 months.

Brought up, and read the First time.

[Helen Goodman]

I beg to move, That the clause be read a Second time.

In 2015, David Cameron said:

“London is not a place to stash your dodgy cash.”

That is why he wanted to set up a register of the real owners of UK property owned by companies registered overseas. Unfortunately, the timetable for that has slipped. Following his announcement in 2015, the Government made an announcement shortly before Christmas saying that they now expected to set up the register in 2021. That is six years. In the other place, it was Tory peers who pressed for this to be speeded up. Our new clause does precisely the same thing.

Last week, the right hon. Member for Newbury mentioned unexplained wealth orders. Indeed, the Security Minister got an excellent splash on the implantation of this part of David Cameron’s package on 3 February. It was headed:

“Russians in Britain told to reveal their riches. McMafia-style crackdown on ‘corrupt’ oligarchs.”

It said:

“The government estimates that about £90 billion of illegal cash is laundered in Britain every year.”

The Minister said:

“McMafia is one of those things where you realise that fact is ahead of fiction…It’s a really good portrayal of sharp-suited wealthy individuals, but follow the money and it ends up with a young girl getting trafficked for sex.

What we know from the Laundromat exposé is that certainly there have been links to the [Russian] state. The government’s view is that we know what they are up to and we are not going to let it happen any more.”

He then explained that unexplained wealth orders were coming into effect.

I cannot understand why, given that those orders are coming into effect, a start has not been made on one with the purchase from the Ministry of Defence of Brompton Road tube station by a Ukrainian gas magnate. For colleagues who have not been following this long-running issue, Dmytro Firtash is a friend of ex-President Yanukovych and an associate of both President Putin and Paul Manafort. He was arrested in Vienna on corruption charges at the request of the FBI. Latterly, attempts have been made to extradite him to the United States, first on Magnitsky charges and later in relation to his alleged role in masterminding an international racket that aimed to sell titanium to Boeing.

Like all rich people, he operates indirectly. For example, his foundation, New Century Media, paid for the £800 ticket to a summer ball for the Minister here today—the right hon. Member for Rutland and Melton—according to the Minister’s entry in the Register of Members’ Financial Interests from 2010. He also gave £85,000 to the Conservative party centrally. I would have thought that he was a prime candidate to receive an unexplained wealth order, and I hope that Ministers will see if that can be pursued.

[Sir Alan Duncan]

Is the hon. Lady saying that New Century Media is owned by Mr Firtash?

[Helen Goodman]

Yes.

[Sir Alan Duncan]

It is owned by David Burnside—a former Member.

[Helen Goodman]

I think Mr Burnside is employed by Mr Firtash. That is the issue. These things are not exactly transparent.

Let us return to the question of whether the current state of the law is adequate. The Times also had a leading article which said:

“Three difficulties may blunt the effectiveness of the wealth orders. First, all the agencies involved in investigating and prosecuting those suspected of laundering dirty money in Britain are already over-stretched. They need experienced staff used to digging through multiple layers of shell companies and intricate business transactions, and they do not have enough of them.

Second, the orders frieze assets for an interim period and are only one early step in the process of bringing oligarchs to heel. The government has to be braced for legal marathons contested by the rich and corrupt. That requires political will.

Above all, the red carpet for crooks has to be rolled up. Too many people in the City of London, in the divorce and libel courts, in the art world and in high-end estate agencies have failed to look closely at the cash coming their way. An overdue step would be a public register revealing the true owners of overseas companies that own property in Britain.”

Until we have the public register, it is not going to be possible to identify who owns the properties and whether or not the wealth invested in them has been gained legitimately or illegitimately. In other words, are the wealth orders explained or unexplained? I am not quoting the Morning Star or the Daily Mirror—I am quoting The Times.

We think that this is all taking too long; it is a problem that it is taking too long. It is a problem because of its size, which I will describe. It is also a problem because Ministers are giving time to people to rearrange their affairs and to reorganise them in order to avoid the measures which are in train. A concrete example of that would be the use of trusts. That is why further we have tabled a new clause on trusts.

Global Witness and Transparency International believe that 86,397 properties in England and Wales are owned by companies registered in offshore secrecy jurisdictions; 87% of companies owned by foreign company owners in secret jurisdictions. Half of them are in London and half are in other parts of the country. The 10 most expensive properties owned by companies in tax havens are worth £1.5 billion. Furthermore, Transparency International believes that there are suspicions about £4.4 billion-worth of UK properties, over half of which—£2.36 billion—belongs to companies registered in the British Virgin Islands. They also say that these properties in secret jurisdictions account for 75% of all UK properties under investigation for corruption. If hon. Members or members of the public are interested in seeing what is going on, I recommend going to the Global Witness website where they can type in their postcode and see how many of those secretly owned properties with overseas owners are located on a map.

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[Alex Norris]

rose—

[Sir Alan Duncan]

On a point of order, the hon. Member for Bishop Auckland earlier asserted that New Century Media is owned by a disreputable Ukrainian oligarch called Dmytro Firtash. That is completely untrue. New Century Media is owned by a former Member of this House, Mr David Burnside, whose reputation she has inadvertently maligned. I ask her to withdraw her comment immediately, or to say the same thing outside the House and take the full legal consequences of doing so.

[The Chair]

That is not really a point of order for the Chair, but the Minister has made his point of order and put it on record.

[Sir Alan Duncan]

I am offering her the opportunity.

[The Chair]

Unless any other Member wants to rise on a point of order, we will move on. If the hon. Lady wishes to respond, she may.

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[Helen Goodman]

I beg to move, That the clause be read a Second time.

We now move to a slightly different aspect of the Bill—how decisions will be taken once we leave the European Union. The new clause would require that in negotiations with our European partners, we seek to maintain participation in the Political and Security Committee of the European Union, to align sanctions policy with the European Union, and would require the Government to report on those negotiations and on how they are going. As with the commencement plan, which I felt the Minister was vague and unclear about, so with this. How are we going to co-ordinate in the new world? How is this going to operate?

Sanctions will work if we co-operate and collaborate with other countries. We are all agreed that that is when they are most effective. They are effective in terms of putting pressure on those that are sanctioned, upholding the rule of international law and protecting national security. It is necessary for us to work with our European partners to make our international sanctions regime as effective as possible. One of the issues previously discussed —which Ministers bump up against all the time—is the difficulty of getting agreements in the UN Security Council. Obviously the sanctions that we had on Russia over the annexation of Crimea could not be agreed in the UN Security Council, and that stands to reason. We have been able to get effective sanctions at European level, however, and our security interests are obviously aligned with those of the European Union, objectively speaking, and therefore we are going to take a similar view. We propose that we need to carry on working through the Political and Security Committee. The withdrawal agreement produced by the Commission said some interesting things about decision making. On the subject of administrative co-operation in article 30, it says that,

“as of the date of entry into force of this Agreement, the United Kingdom shall have the status of observer in the Administrative Commission. It may, where the items on the agenda concern the United Kingdom, send a representative, to be present in an advisory capacity, to the meetings of the Administrative Commission and to the meetings of the Technical Commission”.

The section on institutions includes proposals on representatives of member states and the United Kingdom taking part in the work of the Union’s institutions. Chapter 4, article 104 states:

“Article 10…shall apply in the United Kingdom in respect of representatives of Member States and of the United Kingdom taking part in the work of the institutions, agencies, offices and bodies of the Union”

in so far as their participation in that work took place before the end of the transition period.

There is then a section on how the transition period should work, and that is in part 4 of the document produced by the European Commission.

Paragraph 2 of article 122 states:

“Should an agreement between the Union and the United Kingdom governing their future relationship in the area of the Common Foreign and Security Policy and the Common Security and Defence Policy become applicable during the transition period, Chapter 2 of Title V of the”

treaty on European Union

“and the acts adopted on the basis of those provisions shall cease to apply”.

We then have the UK’s obligations with respect to financing defence and security operations, and finally, in article 157 under “Institutional provisions,” it is proposed that, on the date that the withdrawal agreement comes into force:

“A joint committee is hereby established”.

I am not saying that what the Commission proposes is the right way to go, but we are concerned that we have no sense of what the Government think we should do. That is why we tabled the new clause, which suggests that, with respect to sanctions policy, we should retain our membership of the Political and Security Committee of the European Union.

[Sir Alan Duncan]

The new clause would require the Government to commit to negotiating the UK’s continued participation in the EU’s Political and Security Committee after Brexit and delay the commencement of the Bill until a report had been laid before Parliament setting out whether that had been achieved.

The first point I make is that the Bill is about powers, not policy. The UK’s legal powers to implement sanctions flow largely from the European Communities Act 1972. The Bill will replace those powers and, as is recognised on both sides of the House, is necessary to enable the UK to impose sanctions. We are, of course, looking at our sanctions policy and have described our desired future relationship with the EU in a range of places, but it is not appropriate to place that in the Bill.

Secondly, as we have set out, the Government have an unconditional commitment to European security, and we continue to share common threats, interests and values with our European partners. That makes close co-operation, including on sanctions, in both our interests. The exact nature of the UK’s future relationship with the EU on sanctions still needs to be determined, but the UK will remain a critical player in both the European context and the global context.

The UK’s influence on sanctions derives in part from our membership of the EU, but it is not dependent on continued participation in EU bodies. A lot of it derives from the pre-eminence of the City of London in controlling so many flows of money. Our influence also comes from our status as a permanent member of the UN Security Council and our membership of bodies such as the G7. That influence is underpinned by our strong economy and financial sector, and both public and private sanctions expertise. That makes the UK a key sanctions partner.

As the Prime Minister made clear at the Munich security conference a couple of weeks ago, our partnership with the EU should offer us the means and the choice to combine our efforts to the greatest effect where that is in our shared interest. That includes working closely with the EU on sanctions. My right hon. Friend the Foreign Secretary was clear on Second Reading that he hopes

“we can act in tandem”

with the EU on sanctions because we

“will always confront the same threats and defend the same values.”—[Official Report, 20 February 2018; Vol. 636, c. 78.]

That demonstrates our commitment to close co-operation with the EU and other international partners regardless of the institutional framework.

Finally, we do not seek to attend EU meetings on the same basis as EU members. It is worth noting that the PSC is not the primary body that deals with sanctions. Sanctions pass through a range of EU institutions before adoption, from working groups to Council meetings. Committing the Government to seek to join the PSC for sanctions would not make sense from a sanctions policy perspective, and does not make sense in relation to our broader approach to negotiations with the EU. Although the details are a matter for negotiation, in the area of foreign policy as a whole we envisage both formal and informal mechanisms to allow regular dialogue, co-operation and close co-ordination.

To tie our objectives to one model would be counterproductive and would remove the freedom to explore new and better ways of working together with the EU on sanctions once we have left the European Union. However, we do not need text in the Bill to underline our commitment to working closely with international partners on sanctions, because that is what we will do. Given that, I respectfully ask the hon. Lady to withdraw the motion.

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[Anneliese Dodds]

I beg your pardon. I am getting over-excited and trying to hurtle towards the end of the programme. I am sorry, Dame Cheryl.

[Sir Alan Duncan]

Go ahead.

[Anneliese Dodds]

No; we are very keen to have a thorough discussion on every one of our new clauses.

New clause 15 focuses on disqualification. The purpose is to ensure that directors specifically take responsibility for their organisation’s mistakes, and to ensure that the Secretary of State may hold them to account for a failure to prevent money laundering, in the instance where procedures have not been put correctly in place.

Many colleagues might have served as directors and will know the rules on being a director—that directors can already be disqualified if they display unfit conduct. Unfit conduct is defined as including allowing a company to continue trading when it cannot pay its debts, not keeping proper company accounts and so on.

With the new clause, we wish to extend that to include a commitment for every director to ensure that they are not ignoring money laundering concerns. We want to mirror what happens under competition law in Britain, where a director’s role is looked at in the event of a breach of the law. That is necessary because of the situation we find ourselves in today.

I am sure many colleagues will have talked to professionals on the frontline of anti-money laundering. I have talked to quite a lot of people who work in banks and other organisations who have anti-money laundering responsibilities. I am sure there are people who work in accounting and other walks of life for whom this is a concern. Very often the clear message I get, as I am sure colleagues do, is that those individuals are working very hard to prevent money laundering but they are not supported by the leadership team within their firm. Global Witness has stated that,

“responsibility for compliance with anti-money laundering and other regulations is usually allocated to compliance teams, rather than to senior executives, who actually wield power within banks over what customers they take. This is a serious problem because it gives compliance staff none of the authority but all of the responsibility, breaking the important link between decision making and accountability.”

That is certainly what I find when I talk to individuals who are in that responsible position. They find they are often not supported by senior managements. That has also been discovered in some of the big corporate scandals—I referred to the HSBC case a moment ago. In his written evidence to the UK Parliament, David Bagley, who led on compliance at HSBC during the period of the failings we were just talking about, stated:

“as the Head of Group Compliance, my mandate was … limited to advising, recommending and reporting. My job was not—and I did not have the authority, resources, support or infrastructure—to ensure that all of these global affiliates followed the Group’s compliance standards”.

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[The Chair]

The hon. Lady has had the opportunity to put that on the record. If the Minister wants to add something, he may.

[Sir Alan Duncan]

May I thank the hon. Lady for her most gracious withdrawal, which sets the record straight? I appreciate the manner in which she did it.

Question put, That the clause be read a Second time.